<PAGE>
As filed with the Securities and Exchange Commission on December 21, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OPUS360 CORPORATION
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
Delaware 7389 13-4023714
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
733 Third Avenue,17th Floor
New York, New York 10017
(212) 301-2280
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
Ari B. Horowitz
Chairman, Chief Executive Officer and President
Opus360 Corporation
733 Third Avenue, 17th Floor
New York, New York 10017
(212) 301-2280
(Name, address, including zip code, and telephone number,
including area code, of agent for service of process)
------------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
John J. Suydam, Esq. Mark L. Mandel, Esq.
O'Sullivan Graev & Karabell, LLP Morrison & Foerster LLP
30 Rockefeller Plaza 1290 Avenue of the Americas
New York, New York 10112 New York, New York 10104
(212) 408-2400 (212) 468-8000
</TABLE>
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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
<TABLE>
<CAPTION>
Title of Each Class Proposed Maximum Aggregate Amount of
of Securities to be Registered Offering Price(1)(2) Registration Fee
<S> <C> <C>
Common stock, $0.001 par value........................ $65,000,000 $17,160
</TABLE>
(1) Includes shares that the Underwriters have the option to purchase from the
Company solely to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended, solely for the purpose of computing the amount of the registration
fee.
------------------------
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 such Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER , 1999
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 SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[LOGO]
SHARES
COMMON STOCK
Opus360 Corporation is offering shares of its common stock. Of the
shares being offered, we are offering shares to the public generally and
shares at the initial public offering price to stockholders of Safeguard
Scientifics, Inc., one of our principal stockholders, that owned at least 100
shares of common stock of Safeguard as of December 16, 1999. Safeguard or its
designees will purchase any shares of common stock that are not purchased by
Safeguard stockholders under the Safeguard Subscription Program. Safeguard is an
underwriter with respect to the shares offered to the stockholders of Safeguard.
Safeguard is not an underwriter with respect to any other shares offered and is
not included in the term underwriter as used elsewhere in this prospectus.
This is our initial public offering, and no public market currently exists
for our shares. We will apply to have our shares approved for quotation on the
Nasdaq National Market under the symbol "OPUS." We anticipate that the initial
public offering price will be between $ and $ per share.
------------------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 9.
---------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Underwritten Public Offering:
Public Offering Price................................... $ $
Underwriting Discounts and Commissions.................. $ $
Proceeds to Opus360..................................... $ $
Safeguard Subscription Program:
Public Offering Price................................... $ $
Management Fee.......................................... $ $
Proceeds to Opus360..................................... $ $
Aggregate Offering Proceeds:................................ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Opus360 has granted the underwriters a 30-day option to purchase up to an
additional shares of common stock to cover over-allotments.
------------------------
ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.
J.P. MORGAN & CO.
E*OFFERING
------------------------
The date of this prospectus is , 2000.
<PAGE>
[graphics]
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock. Unless the context otherwise
indicates, references in this prospectus to "Opus360," "we," "us," and "our"
refer to Opus360 Corporation and its wholly owned subsidiary, The Churchill
Benefit Corporation.
Until , 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This requirement is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Summary..................................................... 3
Risk Factors................................................ 9
Cautionary Note Regarding Forward Looking Statements; Market
Data...................................................... 23
Use of Proceeds............................................. 24
Dividend Policy............................................. 24
Capitalization.............................................. 25
Dilution.................................................... 27
Unaudited Pro Forma Condensed Statements of Operations...... 28
Selected Financial Data..................................... 30
Management's Discussions and Analysis of Financial Condition
and Results of Operations................................. 31
Business.................................................... 40
Management.................................................. 53
Certain Transactions........................................ 61
Principal Stockholders...................................... 63
Description of Capital Stock................................ 65
Shares Eligible for Future Sale............................. 69
Underwriting................................................ 71
Legal Matters............................................... 75
Experts..................................................... 75
Where You Can Find More Information......................... 75
Index to Financial Statements............................... F-1
</TABLE>
------------------------
FREEAGENT.COM, OPUS XCHANGE, OPUSRM, FREEAGENT E.OFFICE, E.PORTFOLIO and our
logo are our trademarks or service marks. All other trademarks, service marks
and trade names referred to in this prospectus are the property of their
respective owners.
2
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS,"
BEFORE INVESTING IN OUR COMMON STOCK.
Opus360 Corporation
Our Business
Opus360 provides a leading integrated web-based solution for putting people
and projects together across the labor supply chain. We are one of the pioneers
in the use of business-to-business electronic commerce solutions to streamline
the procurement and management of professional resources. We have developed an
efficient exchange that uses advanced technologies to enable corporations,
professional services firms, staffing vendors and other buyers of project-based
talent to identify and procure free agents, such as independent professionals,
consultants and other knowledge workers with technology, creative, strategic
consulting and other expertise. Our exchange also enables free agents to
identify and bid for projects, either alone or as part of a team. As of
December 16, 1999, over 34,000 free agents were registered with our
FREEAGENT.COM service and over 680 organizations had listed project-based
assignments. Through co-branding relationships with our strategic partners, we
expect that over 1,000,000 additional knowledge workers will be part of our
database and eligible to be matched to projects through FREEAGENT.COM by
June 30, 2000.
Market Opportunity
The rapid growth of the Internet economy has fueled demand for knowledge
workers with technology, creative, strategic consulting and other expertise
which are typically insufficient in organizations. In response, organizations
are increasingly relying on external knowledge workers on a project-by-project
basis to rapidly implement their e-commerce strategies. International Data
Corporation estimates that U.S. corporate spending on outsourcing services will
grow from $51 billion in 1998 to $81 billion in 2003. According to the Gartner
Group, by 2004, 60% of enterprises will use externally sourced workers to
fulfill more than 50% of their information technology-related needs. We estimate
that there are currently more than 24 million free agents in the United States,
including knowledge workers and other types of project-based and temporary
labor. These free agents represent a market with substantial buying power.
Our Solution
Our integrated web-based solution is designed to optimize the procurement
and management of knowledge workers across the labor supply chain. Our solution
is comprised of three principal services:
SERVING THE FREE AGENT COMMUNITY. FREEAGENT.COM is a comprehensive vertical
portal site that enables free agents to more efficiently access project
opportunities and cost effectively manage their independent careers by offering:
- an Internet community where they can create E.PORTFOLIOS to market
themselves to potential clients, search a database of project
opportunities and interact with other free agents to share knowledge and
form project teams;
- FREEAGENT E.OFFICE services, available to participating free agents for a
monthly fee, that include a broad range of back office and administrative
services, such as project invoicing and expense reporting, and
corporate-level benefits, such as group health insurance, a 401(k) plan
and Opus360 stock options; and
- a marketplace where we sell corporate products and services to free agents
to help them manage their independent businesses.
3
<PAGE>
MATCHING BUYERS WITH PROJECT-BASED TALENT. OPUS XCHANGE is a web-based platform
that serves as the hub for our integrated solution. It is designed to enable
buyers of project-based talent to seamlessly procure knowledge workers in an
exchange-based environment by:
- using rule-based intelligent search technologies to match individual
knowledge workers or teams of knowledge workers with buyers of
project-based talent according to their skills, expertise and
availability; and
- streamlining the procurement process by automating the requisition,
approval and engagement processes.
We expect to release an enhanced version of OPUS XCHANGE during the first
half of 2000, which will provide more advanced vendor management and performance
tracking, and enhanced matching capabilities for buyers of project-based talent
by:
- capturing key performance information in an easily searchable database to
help buyers of project-based talent evaluate the efficiency,
cost-competitiveness, and quality of their suppliers of project-based
talent.
MANAGING LABOR RESOURCES. OPUSRM is a labor resource management service designed
to centralize resource and project information and seamlessly integrate with
OPUS XCHANGE to enable corporations, staffing vendors, professional service
organizations and other buyers of project-based talent to more efficiently
manage their internal and external knowledge workers by:
- increasing labor resource utilization across an organization's entire
range of projects, industries, geographic regions and personnel groups in
order to reduce downtime costs and improve profitability; and
- delivering project and resource-related information online, with detailed
reporting on project finances and labor resource utilization in order to
eliminate the need for labor-intensive, manually generated project and
financial reports.
We introduced FREEAGENT.COM on July 4, 1999 and OPUS XCHANGE on
September 6, 1999, and expect to release OPUSRM during the first half of 2000.
Our Strategy
Our goal is to be the premier solution for putting people and projects
together across the labor supply chain by:
- building FREEAGENT.COM into the largest free agent community through an
aggressive marketing campaign and strategic alliances;
- attracting large buyers of project-based talent to OPUS XCHANGE through
our direct sales force and strategic partners;
- capturing pertinent data on knowledge workers and organizations to make
the labor procurement process more efficient by establishing skills
standards for project-based talent and service benchmarks for staffing
vendors;
- attracting clients for our OPUSRM labor resource management service by
marketing it as part of an integrated solution to our OPUS XCHANGE users;
and
- pursuing strategic acquisitions and investments in complementary
businesses, products and technologies to further enhance our product and
service offerings.
4
<PAGE>
Our History
We were incorporated in Delaware in August 1998 as Enterspect Corporation.
We changed our name to Opus360 Corporation in March 1999. Until May 27, 1999, we
focused on the development of our strategy and services and the formation of
strategic alliances with channel partners. On May 27, 1999, we acquired all of
the outstanding stock of The Churchill Benefit Corporation in exchange for
shares of our common stock. Since the acquisition, Churchill has been doing
business as FREEAGENT.COM and its employee benefit services, which historically
had been provided offline, have been integrated into our FREEAGENT E.OFFICE
services. For the nine months ended September 30, 1999, our revenues were
approximately $0.2 million and consisted solely of the fees charged for our
FREEAGENT E.OFFICE services.
Corporate Information
Our principal executive offices are located at 733 Third Avenue, 17th Floor,
New York, New York 10017, and our telephone number is (212) 301-2280. Our
websites are WWW.OPUS360.COM and WWW.FREEAGENT.COM. Information contained on our
websites does not constitute part of this prospectus.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Opus360........... shares
Common stock to be outstanding after this
offering................................ shares
Use of proceeds........................... General purposes, including working capital, capital
expenditures, expanding our sales and marketing staff,
marketing our brands and potential acquisitions of
technologies, products or businesses which may be
complementary to our business. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.... OPUS
</TABLE>
The number of shares of our common stock outstanding after this offering is
based on our shares of common stock outstanding as of November 30, 1999, after
giving effect to:
- the issuance of 189,570 shares of our common stock to CAREERPATH.COM for
advertising and other services to be provided under our agreement and to
an affiliate of J.P. Morgan & Co., Incorporated, one of the
representatives of the underwriters, for consulting services; and
- the assumed issuance of 300,000 shares of our common stock upon the
exercise of certain warrants owned by Greenhill & Co., LLC, which acts as
a financial advisor to us, which terminate upon consummation of this
offering at an exercise price of $4.61 per share.
The common stock to be outstanding after this offering excludes:
- additional shares of our common stock to be issued to the former
stockholder of Churchill as described under "Unaudited Pro Forma Condensed
Statements of Operations;"
- 3,610,300 shares of our common stock issuable at a weighted average
exercise price of $1.44 per share upon the exercise of stock options
outstanding at November 30, 1999, 810,342 shares of which (including
shares of our common stock issuable upon the exercise of options which
automatically vest upon the consummation of this offering) are currently
exercisable;
- 489,700 shares of our common stock reserved at November 30, 1999 for
future grant under our stock option plan;
- 720,365 shares of our common stock issuable at a weighted average exercise
price of $1.29 per share upon the exercise of warrants outstanding at
November 30, 1999, all of which are currently exercisable;
- shares of our common stock issuable upon the exercise of additional
warrants that will be issued to a provider of advertising services on a
monthly basis prior to the consummation of this offering, the number of
warrants to be issued each month to be based upon the fair market value of
our common stock on the date of issuance of the warrants;
- 300,000 shares of our common stock issuable to Greenhill & Co., LLC upon
the exercise of a warrant to be issued upon the completion of a specified
number or aggregate value of acquisitions having an exercise price per
share equal to the fair market value of our common stock on the date of
issuance of the warrants; and
- an additional 300,000 shares of common stock issuable upon the exercise of
an additional warrant to be issued to Greenhill upon the completion of a
specified number or aggregate value of acquisitions, and having an
exercise price equal to the fair market value of our common stock on the
Nasdaq National Market on the date of issuance of the additional warrant.
6
<PAGE>
In addition, except as otherwise indicated, we have presented information in
this prospectus based on the following assumptions:
- the mandatory conversion of all outstanding shares of our preferred stock
into 16,960,727 shares of our common stock on the closing of this
offering;
- the underwriters do not exercise their over-allotment option; and
- all of the shares offered in the Safeguard Subscription Program are
purchased by stockholders of Safeguard.
SAFEGUARD SUBSCRIPTION PROGRAM
As a part of this offering, we are offering shares of our common stock to
stockholders of Safeguard that owned at least 100 shares of Safeguard common
stock on December 16, 1999 in the Safeguard Subscription Program. The program is
described in greater detail in the section of this prospectus entitled
"Underwriting--Safeguard Subscription Program."
7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table presents our summary historical and pro forma financial
information with respect to Opus360. The pro forma data gives effect to the
May 27, 1999 acquisition of Churchill, as if the acquisition had occurred on
January 1, 1998. You should read the information set forth below in conjunction
with "Unaudited Pro Forma Condensed Statements of Operations," "Selected
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of Opus360
and Churchill and the notes to those financial statements included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
Period from August 17,
1998 (inception)
through December 31, Nine Months Ended
1998 September 30, 1999
----------------------- ---------------------
Actual Pro Forma Actual Pro Forma
---------- ---------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues...................................... $ -- $ 799 $ 241 $ 540
Gross profit........................................ -- 731 43 313
Total operating expenses............................ 1,041 2,569 12,816 13,805
Loss from operations................................ (1,041) (1,839) (12,773) (13,492)
Net loss............................................ $(1,035) $(1,830) $ (12,495) $ (13,214)
Basic and diluted net loss per share................ $ (0.17) $ (0.27) $ (1.89) $ (1.90)
Weighted average number of shares used in
calculating basic and diluted net loss per
share............................................. 6,080 6,711(1) 6,626 6,963(1)
Pro forma basic and diluted net loss per share(2)... $ (0.10) $ (0.16) $ (0.53) $ (0.55)
Pro forma weighted average number of shares used
in calculating basic and diluted net loss per
share(2)........................................ 10,716 11,347(1) 23,587 23,924(1)
</TABLE>
- ------------------------
(1) Reflects the issuance of shares of our common stock in the Churchill
acquisition as if the shares were outstanding for the entire period
presented.
(2) Reflects the automatic conversion of our outstanding preferred stock into
our common stock on a share-for-share basis on the consummation of this
offering.
The following table presents our consolidated balance sheet data as of
September 30, 1999: on an actual basis; on a pro forma basis to give effect to
the mandatory conversion of all outstanding shares of our preferred stock into
shares of common stock on the closing of this offering; and on a pro forma as
adjusted basis to give effect to the sale of shares of common stock that
we are offering under this prospectus at an assumed initial public offering
price of $ per share, after deducting underwriting discounts and
commissions and estimated offering expenses payable by us.
<TABLE>
<CAPTION>
As of September 30, 1999
----------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable securities............ $40,720 $40,720 $
Working capital............................................. 37,601 37,601
Total assets................................................ 46,847 46,847
Temporary equity(1)......................................... 1,225 1,225
Convertible preferred stock................................. 17 --
Total stockholders' equity.................................. $39,237 $39,237 $
</TABLE>
- ------------------------
(1) Reflects amounts paid to the former owner of Churchill, subject to put
rights which were subsequently rescinded in December 1999. Amounts will be
reclassed to permanent equity in December 1999.
8
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CONSIDER CAREFULLY THE FOLLOWING RISKS, TOGETHER WITH THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS, BEFORE YOU DECIDE TO BUY OUR COMMON STOCK. IF ANY
OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, RESULTS OF OPERATIONS AND
FINANCIAL CONDITION WOULD LIKELY SUFFER. THIS COULD CAUSE THE MARKET PRICE OF
OUR COMMON STOCK TO DECLINE, AND YOU MAY LOSE ALL OR PART OF THE MONEY YOU PAID
TO BUY OUR COMMON STOCK.
Risks Related to Our Financial Condition and to Our Business Model
Our limited operating history, particularly in light of our recent inception,
makes it difficult for you to evaluate our business and to predict our future
success.
We were founded in August 1998, and our limited operating history will make
it difficult to forecast our future operating results. You should evaluate our
chances of financial and operational success in light of the risks,
uncertainties, expenses, delays and difficulties associated with operating a new
business, many of which are beyond our control. The uncertainty of our future
performance and the uncertainties of our operating in a new and expanding market
increases the risk that the value of your investment in our common stock will
decline.
We have never been profitable, and we expect that our losses will continue for
the foreseeable future.
We have incurred net losses and have never been profitable. We expect to
incur net losses for the foreseeable future and may never become profitable. We
incurred net losses of $1.0 million for the period from August 17, 1998 (our
inception) to December 31, 1998 and $12.5 million for the nine months ended
September 30, 1999. As of September 30, 1999, we had an accumulated deficit of
$13.5 million. Our operating and net losses have increased for each of the
fiscal quarters of our operating history and we expect that this trend will
continue.
We expect to substantially increase our sales and marketing, service and
product development and general and administrative expenses. As a result, we
will need to generate significant additional revenues to achieve and maintain
profitability in the future. Although our revenues have grown in recent
quarters, we cannot be certain that this growth will continue or that we will
achieve profitability. If our revenues fail to grow at the rates that we
anticipate and we fail to adjust our operating expense levels accordingly, or if
our operating expenses increase without a commensurate increase in our revenues,
our operating and net losses will increase further. If we do become profitable
in any period, we cannot be certain that we will sustain or increase
profitability on a quarterly or an annual basis.
Our operating results may vary from quarter to quarter in future periods and, as
a result, we may fail to meet the expectations of our investors and analysts,
which may cause our stock price to fluctuate or to decline.
Our operating results in any future quarter may be below the expectations of
public market analysts and investors and, as a result, the price of our common
stock may fall. Our operating results in any quarter will be harmed if our
revenues for that quarter fall below our expectations and we are not able to
quickly reduce our operating expenses in response. Our operating expenses, which
include sales and marketing, service and product development and general and
administrative expenses, are based on our expectations of future revenues and
are relatively fixed in the short term. As a result, our ability to rapidly
adjust these expenses is limited.
9
<PAGE>
Our business model is unproven, and we may not become profitable if we are
unable to adapt it to changes in our market.
If we are unable to anticipate changes in the market for labor procurement
and management solutions, or if our business model is not successful, we may not
be able to expand our business or successfully compete with other companies. Our
current business model depends upon the Internet to enable us to build and
deliver a comprehensive labor procurement and management solution. However, the
market for these kinds of Internet-based solutions is at an early stage of
development and we may be unable to implement our business plan fully or obtain
broad acceptance of our products and services either by organizations or by free
agents. Our revenue model and profit potential are also unproven. We may be
required to further adapt our business model in response to additional changes
in the market for these solutions, or if our current business model is not
successful.
If we are unable to obtain additional financing, we may not be able to continue
or expand our operations.
Since our inception, our operating activities have used more cash than they
have generated. Because we will continue to need substantial amounts of working
capital to fund the growth of our business, we expect to experience significant
negative operating cash flows for the foreseeable future. We may need to raise
additional funds in the future in order to fund more aggressive brand promotion
or more rapid expansion, to develop new or enhanced products or services, to
respond to competitive pressures or to acquire complementary businesses,
products or technologies. If we raise additional funds through the issuance of
equity securities or convertible debt securities, you may experience substantial
dilution of your percentage ownership of our company. In addition, these
securities may have powers, preferences and rights that are preferential to the
holders of our common stock and may limit our ability to pay dividends on our
common stock. We cannot be certain that additional financing will be available
on terms favorable to us, if at all. If adequate funds are not available on
acceptable terms or not available at all, we may be unable to successfully
promote our products and services, fund our expansion, develop or enhance our
products or services, respond to competitive pressures or take advantage of
acquisition opportunities.
Risks Related to Our Markets and Our Strategy
Our revenues will not grow if the Internet does not become a proven recruitment
and project search medium.
If we are unable to compete with traditional methods for recruiting free
agent talent and searching for and securing project assignments, our revenues
will not increase. The future of our business is dependent on the acceptance by
knowledge workers and buyers of project-based talent of the Internet as an
effective means to procure labor and to search for and transact project-based
work assignments. To date, only a small percentage of U.S. businesses engage in
any recruiting activities online. The online recruitment and project-based work
search market is new and is rapidly evolving, and we do not yet know how
effective online recruiting and project searching will be compared to
traditional recruitment and project search methods. The adoption of online
recruiting and project searching, particularly among organizations and knowledge
workers who have historically relied upon traditional recruiting and project
searching methods, requires the acceptance of a new way of conducting business,
exchanging information, advertising and searching for project-based work. Many
potential buyers of project-based talent have little or no experience using the
Internet for recruiting, and only a limited number of the free agents who are
currently searching for project assignments have experience using the Internet
in connection with their searches. As a result, we may not be able to
effectively compete with traditional recruiting and project-based work search
methods.
10
<PAGE>
We will not be able to execute our business model if use of the Internet does
not continue to grow.
If use of the Internet does not continue to grow, we may not be able to meet
our business objectives or expand our operations. Use of the Internet may be
inhibited by any of the following factors:
- the Internet infrastructure may be unable to support the demands placed on
it, or its performance and reliability may decline as usage grows;
- websites may be unable to provide adequate security and authentication of
confidential information contained in transmissions over the Internet; or
- the Internet industry may be unable to adequately respond to privacy
concerns of potential users.
We will not be able to fully implement our solution if we do not successfully
launch OPUSRM and release our enhanced version of OPUS XCHANGE on a commercial
basis.
Our business model contemplates that our existing FREEAGENT.COM website will
be integrated with OPUS XCHANGE and OPUSRM services. However, we have not yet
introduced our OPUSRM service, or released our enhanced version of OPUS XCHANGE,
on a commercial basis, and may not succeed in doing so. If we are unable to
offer these services on a widespread basis, or if we encounter delays in doing
so, our service offerings may be less attractive to potential customers, which
will reduce our revenues and prospects for growth.
We will not be able to maintain or increase the number of free agents who
purchase our FREEAGENT E.OFFICE services if our vendors do not provide the
back-office administrative services that these free agents require.
We rely on a single vendor, Automatic Data Processing, to provide payroll
processing services, including the preparation of IRS Form W-2s and other tax
forms, for our FREEAGENT E.OFFICE employees. We also rely on vendors to deliver
the 401(k) plan and the group health, life insurance and disability insurance
coverage that we offer to free agents through our FREEAGENT E.OFFICE services
program. If our current or future vendors fail to perform, or fail to deliver,
these back-office administrative services for our FREEAGENT E.OFFICE employees
in a professional, reliable and timely manner or fail to improve their services
for these free agents in accordance with market requirements from time to time,
we will not be able to maintain or increase the number of free agents who
purchase our FREEAGENT E.OFFICE services, which will impair our ability to
increase our revenues. Our standard agreement with free agents who purchase our
FREEAGENT E.OFFICE services is generally subject to termination by us or the
free agent at any time upon 30 days' prior written notice provided conditions
are met. A significant number of terminations could substantially reduce our
revenues.
Our revenues will not increase if we do not successfully develop awareness of
our brand names.
If we fail to successfully promote and maintain our FREEAGENT.COM, OPUS
XCHANGE or OPUSRM brand names, fail to generate a corresponding increase in
revenues as a result of our branding efforts, or encounter legal obstacles in
connection with our continued use of our brand names, our revenues will not
increase and our prospects for growth will be diminished. We believe that
continuing to build awareness of each of our brand names is critical to
achieving widespread acceptance of our services. We believe that brand
recognition will become a key differentiating factor among providers of
project-based talent procurement and management solutions as competition in the
market for these solutions increases. We will be unable to maintain and build
brand awareness if we do not succeed in our marketing efforts, provide high
quality services and increase the number of buyers and sellers of project-based
talent using our services.
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Our revenues will not increase and we will not become profitable if we do not
increase the number of transactions that are effected through the OPUS XCHANGE
marketplace.
We expect to release an enhanced version of our OPUS XCHANGE service on a
commercial basis during the first half of 2000. Once this enhanced version is
released, if we are unable to increase the volume of transactions between buyers
and sellers of project-based talent in the OPUS XCHANGE marketplace, our
revenues may not increase. Our business model assumes that a growing percentage
of our future revenues will be based upon project assignment transactions and
project listing fees paid by organizations that procure project-based talent
through the OPUS XCHANGE marketplace, and we anticipate that these revenues will
generate higher gross margins than our sole historical source of revenues, the
fees paid by free agents who purchase our FREEAGENT E.OFFICE services.
Accordingly, our future revenues and improvement in our gross profit margin will
depend to a large extent on the number of listings and project assignments that
are originated by buyers and sellers of project-based talent in the OPUS XCHANGE
marketplace.
Our ability to increase transaction volume in the OPUS XCHANGE marketplace
depends in large part on our ability to build a critical mass of buyers and
sellers of project-based talent. If we are unable to increase the number of free
agents who participate in the OPUS XCHANGE marketplace through FREEAGENT.COM and
to attract more buyers of project-based talent to the OPUS XCHANGE marketplace,
our services will not be perceived to provide an effective market for
project-based talent, and demand for our services will decrease. To attract and
maintain free agents, we must build a critical mass of organizations that seek
to obtain the services of free agents for specific projects. Similarly,
organizations requiring project-based talent must perceive value in
participating in our OPUS XCHANGE marketplace, which, in part, will depend on
the number of free agents who participate in the marketplace. These free agents
must possess a sufficient variety of skills in order to render their services
attractive. To date, we have not charged organizations to list project
assignments in our OPUS XCHANGE marketplace, or charged organizations that
procure free agents to complete a project, and our plans to charge for these
services, commencing in the first quarter of 2000, may limit the number of
organizations that are willing to list their assignments.
Our efforts to attract buyers and sellers of project-based talent to the OPUS
XCHANGE marketplace may not be successful if they are not properly supported by
our channel partners.
If we are unable to establish additional strategic alliances with channel
partners, our ability to enhance the demand for and supply of project-based
talent in our OPUS XCHANGE marketplace will be diminished. Our existing
agreement with CAREERPATH.COM may limit our ability to enter into agreements
with new channel partners. In addition, our channel partners may not
successfully direct buyers and sellers of project-based talent to our OPUS
XCHANGE marketplace. If our channel partners fail to successfully support our
efforts to direct suppliers and users of project-based talent to our OPUS
XCHANGE marketplace, or if the extent of this incoming traffic to our OPUS
XCHANGE marketplace is less than anticipated, our revenues will not increase.
Our OPUSRM service may not be accepted by customers.
Before making any commitment to use our OPUSRM service, potential users will
likely consider a wide range of issues, including service benefits, integration,
interoperability with legacy systems, scalability, functionality and
reliability. Prospective users will generally need to change established
project-based talent procurement practices and operate their businesses in new
ways. Because our OPUSRM service represents a new, Internet-based approach for
most organizations to manage and allocate their project-based talent resources,
those persons responsible for the use or approval of our OPUSRM service within
these organizations will be addressing these issues for the first time. If our
OPUSRM service is not attractive to our potential customers revenues from this
service will not increase. In addition, if systems integrators fail to adopt and
support OPUSRM as a labor resource management tool, our ability to reach our
target customers in this market may be diminished.
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Our lengthy sales cycle for OPUSRM could delay the growth of our revenues and
increase our expenditures.
Our OPUSRM service is a new and commercially untried labor resource
management tool, and will not be commercially introduced until the first half of
2000. We may face significant delays in the acceptance of OPUSRM. We will not be
able to recognize any revenues during the period in which a potential customer
evaluates whether or not to use OPUSRM, and this period may be substantial. The
decision of a customer to use our OPUSRM service may be expensive, time
consuming and complex and may require an organization to make a significant
commitment of resources. As a result, we will have to expend valuable time and
resources to educate interested persons at all levels in these organizations on
the use and benefits of the service. Our expenditure of substantial time and
resources to persuade customers to use our OPUSRM service or an unexpectedly
long sales and implementation cycle for our OPUSRM service will have a negative
impact on the timing of our revenues. Since we have not yet launched our OPUSRM
service, we cannot predict how long the average sales and implementation cycle
will be, and we may be unable to adapt our business model accordingly if the
average cycle is longer than expected.
If we are unable to hire and retain highly skilled personnel, we will not be
able to grow and to compete effectively.
The loss or departure of any of our officers or key employees could impair
our ability to implement our business model and could lower our revenues. Our
future success depends to a significant extent on the continued service of the
members of our management team, in particular, Ari B. Horowitz, our Chairman,
Chief Executive Officer and President. Our future success will also depend to a
significant extent on our ability to attract and retain senior management,
experienced sales and marketing personnel, software developers, qualified
engineers and other highly skilled personnel. Competition for these highly
skilled employees is intense, particularly in the Internet industry. We may
experience difficulty from time to time in hiring the personnel necessary to
support the growth of our business.
If we are unable to successfully introduce new or enhanced services, products or
features, our sales may decline.
We may not be able to increase our sales if we are unable to develop and
introduce new or enhanced services or products, or if these services or products
do not achieve market acceptance. In addition, in order to remain competitive,
we believe that we must continually improve the responsiveness, functionality
and features of our existing services and products. However, we may not succeed
in developing or introducing features, functions, services or products that
buyers of project-based talent or free agents find attractive. We expect to
introduce enhanced services, products and features in order to respond to:
- rapidly changing technology in online project-based talent procurement and
management;
- evolving industry standards, including both formal and de facto standards,
relating to online labor procurement and management;
- developments and changes relating to the Internet;
- competing services and products that offer increased functionality; and
- changes in the requirements of buyers of project-based talent and free
agents.
If any new or enhanced service, product or feature that we introduce is not
favorably received, the public's perception and the reputation of our brands
could suffer irreparable damage.
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If we cannot compete successfully, our revenues will decrease and we may never
become profitable.
Due to competition, we may experience reduced use of our services and lower
margins on our services and products. If we are unable to compete effectively
with current or future competitors, our revenues will decrease and we will be
unable to grow our business.
The market for project-based talent procurement and management solutions is
intensely competitive and highly fragmented. Our three primary services compete
with a combination of online and offline companies that provide competing
solutions, including traditional companies providing benefits and services to
independent professionals, traditional and online recruiting and job-posting
services, and developers of enterprise resource planning solutions.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources and larger customer bases than we do. In addition, current and
potential competitors may make strategic acquisitions or establish cooperative
relationships to expand their businesses or to offer more comprehensive
solutions.
If we fail to manage our growth, our revenues may not increase and we may incur
additional losses.
Since we have only been in business a short time, our expansion has placed,
and will continue to place, significant strains on our infrastructure,
management, internal controls and financial systems. Our personnel, systems,
procedures and controls may be inadequate to support our future operations. In
order to accommodate the growth of our business, we will need to hire, train and
retain appropriate personnel to manage our operations. We will also need to
improve our financial and management controls, reporting systems and operating
systems. We may encounter difficulties in developing and implementing these new
systems. Our management has limited experience managing a business of our size
and no experience managing a public company. If we are unable to manage our
growth effectively and maintain the quality of our products and services, our
business may suffer.
Any acquisitions of technologies, products or businesses that we make may not be
successful, may cause us to incur substantial additional costs, and may require
us to incur indebtedness or to issue debt or equity securities on terms that may
not be attractive.
We may acquire technologies, products or businesses that are complementary
to our business. We have only limited experience in integrating an acquisition
into our business. The process of integration may produce unforeseen operating
difficulties and expenditures and may divert management attention away from the
ongoing development of our business. We may never achieve the benefits that we
might anticipate from a future acquisition. If we make future acquisitions, we
may issue shares of our capital stock that dilute other stockholders, incur
debt, assume significant liabilities or create additional expenses related to
amortizing goodwill and other intangible assets, any of which might reduce our
reported earnings and cause our stock price to decline. Any financing that we
might need for future acquisitions may only be available to us on terms that
restrict our business or that impose on us costs that reduce our net income.
Risks Related to Our Technology Infrastructure and the Internet
We may experience reduced visitor traffic, reduced revenue and harm to our
reputation if any system failures result in unexpected network interruptions.
Any system failure that we may experience, including network, software or
hardware failures, that causes an interruption in the delivery of our products
and services or a decrease in responsiveness of our services could result in
reduced use of our services and damage to our reputation and brands. Our servers
and software must be able to accommodate a high volume of traffic by
organizations and free agents to OPUS XCHANGE and FREEAGENT.COM. We have
experienced system interruptions in the past, and we believe that these
interruptions will occur from time to time in the future, particularly as
traffic to our site increases. We may
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not be able to expand and adapt our network infrastructure at a pace that will
be commensurate with the additional traffic increases. We do not currently
maintain business interruption insurance and our other insurance may not
adequately compensate us for any losses that may occur due to any failures in
our system or interruptions in our service.
Our services may contain defects or errors that could damage our reputation.
The services that we have developed and that we currently plan to introduce
are complex and must meet the stringent technical requirements of our customers.
We must develop our services quickly to keep pace with the rapidly changing
industry in which we operate. The services that are as complex as ours are
likely to contain undetected errors or defects, especially when first introduced
or when new versions are released. In addition, our services may not properly
operate when integrated with the systems of our customers.
While we continually test our services for errors and work with customers
through our customer support services to identify and correct bugs, errors in
our services may be found in the future. Testing for errors is complicated in
part because it is difficult to simulate or anticipate the computing
environments in which our customers use our services. Our services may not be
free from errors or defects even after they have been tested, which could result
in the rejection of our services and damage to our reputation, as well as lost
revenue, diverted development resources, and increased support costs.
Breaches of our network security could increase our costs and damage our
reputation.
Our FREEAGENT.COM service contains FREEAGENT E.OFFICE and E.PORTFOLIO data
for many of the free agents in our FREEAGENT.COM community. In addition,
following their release, our OPUSRM and enhanced OPUS XCHANGE services will
contain resource and project information for organizations. As a result, we may
become liable to any of those free agents or organizations that experience
losses due to any security failures in our services. Unauthorized persons that
penetrate our network security could misappropriate proprietary information or
cause interruptions in our services. Misappropriation of proprietary information
or interruptions of our services could result in reduced traffic to our
FREEAGENT.COM website and reduce demand for our OPUS XCHANGE or OPUSRM services.
As a result, we may be required to expend capital and resources to protect
against or to alleviate security breaches, which could reduce our profitability.
Computer viruses could disrupt our systems, which could reduce demand for our
services and damage our reputation.
Computer viruses may cause disruptions of our services and the loss of
information saved on our servers by free agents and organizations that seek
project-based talent. These viruses could reduce demand for our services, and
damage our reputation in the markets in which we compete. In addition, the
inadvertent transmission of computer viruses could expose us to a material risk
of loss or litigation and possible liability for any damages incurred by third
parties.
We may become subject to burdensome government regulations and legal
uncertainties affecting the Internet which could increase our expenses or limit
the scope of our operations.
Legal uncertainties and new regulations relating to the use of the Internet
could increase our costs of doing business, prevent us from delivering our
products and services over the Internet or slow the growth of our business. To
date, governmental regulations have not materially restricted use of the
Internet in our markets. However, the legal and regulatory environment relating
to the Internet is uncertain and may change. In addition to new laws and
regulations being adopted, existing laws may be applied to the Internet. New and
existing laws may cover issues which include:
- user privacy;
- civil rights and employment claims;
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- consumer protection;
- libel and defamation;
- copyright, trademark and patent infringement;
- pricing controls;
- characteristics and quality of products and services;
- sales and other taxes; and
- other claims based on the nature and content of Internet materials.
In addition, any imposition of state sales and use taxes imposed on the
products and services sold over the Internet may decrease demand for products
and services that we sell over the Internet. The U.S. Congress has passed
legislation which limits until October 21, 2001 the ability of states to impose
any new taxes on Internet-based transactions. If Congress does not renew this
legislation, any subsequent imposition of state taxes on Internet-based
transactions could limit the demand for our services or increase our expenses.
Our year 2000 compliance efforts may involve significant time and expense, and
uncorrected or undetected problems could prevent us from operating or impose
substantial costs upon our business.
The risks posed by year 2000 issues, which arise because computer systems
and software products may be unable to distinguish between twentieth century
dates and twenty-first century dates, could harm our business in a number of
significant ways. Both before and after January 1, 2000, computer systems and
software used by many companies in a wide variety of industries will produce
erroneous results or fail unless they have been modified or upgraded to process
date information correctly. If we experience disruptions as a result of the year
2000 problem, our revenue could decline and we may incur significant costs to
correct any problems. Although we believe that our products, services and
technology, which were generally developed after the year 2000 issues became
widely known to the public, are year 2000 compliant, our systems and technology
could be impaired or cease to operate due to year 2000 problems. We may face
claims based on year 2000 issues arising from the integration of multiple
products, including ours, within an overall system. Our customers may also cease
or delay the purchase and installation of new complex systems, such as our
enhanced version of OPUS XCHANGE, as well as OPUSRM, as a result of their own
internal year 2000 testing.
Our products and services are integrated with the systems of other
organizations, that use our software to procure project-based talent and to
interact with the free agent community over the networks of Internet service
providers. If their software processes information erroneously, or fails to
deliver information or to otherwise operate, as a result of their failure to
process information relating to year 2000 issues, our services will not be
properly delivered. If this occurs, our products may become less attractive to
potential customers.
Risks Related to Intellectual Property Matters and to Intellectual Property
Rights
Defending against intellectual property infringement claims, including an
existing claim relating to our use of the service mark FREE AGENT, could be time
consuming and expensive, and any liabilities imposed on us for infringing on the
intellectual property rights of others could require us to pay significant
damages or disrupt our business.
Successful intellectual property infringement claims against us could result
in monetary liability or a material disruption in our operations. We cannot be
certain that our services, products, content, technology and brand names do not
or will not infringe upon valid patents, copyrights or other intellectual
property rights held by others. We expect that the number of infringement claims
will increase as more participants enter our markets. We may be subject to legal
proceedings and claims from time to time relating to the intellectual property
of others in the ordinary course of our business. We may incur substantial
expenses in defending against these third party infringement claims, regardless
of their merit. In the event of a successful
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infringement suit against us, we could be liable for substantial damages and be
required to pay substantial royalties for our use of third party intellectual
property or be prohibited from using third party intellectual property in our
products or services. Any of these outcomes could reduce our revenues and
prospects for growth.
In July 1999, we received a letter from counsel to the San Jose Mercury News
alleging that our use of the service mark FREE AGENT and our registration of the
domain name WWW.FREEAGENT.COM with Network Solutions, Inc. infringed upon the
Mercury News' federal registration of the mark FREE AGENT for a computerized
online matching service and violated Network Solutions' Domain Name Dispute
Policy. The letter requested that we cease all use of the mark FREE AGENT for
online job searching services and transfer the domain name WWW.FREEAGENT.COM to
the Mercury News. We believe we have valid defenses to the claims. However, in
the event we are not able to resolve this issue with the Mercury News and it
decides to bring an infringement claim against us, or to initiate an arbitration
proceeding against us with Network Solutions under Network Solutions' Domain
Name Dispute Policy, we would likely incur significant expense in defending
against the claim or in connection with arbitration proceedings. In addition, if
a claim of infringement is made and we are not successful in defending against
the claim, we could be liable for substantial damages. We could also be required
to cease use of the FREE AGENT mark and transfer our WWW.FREEAGENT.COM domain
name to the Mercury News. We have expended, and will continue to spend,
substantial amounts in order to promote the FREEAGENT.COM brand name, the
benefits of which would be lost if we could no longer use that mark. In
addition, we would need to incur substantial new expenses to promote a new brand
name. Until such time as free agents and buyers of project-based talent became
aware of any new brand name and website, our transaction volume could be
substantially limited.
We may be unable to obtain U.S. trademark registration for our brands or to
protect our other proprietary intellectual property rights.
If we fail to obtain federal trademark or service mark registrations for our
marks and any related derivative marks, our promotion of these marks as our
brands could be disrupted. If we are unable to secure the rights to use these
marks and related derivative marks, a key element of our strategy of promoting
these marks as brands in our target markets could be disrupted. To date, we have
filed intent to use applications for several of our service marks, including
OPUS360, OPUS FREEAGENT, FREEAGENT.COM, FREEAGENT, OPUS XCHANGE and FREEAGENT
XCHANGE, but we have not filed applications for OPUSRM, FREEAGENT E.OFFICE or
E.PORTFOLIO. Adverse outcomes to our applications for these marks, any failure
to register our marks, or any related litigation, should it occur, could result
in our being limited or prohibited from using our marks and related derivative
marks in the future.
If we fail to protect our patents, copyrights or other intellectual property
rights, other parties could appropriate our proprietary properties, including
our technology.
The unauthorized reproduction or other misappropriation of our intellectual
property, including our technology, could enable third parties to benefit from
our intellectual property without paying us. If this were to occur, our revenues
would be reduced, and our competitors may be able to compete with us more
effectively. The steps we have taken to protect our proprietary rights in our
intellectual property may not be adequate to deter misappropriation of their
use. We may not be able to detect unauthorized use of our intellectual property
or take appropriate steps to enforce our intellectual property rights. In
addition, the validity, enforceability and scope of protection of intellectual
property in Internet-related industries is uncertain and still evolving. If we
resort to legal proceedings to enforce our intellectual property rights, the
proceedings could be burdensome and expensive. The proceedings also could
involve a high degree of risk that we will not succeed in protecting our rights
to the technology that we develop.
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We may not be able to access third party technology which we depend upon to
conduct our business and as a result we could experience delays in the
development and introduction of new services or enhancements of existing
services.
If we lose the ability to access third party technology which we use, are
unable to gain access to additional products or are unable to integrate new
technology with our existing systems, we could experience delays in our
development and introduction of new services and related products or
enhancements until equivalent or replacement technology can be accessed, if
available, or developed internally, if feasible. If we experience these delays,
our revenues could be substantially reduced. We license technology that is
incorporated into our services and related products from third parties,
including Microsoft Corporation, for database technology. In light of the
rapidly evolving nature of Internet technology, we may increasingly need to rely
on technology licensed to us by other vendors. Technology from our current or
other vendors may not continue to be available to us on commercially reasonable
terms, or at all.
We may be liable for substantial payments as a result of information retrieved
from or transmitted over the Internet.
We may be sued for defamation, civil rights infringement, negligence,
copyright or trademark infringement, personal injury, product liability or other
legal claims relating to information that is published or made available on
FREEAGENT.COM and the other sites linked to it. These types of claims have been
brought, sometimes successfully, against other online services in the past. We
could also be sued for the content that is accessible from FREEAGENT.COM and
through links to other Internet sites or through content and materials that may
be posted by members in chat rooms or on bulletin boards. We also offer e-mail
services, which may subject us to potential risks, such as liabilities or claims
resulting from unsolicited email or spamming, lost or misdirected messages,
security breaches, illegal or fraudulent use of email or interruptions or delays
in email service. Our insurance does not specifically provide for coverage of
these types of claims and therefore may not adequately protect us if we are
required to make these types of payments. In addition, we could incur
significant costs in investigating and defending these types of claims, even if
we ultimately are not liable.
Risks Related to Regulatory Compliance and Adverse Regulatory Interpretations
We may be subject to the unfavorable interpretation of government regulations.
As an employer, we are subject to all federal, state and local statutes and
regulations governing our relationships with our employees and affecting
businesses generally. In addition, by entering into employment agreements with
free agents, FREEAGENT.COM is affected by specifically applicable licensing and
other regulatory requirements and by uncertainty in the application of numerous
federal and state laws relating to labor, tax and employment matters. These laws
include the U.S. Family Medical Leave Act, the Fair Labor Standards Act and the
Americans With Disabilities Act, as well as state laws relating to workers
compensation, unemployment benefits, minimum wages and medical and pregnancy
issues. Many of these laws do not specifically address the obligations and
responsibilities of non-traditional employers such as us. Because we expect to
be subject to some or all of these laws in each state in which we have
employees, our expenses to comply with these laws may be substantial.
Interpretive issues concerning these types of relationships have arisen and
remain unsettled.
Uncertainties arising under state law include the compliance requirements to
which FREEAGENT.COM is subject under state employee leasing, employment agency
or temporary employment laws, as well as under other state laws. FREEAGENT.COM
has attributes that could be seen as potentially triggering compliance
requirements under some of these laws. Some states regulate employee leasing
companies, employment agencies and temporary staffing companies, while most
states focus on only one or two of these types of businesses. State statutory
and regulatory definitions and requirements concerning these types of businesses
are occasionally similar, but generally all of them differ in several important
respects. If we are governed by any of these statutes or regulations, we may be
subject to licensing requirements and financial oversight. The
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length of time for us to obtain any regulatory approval required to begin or
continue operations could vary from state to state, and there can be no
assurance that we will be able to satisfy the licensing requirements or other
applicable regulations of any particular state in which we have already begun to
operate or intend to operate, that we will be able to provide the full range of
FREEAGENT E.OFFICE services currently offered or that we will be able to operate
profitably within the regulatory environment of any state in which we do decide
to obtain regulatory approval. We expect to incur substantial expenses in order
to comply with these laws and could be subject to substantial penalties for
failing to comply with these laws.
Uncertainties in the application of federal tax and employee benefits laws to
our business could limit our ability to provide benefits that will attract free
agents.
Uncertainties arising under the Internal Revenue Code of 1986, as amended,
and ERISA include the qualified tax status and favorable tax status of some of
the benefit plans that we provide. For example, the IRS could determine that
free agents who purchase our FREEAGENT E.OFFICE services are not our employees
under the provisions of the Code and ERISA relating to employee benefit plans
such as the 401(k) plan we offer. If the IRS made such a determination, neither
free agents who pay for our FREEAGENT E.OFFICE services nor we would be
permitted to make tax deferred contributions to our 401(k) plan. Similarly, the
IRS or other taxing authorities could determine that free agents who purchase
our FREEAGENT E.OFFICE services are not our employees under federal, state or
local laws and regulations providing for the favorable tax treatment of payments
made for group health, disability and life insurance benefits provided as part
of our FREEAGENT E.OFFICE services or for purposes of receiving incentive stock
options under our stock option plan. If an adverse determination was made as to
the employee status of free agents who purchase our FREEAGENT E.OFFICE services
under one or more of these federal, state or local laws and regulations, our
FREEAGENT E.OFFICE services would become less attractive to our registered free
agents since we would no longer be able to provide those valuable
corporate-style benefits as part of our FREEAGENT E.OFFICE services. As a
result, it is likely that our revenues would be adversely affected and our
ability to attract free agents to FREEAGENT.COM would likely be harmed.
In contrast to our method of reporting for purposes of generally accepted
accounting principles under which we only report as revenues the fees received
from free agents who purchase our FREEAGENT E.OFFICE services, for tax purposes
we will report as revenues the gross billings we receive from organizations for
the services rendered by these free agents. Upon receipt of the gross billings
from these organizations, we pay or reimburse the free agents' project-related
expenses, pay the premiums for the free agents' health, disability and life
insurance, make the free agents' desired 401(k) contributions and withhold any
required federal, state and local taxes. We then remit the remaining funds to
the free agent as wages and salaries, treating the free agents' project-related
expenses, the premiums for health, disability and life insurance and 401(k)
contributions as deductible expenses for tax purposes. In the event free agents
who purchase our FREEAGENT E.OFFICE services are held not to be our employees
under applicable laws and regulations as described above, we could be liable to
the IRS or other taxing authorities for improper reporting of their wages and
salaries, because the amounts deducted for their health, disability and life
insurance and 401(k) contributions would not be properly deductible for tax
purposes. In addition, whether or not the free agent is treated as our employee,
we could also be liable to the IRS or other taxing authorities if amounts
treated as deductible project-related reimburseable expenses are not properly
deductible for tax purposes. Under these circumstances, we could also be subject
to suit by the free agent. Furthermore, in the event the free agents who
purchase our FREEAGENT E.OFFICE services are held to be employees of an
organization using their services, the qualified plans of these organizations
may be adversely affected. In such event, we could be subject to suit by these
organizations. While we believe that we have a reasonable basis for concluding
that free agents who purchase our FREEAGENT E.OFFICE services are our employees
under applicable laws and regulations, the application of these laws and
regulations to our business is uncertain and there can be no assurance as to the
ultimate resolution of these issues.
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We may be subject to employment-related claims relating to our FREEAGENT
E.OFFICE employees or the organizations that use their services.
We may be subject to claims relating to the actions of free agents who
purchase our FREEAGENT E.OFFICE services, including possible claims of
discrimination and harassment, violations of non-competition agreements, theft
of property from organizations for whom projects are performed, misuse of
proprietary information from organizations, other criminal actions or torts and
other claims. These claims may allege that we do not adequately supervise these
free agents in a manner sufficient to ensure that these types of events do not
occur. The project-related conduct of free agents who purchase our FREEAGENT
E.OFFICE services may result in negative publicity, injunctive relief and the
payment by us of money damages or fines. Although we historically have not had
any significant problems in this area, there can be no assurance that we will
not experience these problems in the future.
As the employer of the free agents who purchase our FREEAGENT E.OFFICE
services, we may be subject to a wide variety of employment-related claims, such
as claims for injuries, wrongful death, harassment, discrimination, wage and
hour violations and other matters. In addition, a number of legal issues remain
unresolved with respect to arrangements among businesses of the type such as
ours, free agents and the buyers of project-based talent, including questions
concerning ultimate liability for violations of employment and discrimination
laws. As a result of our status as employer, we may be subject to liability
under various governmental regulations for violations of these regulations even
if we do not participate in the violations. We carry liability insurance, but
there can be no assurance that any of our insurance policies will be sufficient
to cover any judgments, settlements or costs relating to any claims, suits or
complaints or that sufficient insurance will be available to us in the future on
satisfactory terms, if at all. If insurance is not sufficient to cover any
judgments, settlements or costs relating to any present or future claims, suits
or complaints we may incur substantial losses.
Risks Related to this Offering
Our common stock has no prior trading market, is likely to be highly volatile
and you may not be able to resell it at or above the initial public offering
price.
Before this offering there has not been a public market for our common
stock. There may not be sufficient investor interest in our common stock after
the closing of this offering to cause the development of an active trading
market for our shares with significant liquidity. The stock market has
experienced significant price and volume fluctuations and the market prices of
securities of Internet-related companies have been highly volatile. Any trading
market which does develop for shares of our common stock is likely to be also
highly volatile and investors may not be able to sell their shares of common
stock at or above the initial public offering price. The market price of our
common stock after this offering may vary significantly from the initial
offering price in response to a number of factors, some of which are beyond our
control, including the following:
- changes in financial estimates or investment recommendations by securities
analysts relating to our stock;
- changes in market valuations of Internet companies generally or in
companies in a similar line of business;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- loss of a major client or strategic partner;
- additions or departures of key personnel; and
- fluctuations in the stock market price and volume of traded shares
generally, especially fluctuations in the traditionally volatile
technology sector.
20
<PAGE>
In the past, after periods of volatility in the market price of securities
which are publicly traded, securities class action litigation has often been
instituted against the company issuing the securities. After this offering, this
type of litigation could also be instituted against us and could result in
substantial costs to us and a diversion of our management's attention and
resources.
Shares eligible for public sale after this offering may depress our stock price
and impair our ability to raise funds in new stock offerings.
The market price of our common stock could fall as a result of sales of a
large number of shares of our common stock in the market after this offering or
as a result of the perception that these sales could occur. These factors also
could make it more difficult for us to sell equity securities in the future at a
time and price which we deem appropriate.
There will be shares of common stock outstanding immediately
after this offering. All the shares sold in this offering will be freely
tradeable without restriction or further registration under the Securities Act
of 1933, as amended, except for shares purchased by our "affiliates" as defined
in Rule 144 under the Securities Act. The remaining shares and the
shares subject to outstanding options and warrants will be "restricted
securities" as defined in Rule 144. These restricted securities may be sold in
the future without registration under the Securities Act to the extent permitted
under Rule 144, Rule 701 or another exemption under the Securities Act. In
addition, persons holding an aggregate of 23,924,196 shares of these restricted
securities after the offering will have registration rights that could allow
those holders to sell all of their shares freely through a registration
statement filed under the Securities Act. In connection with this offering,
holders of shares of restricted securities have agreed not to sell their shares
without the prior written consent of FleetBoston Robertson Stephens Inc. for a
period of 180 days from the effective date of the registration statement of
which this prospectus is a part.
After this offering, we will have 4,100,000 shares of common stock reserved
for issuance under our stock option plan, of which options to purchase 3,572,483
shares are currently outstanding. Following this offering, we intend to file a
registration statement on Form S-8 to register these shares which will permit
substantial additional sales of shares of our common stock in the future.
Our officers and directors will have significant influence over all matters
requiring the approval of stockholders.
We anticipate that the executive officers, directors and entities affiliated
with them will control approximately % of our outstanding common stock
following the completion of this offering or % if the underwriters
exercise their overallotment option in full. These stockholders, if they act
together, may be able to exercise substantial influence over all matters
requiring approval by our stockholders, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may also have the effect of delaying or preventing a change in control of our
company and might affect the market price of the common stock.
Our management may use the proceeds of this offering in ways with which you may
disagree.
Our management will have broad discretion with respect to the expenditure of
the net proceeds of this offering, including the discretion to use the proceeds
in ways with which stockholders may disagree. Because the proceeds are not
required to be allocated to any specific investment or transaction, you cannot
determine the value or propriety of our management's application of the
proceeds. As a result, you will be relying on the judgment of our management
regarding the application of the proceeds of this offering.
You will suffer immediate and substantial dilution.
If you buy shares of common stock in this offering, you will incur immediate
and substantial dilution in your investment, since you will pay more for your
shares of common stock than the amounts paid by the
21
<PAGE>
existing stockholders for their shares or by the persons or entities that may
acquire shares by exercising options or warrants that were granted before this
offering. Based on an assumed initial public offering price of $
per share, purchasers of common stock in this offering will experience immediate
and substantial deduction of approximately $ per share in the net
tangible book value of the common stock. In addition, in the past, we issued
options and warrants to acquire common stock at prices significantly below the
initial public offering price. To the extent these outstanding options or
warrants are ultimately exercised, your investment will be further diluted.
Provisions of our charter and bylaws may delay or prevent transactions that are
in your best interests.
Upon consummation of this offering, our restated certificate of
incorporation and restated bylaws will contain provisions which may have the
effect of deterring takeovers or delaying or preventing changes in control of
our company, including transactions in which you might otherwise receive a
premium for your shares. In addition, these provisions may limit your ability to
approve other transactions that you may believe are in your best interests. For
example, our restated certificate of incorporation and restated bylaws will
state that any action that can be taken by stockholders must be done at an
annual or special meeting and may not be done by written consent, and require
reasonable advance notice by a stockholder of a stockholder proposal or director
nomination. Only the chairman of the board, the chief executive officer, the
president or the board of directors may call a special meeting of the
stockholders. The restated certificate of incorporation and restated bylaws will
also provide for a classified board of directors with staggered three year
terms, and generally will provide that, subject to any rights of holders of
preferred stock that we may create, to elect additional directors under
specified circumstances, a member of the board of directors may be removed only
for cause and only by the vote of the holders of at least 66 2/3% of the voting
power of the then outstanding shares of stock enabled to vote generally in the
election of directors, voting together as a single class. In addition, the board
of directors has the authority, without further action by the stockholders, to
issue shares of preferred stock without stockholder approval. The issuance of
preferred stock could make it more difficult for a third party to acquire us.
22
<PAGE>
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS; MARKET DATA
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing forward-looking statements may be found in
the material set forth under "Summary," "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business" as
well as in this prospectus generally. We generally use words such as "believes,"
"intends," "expects," "anticipates," "plans," and similar expressions to
identify forward-looking statements. You should not place undue reliance on
these forward-looking statements. Our actual results could differ materially
from those expressed or implied in the forward-looking statements for many
reasons, including the risks described under "Risk Factors" and elsewhere in
this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements contained in this prospectus are reasonable, they relate only to
events as of the date on which the statements are made, and we cannot assure you
that our future results, levels of activity, performance or achievements will
meet these expectations. Neither we nor any other person assumes responsibility
for the accuracy and completeness of these forward-looking statements. We are
under no duty to update any of these forward-looking statements after the date
of this prospectus to conform these statements to actual results or to changes
in our expectations.
This prospectus contains market data, including projections, related to
business-to-business e-commerce, the markets for our services, Internet usage in
general and estimates regarding their size and growth. This market data has been
included in industry reports published by organizations such as International
Data Corporation, Forrester Research, Inc. or the Gartner Group. These industry
publications generally indicate that they have derived this data from sources
believed to be reliable, but do not guarantee the accuracy and completeness of
this data. While we believe those industry publications to be reliable, we have
not independently verified this data or any of the assumptions on which the
projections included in this data are based. These assumptions include increased
worldwide business use of the Internet and the absence of any failure of the
Internet. If any of these assumptions is incorrect, actual results may differ
from the projections based on those assumptions and these markets may not grow
at the rates projected by such data, or at all. The failure of these markets to
grow at these projected rates may have a material adverse effect on our business
and the market price of our common stock.
23
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds to be received by us from the sale of the
shares of common stock offered by us in this offering will be $
million, assuming an initial public offering price of $ per
share and after deducting underwriting discounts and commissions and estimated
offering expenses payable by us. If the underwriters' over-allotment option is
exercised in full, we estimate the net proceeds to be received by us will be
$ million.
We expect to use the net proceeds from this offering for general corporate
purposes, including working capital, capital expenditures, expanding our sales
and marketing staff, marketing our brands and potential acquisitions of
technologies, products or businesses which may be complementary to our business.
Pending any use, we intend to invest the net proceeds from this offering in
interest-bearing, investment-grade instruments, certificates of deposit or
direct or guaranteed obligations of the U.S. Government.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock. We do not
anticipate paying any cash dividend in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of our board of directors and will be dependent upon our
financial condition, operating results, capital requirements, general business
conditions, restrictions imposed by financing arrangements, if any, legal and
regulatory restrictions on the payment of dividends and other factors that our
board of directors deems relevant.
24
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
- on an actual basis;
- on a pro forma basis to reflect the mandatory conversion of all
outstanding shares of our preferred stock into 16,960,727 shares of our
common stock on the closing of this offering; and
- on a pro forma as adjusted basis to reflect the sale of the
shares of our common stock offered by us in this offering, at an
assumed initial public offering price of $ per share, after deducting
underwriting discounts and commissions and estimated offering expenses
payable by us.
You should read the information set forth below in conjunction with the
consolidated and pro forma financial statements and the notes thereto appearing
elsewhere in this prospectus. Upon consummation of this offering, our authorized
preferred stock will consist of 25,000,000 shares, which may be issued in
classes or series from time to time.
<TABLE>
<CAPTION>
As of September 30, 1999
------------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------------ ------------ ------------
<S> <C> <C> <C>
Temporary equity (1)................................. $ 1,225 $ 1,225
Series A convertible preferred stock, $0.001 par
value, 8,400,000 Shares authorized, 8,284,000
shares issued and outstanding, actual; none issued
and outstanding, pro forma and pro forma as
adjusted........................................... 8,284
Series B convertible preferred stock, $0.001 par
value, 8,700,000 shares authorized, 8,676,727
shares issued and outstanding, none issued and
outstanding, pro forma and pro forma as adjusted... 8,677
Common stock, $0.001 par value, 45,000,000 shares
authorized; 6,963,469, and shares
issued and outstanding, actual, pro forma and pro
forma as adjusted.................................. 6,963 23,924
Additional paid-in capital........................... 57,038,834 57,038,834
Stock subscription receivable........................ (269,000) (269,000)
Deferred compensation................................ (4,024,247) (4,024,247)
Accumulated deficit.................................. (13,529,747) (13,529,747)
Accumulated other comprehensive loss................. (3,052) (3,052)
------------ ------------ ------------
Total stockholders' equity....................... $ 39,236,712 $ 39,236,712 $
============ ============ ============
</TABLE>
(1) Reflects amounts paid to the former owner of Churchill, subject to put
rights which were subsequently rescinded in December 1999. Amounts will be
reclassed to permanent equity in December 1999.
The above table excludes:
- the issuance of 189,570 shares of common stock to CAREERPATH.COM for
advertising and other services to be provided under our agreement and to
an affiliate of J.P. Morgan & Co. Incorporated, one of the representatives
of the underwriters, for consulting services;
- additional shares of our common stock to be issued to the former
stockholders of Churchill as described under "Unaudited Pro Forma
Condensed Statements of Operations";
- 3,610,300 shares of common stock issuable at a weighted average exercise
price of $1.44 per share upon the exercise of stock options outstanding at
November 30, 1999, 810,342 shares of which are
25
<PAGE>
currently exercisable (including shares of common stock issuable upon the
exercise of options that automatically vest upon the consummation of this
offering);
- 489,700 shares of common stock reserved at November 30, 1999 for future
grant under our stock option plan;
- 720,365 shares of common stock issuable at a weighted average exercise
price of $1.29 per share upon the exercise of warrants outstanding at
November 30, 1999, all of which are currently exercisable;
- shares of our common stock issuable upon the exercise of additional
warrants that will be issued to a provider of advertising services on a
monthly basis prior to the consummation of this offering, the number of
warrants to be issued each month to be based upon the fair market value of
our common stock on the date of issuance of the warrants;
- the assumed issuance of 300,000 shares of common stock upon the exercise
of certain warrants owned by Greenhill & Co., LLC, which acts as a
financial advisor to us, which terminate upon consummation of this
offering at an exercise price of $4.61 per share;
- 300,000 shares of common stock issuable to Greenhill upon the exercise of
a warrant to be issued upon the completion of a specified number or
aggregate value of acquisitions having an exercise price per share equal
to the fair market value of our common stock on the date of issuance of
the warrant; and
- an additional 300,000 shares of common stock issuable upon the exercise of
an additional warrant to be issued to Greenhill upon the completion of a
specified number or aggregate value of acquisitions and having an exercise
price equal to the fair market value of our common stock on the Nasdaq
National Market on the date of issuance of the additional warrant.
26
<PAGE>
DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
$37.4 million, or $1.58 per common share, after giving effect to the conversion
of all outstanding shares of our preferred stock into shares of common stock
upon the closing of this offering. Pro forma net tangible book value per common
share represents the difference between our total tangible assets and our total
liabilities, divided by the total number of shares of common stock outstanding
(pro forma to reflect the conversion of our preferred stock referred to above).
After giving effect to the sale by us of the shares of common stock
offered in this offering at an assumed initial public offering price of $ per
share, after deducting underwriting discounts and commissions and estimated
offering expenses payable by us, our pro forma net tangible book value as of
September 30, 1999 would have been $ million, or $ per common share. This
represents an immediate increase in pro forma net tangible book value of $
per common share to existing stockholders and an immediate dilution of $ per
common share to the new investors. Dilution is determined by subtracting the pro
forma net tangible book value per common share after the offering from the
amount of cash paid by a new investor for a share of common stock. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $
Pro forma net tangible book value per common share as of
September 30, 1999.................................... $
Pro forma increase per common share attributable to new
investors.............................................
------
Pro forma net tangible book value per common share after
this
offering..................................................
------
Pro forma dilution per share to new investors............... $
======
</TABLE>
The following table summarizes, as of September 30, 1999, on a pro forma
basis to reflect the adjustments described above, the differences between our
existing stockholders and the new investors with respect to the number of shares
of common stock purchased from us, the total consideration paid to us and the
average price per share paid by existing stockholders and by new investors at
the assumed initial public offering price of $ per share, before
deducting underwriting discounts and commissions and estimated offering expenses
payable by us:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------- ------------------- Average Price
Number Percent Amount Percent Per Share
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... % $ % $
New investors.................
------- ------ -------- ----- ------
Total..................... 100.0% $ 100.0% $
======= ====== ======== ===== ======
</TABLE>
The foregoing discussion and tables do not reflect issuances of common stock
after September 30, 1999, shares of our common stock issuable upon the exercise
of options and warrants outstanding as of September 30, 1999 and shares of our
common stock issuable upon the exercise of options and warrants issued
subsequent to September 30, 1999 as described under "Capitalization."
To the extent outstanding options or warrants are exercised or new shares
are issued, new investors will suffer further dilution. This offering will
benefit our existing stockholders by creating a public market for our common
stock. Upon consummation of this offering, the unrealized appreciation in the
value of the common stock held by existing stockholders will be $ million ($
million assuming exercise of all outstanding options and warrants), assuming
an initial public offering price of $ per share.
27
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
The following unaudited pro forma condensed statements of operations for the
period from August 17, 1998 (inception) to December 31, 1998 and for the nine
months ended September 30, 1999 give effect to our acquisition of Churchill as
if the transaction had occurred on January 1, 1998. On May 27, 1999, we acquired
all of the outstanding common stock of Churchill in exchange for 630,983 shares
of our common stock with a fair market value of approximately $2.77 per share,
or $1.75 million, subject to the issuance of additional shares upon an earnout
as described below. Amounts included for Churchill in the unaudited pro forma
condensed statement of operations for the nine months ended September 30, 1999
represent the pre-acquisition period of January 1, 1999 to May 26, 1999. The
acquisition of Churchill has been accounted for using the purchase method. We
have allocated the purchase price to Churchill's historical assets and
liabilities based on their carrying values, as these carrying values are
estimated to approximate the fair market value of the assets acquired and
liabilities assumed. The goodwill of $2.1 million created as a result of the
Churchill acquisition is being amortized over three years from the acquisition
date. See Note 2 of Notes to Consolidated Financial Statements.
The unaudited pro forma condensed statements of operations do not purport to
be indicative of what our actual results of operations would have been had the
acquisition of Churchill actually been completed on January 1, 1998, nor does it
purport to be indicative of the results of operations or financial condition
that we may achieve in the future.
The former owner of Churchill is potentially entitled to an additional
270,421 shares of our common stock, which have been placed in escrow, and,
commencing on November 27, 2000, $850,000 of our common stock based on the fair
market value of our common stock on that date. The shares held in escrow and the
shares issuable on November 27, 2000 vest ratably over three years from the date
of the agreement based on the continuous employment of the seller and a key
employee and are subject to downward adjustment based on a targeted number of
free agents purchasing our FREE AGENT E.OFFICE services one year from the date
of the acquisition agreement. As of September 30, 1999, we cannot determine if
the former owner of Churchill will be entitled to any of the shares held in
escrow or to be issued on November 27, 2000.
After determination of the number of shares owed to the former owner of
Churchill, we will charge to compensation expense that portion of the shares
held in escrow and to be issued on November 27, 2000 which have been earned
based on the fair market value of our common stock on that date. We will then
amortize to compensation expense the unvested portion of these shares over the
remaining vesting period.
The unaudited pro forma condensed statements of operations should be read in
conjunction with our consolidated financial statements, the consolidated
financial statements of Churchill and the notes to those financial statements
included elsewhere in this prospectus.
28
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, 1998
------------------------------------------------------------
The Churchill
Opus360 Benefit
Corporation Corporation Adjustments Pro Forma
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenues.......................... $ -- $ 798,813 $ $ 798,813
Cost of revenues...................... -- 68,171 -- 68,171
------------ ----------- ----------- ------------
Gross profit.......................... -- 730,642 -- 730,642
Total operating expenses.............. 1,040,520 523,662 1,005,000 (1) 2,569,182
------------ ----------- ----------- ------------
(Loss) income from operations......... (1,040,520) 206,980 (1,005,000)(1) (1,838,540)
Net (loss) income..................... $ (1,034,722) $ 209,524 $(1,005,000) $ (1,830,198)
============ =========== =========== ============
Basic and diluted net loss per
share............................... $ (0.17) $ (0.27)(2)
============ ============
Weighted average number of shares used
in calculating basic and diluted net
loss per share...................... 6,080,232 6,711,215 (2)
============ ============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
------------------------------------------------------------
The Churchill
Opus360 Benefit
Corporation Corporation Adjustments Pro Forma
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenues........................... $ 241,269 $ 298,868 $ -- $ 540,137
Cost of revenues....................... 198,012 29,250 -- 227,262
------------ ----------- ---------- ------------
Gross profit........................... 43,257 269,618 -- 312,875
Total operating expenses............... 12,816,251 468,829 520,000 (3) 13,805,080
------------ ----------- ---------- ------------
(Loss) income from operations.......... (12,772,994) (199,211) (520,000)(3) (13,492,205)
Net (loss) income...................... $(12,495,025) $ (198,711) $ (520,000) $(13,213,736)
============ =========== ========== ============
Historical basic and diluted net loss
per share............................ $ (1.89) $ (1.90)(2)
============ ============
Weighted average number of shares used
in calculating historical basic and
diluted net loss per share........... 6,626,019 6,963,468 (2)
============ ============
</TABLE>
- ------------------------
(1) For the year ended December 31, 1998, the adjustments to pro forma operating
expenses include $705,000 of goodwill amortized during the period and
$300,000 of additional payroll expenses related to new employment contracts
entered into with the former owner and a key employee of Churchill.
(2) Pro forma basic and diluted historical net loss per share uses the
historical weighted-average amounts for us adjusted by the impact of the
shares of our common stock issued in connection with the Churchill
acquisition, as if such shares were outstanding for all periods presented.
(3) For the nine months ended September 30, 1999, the adjustments to pro forma
operating expenses include $295,000 of additional goodwill amortized during
the period and $225,000 of additional payroll expenses related to new
employment contracts entered into with the former owner and a key employee
of Churchill.
29
<PAGE>
SELECTED FINANCIAL DATA
The selected balance sheet data as of December 31,1998 and the selected
statement of operations data for the period from August 17, 1998 (our inception)
through December 31, 1998 are derived from our audited financial statements,
which have been audited by KPMG LLP, included elsewhere in this prospectus. The
selected consolidated balance sheet data as of September 30, 1999 and the
selected consolidated statement of operations data for the nine months ended
September 30, 1999 are derived from our unaudited consolidated financial
statements included elsewhere in this prospectus. Historical results are not
necessarily indicative of the results to be expected in the future and results
of interim periods are not necessarily indicative of results for the full fiscal
year.
You should read the data set forth below in conjunction with "Unaudited Pro
Forma Condensed Statements of Operations," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our financial statements
and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from August 17,
1998
(our inception) through Nine Months Ended
December 31,1998 September 30, 1999
----------------------- ------------------
(except per share data)
<S> <C> <C>
Statement of Operations Data:
Revenues............................................ $ -- $ 241,269
Cost of revenues.................................... -- 198,012
----------- ------------
Gross profit........................................ -- 43,257
Operating expenses:
Sales and marketing............................... 80,389 3,750,776
Product development............................... 551,736 4,298,845
General and administrative........................ 406,840 3,740,040
Depreciation and amortization..................... 1,555 309,679
Amortization of equity-based compensation......... -- 716,911
----------- ------------
Total operating expenses........................ 1,040,520 12,816,251
----------- ------------
Loss from operations.............................. (1,040,520) (12,772,994)
Other income, net................................... 5,798 277,969
----------- ------------
Net loss.......................................... $(1,034,722) $(12,495,025)
=========== ============
Basic and diluted net loss per share:............... $ (0.17) $ (1.89)
=========== ============
Weighted average number of shares used in
calculating basic and diluted net loss per
share(1).......................................... 6,080,232 6,626,019
=========== ============
Pro forma basic and diluted net loss per share...... $ (0.10) $ (0.53)
=========== ============
Pro forma weighted average number of shares used in
calculating basic and diluted net loss per
share(1).......................................... 10,716,232 23,586,746
=========== ============
</TABLE>
- ------------------------
(1) Reflects the automatic conversion of our outstanding preferred stock on a
share-for-share basis on the consummation of this offering.
<TABLE>
<CAPTION>
As of As of
Dec. 31, 1998 Sept. 30, 1999
------------- --------------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable securities............ $5,817,926 $40,720,179
Working capital............................................. 5,199,471 37,601,712
Total assets................................................ 5,886,785 46,846,702
Temporary equity (1)........................................ -- 1,225,000
Convertible preferred stock................................. 4,636 16,961
Total stockholders' equity.................................. $5,253,898 $39,236,712
</TABLE>
- ------------------------
(1) Reflects amounts paid to the former owner of Churchill, subject to put
rights which were subsequently rescinded in December 1999. Amounts will be
reclassed to permanent equity in December 1999.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO, THE FINANCIAL STATEMENTS AND THE NOTES TO THOSE
FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION AND
ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS AND INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF FACTORS INCLUDING, BUT NOT
LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
Overview
We provide a leading integrated web-based business-to-business solution for
putting people and projects together across the labor supply chain. Our
e-commerce solution streamlines the procurement and management of professional
resources, by using advanced technologies to enable buyers of project-based
talent to identify and procure knowledge workers. Our solution is comprised of
three integrated services:
- FREEAGENT.COM: a comprehensive vertical portal site and community that
enables free agents to more efficiently and cost effectively manage their
independent careers by offering them access to multiple project
opportunities, our FREEAGENT E.OFFICE and E.PORTFOLIO services and a
marketplace of corporate products and services.
- OPUS XCHANGE: a web-based platform that serves as the hub for our
integrated solution and is designed to enable corporations, professional
service firms, staffing vendors and other buyers of project-based talent
to seamlessly procure knowledge workers in an exchange-based environment
by using rule-based intelligent search technologies to match people with
projects and by automating the requisition, approval and engagement
processes.
- OPUSRM: a labor resource management service designed to centralize
resource and project information and enable organizations to more
efficiently manage their professional resources.
We were founded in August 1998 and have a limited operating history. During
the period from August 1998 through May 1999, we did not have any revenues and
our activities consisted primarily of the development and testing of our
Internet-based solutions, capital raising activities and building our corporate
infrastructure. We launched our FREEAGENT.COM website in July 1999. We purchased
the worldwide rights to some of the intellectual property underlying the OPUSRM
technology from USWeb Corporation in September 1998 for common stock. We expect
the general release of OPUSRM, currently in the beta development stage, to occur
in the first half of 2000. We launched OPUS XCHANGE in September 1999. We expect
to release the enhanced version of OPUS XCHANGE, currently in the beta
development stage, in the first half of 2000.
In May 1999, we acquired all of the outstanding stock of Churchill in
exchange for shares of our common stock. Churchill's employee benefit services,
which had historically been provided offline to approximately 190 contract
technology professionals, have been integrated into our FREEAGENT E.OFFICE
services. On a pro forma basis, as if we acquired Churchill on January 1, 1998,
our revenues for the period from our inception on August 17, 1998 to
December 31, 1998 and for the nine months ended September 30, 1999, would have
been $0.8 million and $0.5 million, respectively, and our net losses for these
periods would have been $1.8 million and $13.2 million, respectively. See
"Unaudited Pro Forma Condensed Statements of Operations" included elsewhere in
this prospectus. The former owner of Churchill is potentially entitled to an
additional 270,421 shares of our common stock, which have been placed in escrow,
and, commencing on November 27, 2000, $850,000 of our common stock based on the
fair market value of our stock on that date. The shares held in escrow and the
shares to be issued on November 27, 2000 vest ratably over 3 years from the date
of the agreement based on the continuous employment of the seller and a key
employee and are subject to downward adjustment based on a targeted number of
free agents purchasing our FREEAGENT E.OFFICE
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services one year from the date of the acquisition agreement. As of
September 30, 1999, we cannot determine if the former owner of Churchill will be
entitled to any of the shares held in escrow or to be issued on November 27,
2000. After determination of the number of shares owed to the former owner of
Churchill, we will charge to compensation expense that portion of the shares
held in escrow and to be issued on November 27, 2000 that have been earned based
on the fair market value of our common stock on that date. We will then amortize
to compensation expense the unvested portion of these shares over the remaining
vesting period.
Our limited operating history makes an evaluation of our future prospects
very difficult. We will encounter risks and difficulties frequently encountered
by early-stage companies in new and rapidly evolving markets. We have incurred
substantial losses since inception to develop our products and brands and
anticipate that these losses will continue into the future. Our accumulated
deficit at September 30, 1999 was $13.5 million. For financial reporting
purposes, our reportable operating segments are as follows:
- Application and Procurement Services--which represents the business of
OPUSRM and OPUS XCHANGE; and
- FreeAgent Services--which represents the services and products we offer to
free agents through FREEAGENT.COM.
The table below presents information about our reportable segments:
<TABLE>
<CAPTION>
Application and
Procurement FreeAgent
Services Services Total
--------------- ----------- ------------
<S> <C> <C> <C>
Nine months ended September 30, 1999:
Revenues........................................... $ -- $ 241,269 $ 241,269
Gross profit (loss)................................ (92,985) 136,242 43,257
Net loss before equity-based compensation
charges............................................ (9,687,518) (2,090,596) (11,778,114)
Total assets....................................... 44,566,781 2,214,220 46,846,702
Period from August 17, 1998 (inception) to December
31, 1998:
Revenues........................................... $ -- $ -- $ --
Gross profit....................................... -- -- --
Net income (loss).................................. (1,034,722) -- (1,034,722)
Total assets....................................... 5,832,358 -- 5,832,358
</TABLE>
Our revenues during our short operating history have been solely derived
from the fees paid by free agents who purchase our FREEAGENT E.OFFICE services.
Free agents who purchase our FREEAGENT E.OFFICE services are our contractual
employees for federal income tax purposes for whom we prepare IRS Form W-2s. We
enter into contracts with organizations for the projects to be performed by our
FREEAGENT E.OFFICE employees, process invoices on their behalf and, upon our
receipt of amounts due from the contracting organizations for the services
rendered by our FREEAGENT E.OFFICE employees, remit these amounts to them after
deducting the initial and monthly fees and payroll taxes and directing a portion
of these amounts to their health insurance and 401(k) plan, as instructed by the
free agent.
Classification and Recognition of Revenues
We classify and recognize our revenues within our operating segments as
follows:
FREEAGENT E.OFFICE revenues consist of an initial sign-up fee and monthly
fees paid by free agents who purchase our FREEAGENT E.OFFICE services. We
recognize the initial sign-up fee over the period of the free agent's initial
contract term.
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FREEAGENT business services revenues will consist of commission-based and
fee-based services and products provided through FREEAGENT.COM by our business
partners. Registered users of FREEAGENT.COM, whether or not purchasing our
FREEAGENT E.OFFICE services, may procure various business services provided at a
discount by these business partners. These commission-based services will
consist of a variety of support services, including training, equipment leasing,
health benefits, and products geared toward helping free agents establish and
manage their careers. We will be paid a commission based on the purchase price
for each service used by, or product purchased by, each registered free agent.
Business service revenues that are transaction-based will be recognized as
revenues when the transaction is consummated. Business service revenues that are
subscription-based will be recognized as revenues over the related subscription
term.
FREEAGENT.COM advertising revenues, consisting of banner advertising
revenues sold on a monthly or extended-term basis, will be recognized as revenue
over the period in which the ads are displayed.
OPUS XCHANGE project listing revenues will consist of fees that are paid by
organizations that list projects on OPUS XCHANGE. An organization may either pay
a fixed fee for each specific project listed or a quarterly fee for unlimited
listings during that quarter. These fees will be recognized as revenues over the
applicable period for which the project is listed. To date, project listings
have been offered to organizations without charge. These fees will be charged to
organizations listing their projects on OPUS XCHANGE commencing during the first
quarter of 2000.
OPUS XCHANGE project placement revenues will consist of a transaction-based
fee (either variable or fixed), paid when an organization that has listed a
project on OPUS XCHANGE procures the services of a registered free agent to
perform services for the project. These fees to be paid by the contracting
organization will generally be recognized as revenue either when a free agent is
engaged for a project or over the term of the contract with the buyer. To date,
we have not charged organizations for project placements. These fees will be
charged to organizations that transact with a registered free agent commencing
during the first quarter of 2000.
OPUSRM integration revenues will consist of fees paid for the integration,
installation and customization of OPUSRM and will be recognized as the specific
services are performed.
OPUSRM service revenues will consist of subscription fees paid by clients
for each managed employee resource, or "seat," within their internal OPUSRM
database, and will be recognized as revenues over the subscription term. Unlike
traditional software pricing models, which employ one-time license fees and
annual maintenance and upgrade fees, our OPUSRM solution will be marketed as a
subscription-based service where users are charged on a quarterly basis. We
anticipate that during the first several years of our sales efforts, we will
offer OPUSRM at a discounted price in order to increase our client base and the
number of seats.
Classification of Cost of Revenues and Operating Expenses
We classify our cost of revenues and operating expenses within our operating
segments as follows:
COST OF REVENUES. Cost of revenues included in our FREEAGENT.COM services
segment include salaries paid to staff that help administer our FREEAGENT
E.OFFICE services and other costs associated with operating FREEAGENT.COM,
including certain technical personnel, equipment leasing costs,
telecommunications charges and depreciation. We expect cost of revenues for
FREEAGENT.COM services to increase as a percentage of revenues in the near term
as we continue to build our staff and technology resources capable of sustaining
our anticipated growth.
Cost of revenues associated with operating our Application and Procurement
Services includes the costs of providing integration services to OPUSRM
customers as well as other costs associated with operating OPUS XCHANGE,
including certain technical personnel, equipment leasing costs,
telecommunications charges and depreciation.
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<PAGE>
We expect the cost of revenues to increase in subsequent quarters as we
continue to add staff and infrastructure to support the growth of our integrated
services.
SALES AND MARKETING EXPENSE. Sales and marketing expense consists primarily
of agency fees, production fees, marketing and advertising for FREEAGENT.COM,
salaries and benefits paid to our sales and marketing staff, sales commissions,
public relations expenses, trade shows and conferences, and consulting fees.
Changes in the timing and magnitude of marketing initiatives for FREEAGENT.COM
will continue to cause fluctuations in sales and marketing expense as a
percentage of revenues. We intend to aggressively market FREEAGENT.COM to
increase our brand awareness and ultimately attract more registered free agents,
free agents who post their E.PORTFOLIOS on FREEAGENT.COM and free agents who
purchase FREEAGENT E.OFFICE services. Consequently, we expect to increase our
sales and marketing expenses in future periods as we increase our advertising
efforts and add staff to our sales and marketing departments.
PRODUCT DEVELOPMENT EXPENSE. Product development expense consists primarily
of costs associated with the compensation of internal and external personnel
used to develop OPUS XCHANGE and OPUSRM, and the continuing efforts of our
development staff to enhance the content, features and functionality of
FREEAGENT.COM, OPUS XCHANGE and OPUSRM. We expect these costs to increase
through 2000 as we add staff and consultants to our development team.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
consists primarily of lease expenses for our office facilities, compensation and
benefits for administrative and executive staff, general office expenses, fees
for professional services, recruiting and relocation expenses. We expect these
costs to increase in future quarters as we continue to add administrative
personnel and implement our strategy of attracting and retaining high-quality
professionals. Another significant component of general and administrative costs
has been the cost of leasing additional space to support our growth. We expect
general and administrative expenses to increase in future periods to support our
expanded operations and the added expenses of being a public company.
Results of Operations
We have a short operating history and have incurred substantial losses since
our inception. From the date of our inception in August 1998 through
December 31, 1998, we incurred net losses of approximately $1.0 million. For the
nine months ended September 30, 1999, we incurred net losses of approximately
$12.5 million. As of September 30, 1999, we had an accumulated deficit of
approximately $13.5 million. Our net losses and resulting accumulated deficit
are primarily due to the costs we incurred to develop our products and services
and to expand our sales and marketing programs.
We intend to devote significant resources to advertising and brand-marketing
programs designed to attract free agents to FREEAGENT.COM and promote our OPUS
XCHANGE and OPUSRM services. We anticipate increasing advertising spending in
the future. This will result in sales and marketing expenses increasing as a
percentage of total revenues. We also expect to increase our internal staff,
particularly in the areas of sales and marketing and product development.
As a result of our expansion plans and our expectation that operating
expenses will increase significantly in the next several years, especially in
the areas of sales and marketing and brand promotion, we expect to incur
additional losses from operations for the foreseeable future. To the extent
these increases in our operating expenses precede and are not followed by
commensurate increases in revenues, or if we are unable to adjust operating
expense levels accordingly, our operating losses may exceed our expectations for
those periods. We cannot be sure that we will ever achieve or sustain
profitability.
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<PAGE>
The following table presents our quarterly operating results for the three
quarters ended September 30, 1999.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------------------------- ------------------
March 31, 1999 June 30, 1999 September 30, 1999 September 30, 1999
-------------- ------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues.......................... $ -- $ 64,598 $ 176,671 $ 241,269
Cost of revenues.................. -- 9,111 188,901 198,012
----------- ----------- ----------- ------------
55,487 (12,230) 43,257
Operating expenses excluding
deferred compensation........... 1,976,341 3,720,502 6,402,497 12,099,340
----------- ----------- ----------- ------------
Net loss from operations before
deferred compensation........... $(1,976,341) $(3,665,015) $(6,414,727) $(12,056,083)
</TABLE>
REVENUES
For the nine months ended September 30, 1999 our revenues were $0.2 million
and consisted solely of the initial sign-up fees and monthly fees paid by our
FREEAGENT E.OFFICE employees. At December 16, 1999, we had over 34,000
registered users of FREEAGENT.COM, of whom 260 were FREEAGENT E.OFFICE
employees, most of whom joined us through our May 1999 acquisition of Churchill.
COST OF REVENUES
Cost of revenues for the nine months ended September 30, 1999 were
$0.2 million.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses of $3.8 million for the
nine months ended September 30, 1999 consisted primarily of marketing and
advertising expenses for FREEAGENT.COM, salaries and benefits paid to our sales
and marketing staff and consulting fees. During this period, we added sales and
marketing staff and commenced an advertising campaign to coincide with the
launch of FREEAGENT.COM in an effort to increase our brand awareness and develop
business relations. Sales and marketing expense included non-cash charges of
$0.1 million related to the fair market value of warrants issued as
consideration for advertising services provided by a third party. See Note 9 of
Notes to Consolidated Financial Statements included elsewhere in this
prospectus. The advertising services will continue to be paid through the
issuance of additional warrants having an exercise price of $0.01 per share
through the consummation of this offering. As a result, we will continue to have
additional non-cash charges through that time. For the period from our date of
inception in August 1998 to December 31, 1998, sales and marketing expenses were
$0.1 million.
PRODUCT DEVELOPMENT. Product development expenses of $4.3 million for the
nine months ended September 30, 1999 consisted primarily of salaries and
consulting fees paid to our development engineers. Product development during
this period related to the development of FREEAGENT.COM and the development of
our OPUS XCHANGE and OPUSRM services. Product and development expense included
non-cash charges of approximately $0.1 million related to the fair market value
of warrants issued as consideration for product and development services
provided by a third party. Product development expenses of $0.6 million for the
period from the date of our inception in August 1998 to December 31, 1998
related to our initial OPUSRM development.
GENERAL AND ADMINISTRATIVE. General and administrative expenses of
$3.7 million for the nine months ended September 30, 1999 consisted primarily of
salaries and benefits, general office expenses, rent and utilities, recruiting
fees and professional fees. General and administrative expense included non-cash
charges of $0.5 million related to the fair market value of warrants issued as
consideration for financial and advisory
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<PAGE>
services provided by a shareholder. See Note 9 of Notes to Consolidated
Financial Statements included elsewhere in this prospectus.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of
$0.3 million for the nine months ended September 30, 1999 consisted primarily of
amortization of goodwill associated with the Churchill acquisition and
depreciation of equipment.
AMORTIZATION OF EQUITY-BASED COMPENSATION. The amortization of equity-based
compensation for the nine months ended September 30, 1999 was $0.7 million and
consisted of deferred compensation expense for options to purchase common stock
granted to employees, directors and non-employees having exercise prices below
the fair market value of our common stock at the date of grant, for accounting
purposes based upon subsequent valuation events. See Note 9 of Notes to
Consolidated Financial Statements included elsewhere in this prospectus.
Excluding deferred compensation with respect to additional options granted to
employees and directors after September 30, 1999, we expect to recognize
deferred compensation expense in future periods as follows:
<TABLE>
<CAPTION>
Deferred
Period Compensation Expense
- --------------------------------------------------------- --------------------
<S> <C>
Quarter ending December 31, 1999......................... $237,770
Year ending December 31, 2000............................ 951,081
Year ending December 31, 2001............................ 951,081
Year ending December 31, 2002............................ 951,081
Year ending December 31, 2003............................ 323,535
</TABLE>
In connection with the grant of 115,125 stock options in 1999 to
non-employees, we recorded deferred compensation expense of approximately
$0.6 million for the nine months ended September 30, 1999. We will amortize
deferred compensation for those options issued to non-employees and will record
compensation expense for the fair market value of the options at each interim
vesting date over which the options vest. The amount recognized as expense
during the nine months ended September 30, 1999 relating to non-employee options
amounted to less than $0.1 million. We cannot presently determine the amount of
future compensation expense we may record related to options issued to
non-employees as these amounts are subject to adjustment based on the fair
market value of the underlying options at each vesting date.
OTHER INCOME. Interest income of $0.3 million for the nine months ended
September 30, 1999 consisted primarily of interest income from short-term
investments. We have invested our cash in corporate debt securities and U.S.
government agency securities.
INCOME TAX EXPENSE. We have not recorded a provision for income tax expense
as we have incurred substantial losses in every fiscal period since our
inception. At September 30, 1999, we had a net operating loss carryforward of
$11.1 million which gives rise to substantially all of our $5.1 million net
deferred tax asset. We have recorded a valuation allowance in the amount of
$5.1 million to fully eliminate the deferred tax asset as management believes
sufficient uncertainty exists regarding the realization of the deferred tax
asset. We have not yet analyzed, under certain complex tax rules, whether there
will be limitations placed on the use of our net operating loss carryforward to
offset future income, if any. Such limitations may occur as a result of this
offering.
Liquidity and Capital Resources
We have funded our operations primarily through the sale of our equity
securities, through which we have raised net proceeds of approximately
$53.4 million through September 30, 1999. Between December 1998 and April 1999,
we raised in a private placement approximately $11 million from the sale of our
Series A preferred stock. We also issued 568,000 warrants to purchase common
stock as part of the issuance of the Series A preferred stock. During September
and October 1999, in another private placement,
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<PAGE>
we raised $40 million from the sale of our Series B preferred stock. We have
obtained a $1 million line of credit from Silicon Valley Bank, of which $650,000
is used to guarantee a letter of credit for collateral against our leasehold
interest obligation. In August 1999, we entered into an additional $1,500,000
equipment facility with Silicon Valley Bank. In connection with these credit
arrangements, we issued warrants to purchase an aggregate of 31,000 shares of
our common stock. The facilities contain various financial and non-financial
covenants and amounts borrowed under the facilities are collateralized by our
current assets. At September 30, 1999, we were in compliance with all of these
covenants. At September 30, 1999, our cash and short-term investments totaled
$40.7 million.
Cash used in operating activities for the nine months ended September 30,
1999 totaled $7.2 million primarily due to our net loss of $12.5 million,
adjusted for various non-cash charges including non-cash compensation and
depreciation and amortization, and changes in operating assets and liabilities
including changes in our accounts receivable, accounts payable and accrued
expenses. Cash used in operating activities totaled $0.3 million for the period
from our date of inception in August 1998 to December 31, 1999. Because we will
continue to need substantial amounts of working capital to fund the growth of
our business, we expect to experience significant negative operating cash flows
for the foreseeable future.
Cash used in investment activities for the nine months ended September 30,
1999 totaled $38.0 million. We used $37.2 million derived from our financing
activities to acquire short-term investments. Cash used in investing activities
for the period from our inception in August 1998 to December 31, 1998 was less
than $0.1 million. We will be moving into our principal offices during the first
quarter of 2000 and will spend approximately $3.5 million in capital
expenditures as part of the design and development of the new facilities. In
addition, during 2000, we also expect to spend approximately an additional
$3.5 million in capital expenditures.
Net cash provided by financing activities for the nine months ended
September 30, 1999 was $42.9 million. The cash from financing activities
resulted primarily from the sale of our Series B preferred stock and additional
shares of our Series A preferred stock. Cash flow provided by financing
activities for the period from our inception in August 1998 to December 31, 1998
totaled $6.2 million and consisted of proceeds from the initial sale of our
Series A preferred stock and sales of our common stock. All shares of the
Series A preferred stock and Series B preferred stock will automatically convert
into common stock on a one-for-one basis upon consummation of this offering.
We currently anticipate that the net proceeds from this offering, together
with our current cash and marketable securities and available borrowings under
our bank facilities, will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures for at least the next 12 months.
However, we may need to raise additional funds in future periods through public
or private financings, or other arrangements to fund our operations and
potential acquisitions, if any. We cannot assure you that any such financings or
other arrangements will be available in amounts or on terms acceptable to us or
at all and any such financings or arrangements could place operating or other
restrictions on us. Our inability to raise capital when needed could seriously
harm the growth of our business and results of operations. If additional funds
are raised through the issuance of equity securities, the percentage ownership
of our stockholders would be reduced. Furthermore, these equity securities could
have rights, preferences or privileges senior to our common stock.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept or recognize only two-digit entries in the date code field. These systems
and software products will need to accept four-digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and
software used by many companies and governmental agencies may need to be
upgraded to comply with these year 2000 requirements or risk system failure or
miscalculations which could cause disruptions of normal business activities.
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<PAGE>
We designed all of our products to be year 2000 compliant when configured
and used in accordance with the related documentation, provided that the
underlying operating system of the host machine and any other software used with
or in the host machine or our products are year 2000 compliant. We have defined
year 2000 compliant as the ability to:
- correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
- function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century;
- respond to two-digit date input in a way that resolves the ambiguity as to
century in a disclosed, defined and predetermined manner;
- store and provide output of date information in ways that are unambiguous
as to century if the date elements in interfaces and data storage specify
the century; and
- recognize year 2000 as a leap year.
We have been informed by our material software component vendors and our
Internet service providers that the products and services we use are, or will
be, year 2000 compliant. We purchased or developed our systems within the past
two years, and believe that we do not have legacy systems that have been
historically identified to have year 2000 issues. We have applied vendor patches
for relevant software to bring them into compliance with vendor-defined year
2000 standards. We are not currently aware of any remaining material operational
issues or costs associated with preparing our internal information technology
for the year 2000. However, we may experience material unanticipated problems
and costs caused by undetected errors or defects in the technology used in our
internal information technology and non-information technology systems.
Despite testing by us and current and potential customers, and assurances
from developers of products incorporated into our products, our products may
contain undetected errors or defects associated with year 2000 date functions.
Known or unknown errors or defects in our products could result in delay or loss
of revenues, diversion of development resources, damage to our reputation,
increased service and warranty costs, or liability to our customers. Moreover,
the failure to adequately address year 2000 compliance issues in our technology
and our IT and non-IT systems could result in claims of mismanagement,
misrepresentation or breach of contract and related litigation, which could be
costly and time-consuming to defend.
We have funded our year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material.
We do not currently have any information concerning the year 2000 compliance
status of our customers. Our current or future customers may incur significant
expenses to achieve year 2000 compliance. If our customers are not year 2000
compliant, they may experience material costs to remedy problems, or they may
face litigation costs. In either case year 2000 issues could reduce or eliminate
the budgets that current or potential customers could have for or delay
purchases of our products and services. There is a risk that orders for our
products will be reduced or delayed as information technology departments within
companies reallocate their capital expenditures to resolve year 2000 problems.
In addition, year 2000 compliance issues also could cause a significant number
of companies, including our current customers, to reevaluate their current
system needs and, as a result, consider switching to other systems and
suppliers. In addition, these customers may not be able to utilize the systems
necessary to access our products and services.
In addition, governmental agencies, utility companies, Internet service
providers, third party service providers and others outside our control may not
be year 2000 compliant. The failure by such entities to be year 2000 compliant
could result in a systemic failure beyond our control, such as a prolonged
Internet, telecommunications or electrical failure, which could also prevent us
from delivering our products and services to our customers, decrease the use of
the Internet or prevent users from accessing the websites of companies with whom
we have entered into business alliances.
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<PAGE>
Based on our assessment completed to date, we believe that the reasonably
likely worst case scenario with respect to year 2000 issues could be:
- portions of FREEAGENT.COM may be down while programmers fix our systems or
the systems of Internet service providers or other third parties;
- temporary data loss could occur while back-up copies of data are retrieved
from tape;
- lengthy outages could occur while programmers work to repair or restore
corrupted or missing database files;
- our internal corporate, billing and accounting system may be down while
programmers fix our system;
- the inability of our customers to use our products and services;
- claims from our customers asserting liability, including liability for
breach of warranties related to the failure of our products and services
to function properly, and any resulting settlements or judgments; and
- our inability to manage our own business.
Although these events could have an adverse effect on our business in the
short term, we do not believe that year 2000 issues will materially and
adversely affect our business, results of operations or financial condition over
the long term.
We have also prepared a contingency plan, which includes the availability of
Year 2000 compliant software on our servers and the availability of trained
information services support staff to respond to unforeseen desktop failures. We
have redundant servers for a variety of our operating systems to minimize
potential outages of server operations. Regular backups will be supplemented and
relocated offsite to ensure our ability to reconstruct any failed systems
quickly. Secondary servers throughout our operations will maintain our
connections to the Internet.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." We have adopted
SOP 98-1 which requires that entities capitalize certain costs related to
internal use software once certain criteria have been met. We are required to
implement SOP 98-1 for the year ending December 31, 1999. Adoption of SOP 98-1
did not have a material effect on our financial condition or results of
operations.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Cost of
Start-Up Activities". SOP 98-5 requires that all start-up costs related to new
operations must be expensed as incurred. In addition, all start-up costs that
were capitalized in the past must be written off when SOP 98-5 is adopted. We
implemented SOP 98-5 on January 1, 1999.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning June 15, 2000. The
statement is not expected to affect us because we currently do not engage or
plan to engage in derivative instruments or hedging activities.
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BUSINESS
Overview
Opus360 provides a leading integrated web-based solution for putting people
and projects together across the labor supply chain. Our business-to-business
exchange uses advanced technologies to enable corporations, professional service
firms, staffing vendors and other buyers of project-based talent to identify and
procure knowledge workers with technology, creative, strategic consulting and
other expertise. Our strategy is to build the largest community of free agents
by providing them with access to multiple project opportunities and by offering
them corporate-style benefits and services creating a marketplace that will
attract large buyers of project-based talent. We believe organizations will use
our labor resource management services, which seamlessly integrate with our
exchange, in order to more efficiently manage their highly skilled internal and
external professional resources.
Our solution consists of three integrated services:
- SERVING THE FREE AGENT COMMUNITY. FREEAGENT.COM is a comprehensive
vertical portal site and community that enables free agents to more
efficiently and cost effectively manage their independent careers by
offering them access to multiple project opportunities, our FREEAGENT
E.OFFICE and E.PORTFOLIO services and a marketplace of corporate products
and services.
- MATCHING BUYERS WITH PROJECT-BASED TALENT. OPUS XCHANGE is a web-based
platform designed to enable corporations, professional service firms,
staffing vendors and other buyers of project-based talent to seamlessly
procure knowledge workers in an exchange-based environment by using
rule-based intelligent search technologies to match people with projects
and by automating the requisition, approval and engagement processes.
- MANAGING LABOR RESOURCES. OPUSRM is a labor resource management service
designed to centralize resource and project information and enable
organizations to more efficiently manage their professional resources.
We introduced FREEAGENT.COM on July 4, 1999 and OPUS XCHANGE on
September 6, 1999. During the first half of 2000, we expect to release OPUSRM
and our enhanced version of OPUS XCHANGE, which will have more advanced vendor
management and performance tracking and enhanced matching capabilities.
Industry Background
GROWTH OF THE INTERNET AND BUSINESS-TO-BUSINESS E-COMMERCE
The Internet has grown rapidly in recent years. International Data
Corporation estimates that at the end of 1998 the Internet had over 142 million
users worldwide, of which approximately 63 million were in the U.S., and that by
2003 the number of users worldwide will grow to approximately 502 million, of
which approximately 177 million will be in the U.S. The widespread adoption of
the Internet as a communications platform has created a foundation for
business-to-business electronic commerce that will enable organizations to
streamline complex processes, lower costs and improve productivity. According to
Forrester Research, business-to-business electronic commerce is expected to grow
from $43 billion in 1998 to $1.3 trillion in 2003. Organizations are
increasingly using Internet technologies to improve traditional operations such
as customer service, supply chain management, employee recruiting and training,
and communications.
RAPIDLY INCREASING DEMAND FOR QUALIFIED KNOWLEDGE WORKERS
Faced with an increasingly competitive environment, organizations are
refocusing on their core competencies and recognizing their increasing need to
use external resources. The rapid growth of e-commerce has fueled the demand for
knowledge workers with skills, including strategic consulting, creative design
and systems engineering. In response, many organizations outsource, on a
project-by-project basis, different aspects of the development, design and
maintenance of their e-commerce strategies and applications to qualified
independent knowledge workers to capitalize on their accumulated strategic,
creative and
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technical expertise. International Data Corporation estimates that U.S.
corporate spending on outsourcing services will grow from $51 billion in 1998 to
$81 billion in 2003. According to the Gartner Group, by 2004, 60% of enterprises
will use externally sourced workers to fulfill more than 50% of their IT-related
activities.
ORGANIZATIONS REQUIRE EFFICIENT RESOURCE MANAGEMENT ACROSS THE LABOR SUPPLY
CHAIN
Faced with shorter deadlines, increased demand for services and rapid
technological change within their complex enterprises, organizations must
attract, recruit, retain and effectively use and manage their resources across
the labor supply chain, including internal employees, knowledge workers from
professional service firms or staffing vendors and free agents. Historically,
organizations typically employed decentralized systems, or combined manually
implemented, ad hoc procedures, to gather data and manage projects and procure,
allocate and deploy skilled labor resources. These systems generally have had
only limited ability to report real time project-related information or capture
data for post-project performance analysis. Managing knowledge workers across
the labor supply chain on multiple projects has been, and continues to be, a
resource intensive and error prone process, resulting in increased costs,
inefficient utilization and decreased profits.
INEFFICIENT MARKETPLACE FOR PROCURING KNOWLEDGE WORKERS
As organizations and knowledge workers increasingly embrace more flexible
work arrangements made possible by advances in technology and
telecommunications, a community of independent professionals, consultants and
other free agents that desire to work outside of the corporate environment has
emerged. To hire both full-time and project-based labor, organizations have
typically relied on the highly fragmented professional recruiting and staffing
industries, which, in the U.S., consists of over 7,000 companies. The primary
obstacle impeding an organization's ability to reach the marketplace for
knowledge workers has been the lack of an efficient platform to connect them
with knowledge workers from numerous professional service firms, staffing
vendors and the free agent community. Because of the Internet's ability to
centralize information and disseminate it widely, a growing number of
organizations are turning to it as a platform for improving their labor
procurement processes. According to Forrester, of the 6 million businesses in
the U.S., only 15,000 currently procure labor online, with this number
forecasted to rise to 124,000 by 2003. We believe a more efficient marketplace
for connecting organizations with knowledge workers will lead to an increase in
the number of organizations that procure labor online.
LARGE MARKET OF UNDERSERVED FREE AGENTS
While free agents, which we currently estimate to number more than
24 million people, enjoy the freedom of selecting the organizations they work
for, they typically lack a community in which to interact and share knowledge.
In addition, many free agents do not readily have access to benefits, services
and products comparable to those available in a traditional corporate setting.
Free agents require:
- COMMUNITY, CONTENT, INFORMATION SHARING AND NETWORKING. Free agents
require in-depth and up-to-date content and information, such as reference
and training materials, business and legal forms and other industry data,
to improve their skills and maintain their businesses. Members of the free
agent community who are unaffiliated with organizations also require a
forum to share information, discuss common issues and form project teams.
- CORPORATE-LEVEL BENEFITS AND BACK-OFFICE SERVICES. The ability of free
agents to participate in group-oriented benefits and achieve volume
discounts on corporate products and services is limited by their
unaffiliated status and lack of access to readily available information.
Free agents also lack convenient, fully automated back-office
administrative services to allow them to focus their time and energy on
projects. The more than 24 million estimated free agents who work in the
U.S. represent a market with substantial buying power.
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The Opus360 Solution
We provide a leading integrated web-based solution for putting people and
projects together across the labor supply chain. Our business-to-business,
e-commerce platform enables corporations, professional services firms, staffing
vendors and other buyers of project-based talent to identify and procure free
agents with the necessary expertise. Our exchange also enables free agents to
search for and secure project assignments. Our comprehensive solution consists
of the following services:
SERVING THE FREE AGENT COMMUNITY
FREEAGENT.COM is a comprehensive vertical portal site that provides free
agents with access to multiple project opportunities and enables them to more
effectively market themselves using E.PORTFOLIOS describing their skills,
experiences, references and other professional information. Free agents can
interact with each other, receive industry-related content and form teams to
apply for and execute complex project assignments. Through FREEAGENT.COM, free
agents can also elect to receive corporate-style benefits and administrative
services to assist them in managing their professional careers. FREEAGENT.COM is
one of the first online communities to provide a comprehensive array of products
and services to the free agent community and to aggregate valuable
corporate-style benefits such as group health insurance, liability insurance, a
401(k) plan and Opus360 stock options.
As of December 16, 1999, we had over 34,000 registered free agents, over
11,000 E.PORTFOLIOS and 4,876 projects posted on FREEAGENT.COM
MATCHING BUYERS WITH PROJECT-BASED TALENT
OPUS XCHANGE provides a web-based, business-to-business marketplace that
serves as the hub for our integrated solution. It is designed to enable
corporations, staffing vendors, professional service organizations and other
buyers of project-based talent to identify and procure knowledge workers from
all sources in the labor supply chain. We believe that OPUS XCHANGE will create
an efficient labor procurement process to match organizations and knowledge
workers according to project requirements and knowledge workers' specific
skills, qualifications and experience. OPUS XCHANGE is designed to perform
complex, customized searches to identify for the buyer suitable knowledge worker
candidates based on their specific skills, experience and availability from any
source in the labor supply chain and facilitate the transaction between them for
a project by automating the requisition, approval and engagement processes.
Using OPUS XCHANGE, free agents are able to perform searches for projects to
procure work assignments that match their specific qualifications and
preferences. OPUS XCHANGE also will assist organizations by capturing data each
time the service is used on time efficiency, cost competitiveness, performance
and quality control on the external vendors and free agents. We believe access
to this data will be an attractive offering for organizations, encouraging
repeat usage of OPUS XCHANGE and will eventually help establish performance
metrics to identify the prevailing billing rates for project-based services. We
expect to release an enhanced version of OPUS XCHANGE in the first half of 2000
that will have more advanced vendor management and matching capabilities.
MANAGING KNOWLEDGE WORKERS
OPUSRM is a labor resource management service that is designed to centralize
resource and project information, permitting organizations to manage their
professional resources more efficiently in a project-driven environment. OPUSRM
is designed to realize efficiencies in all project phases, including budgeting,
forecasting, resource allocation, information capture, real-time project
accounting, knowledge sharing, vendor integration and post-transaction analysis.
OPUSRM can either be run as an e-service through strategic hosting partners or
be installed and integrated with an organization's legacy systems. OPUSRM is
designed to seamlessly integrate with OPUS XCHANGE and our FREEAGENT.COM
community, enabling organizations to procure, manage and track the project
performance of external resources in the same manner as full-time employees. We
expect to launch OPUSRM in the first half of 2000.
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Our Strategy
Our goal is to be the premier integrated web-based solution for putting
people and projects together by providing the leading services to assist buyers
of project-based talent in the procurement and management of their
highly-skilled professional resources. The key components of this strategy
include:
BUILD A LARGE COMMUNITY OF FREE AGENT TALENT
We believe it is critical to build a large community of free agents. We will
also seek to enter into additional strategic alliances, with companies such as
staffing vendors, that will provide us with access to a larger base of free
agent talent. We intend to attract and enhance the retention of free agents by
continuing to sell products and services that will enable them to efficiently
operate their businesses and expand their knowledge in their particular areas of
expertise.
ATTRACT LARGE BUYERS OF PROJECT-BASED TALENT
We intend to rapidly increase the volume of transactions in OPUS XCHANGE by
providing an efficient marketplace, establishing a large pool of free agents and
aggressively marketing our services to large buyers of project-based talent. We
believe that creating an easy-to-use open marketplace based on XML standards
that allows buyers and sellers of project-based talent to interact seamlessly
will increase the flow of projects and free agents to the OPUS XCHANGE
marketplace. We expect that our direct sales and marketing efforts to attract
large buyers of project-based talent will be augmented by the sales and
marketing efforts of channel partners who have relationships with these
organizations.
CAPTURE IMPORTANT DATA ON KNOWLEDGE WORKERS AND ORGANIZATIONS
Our technology is designed to capture and manage performance information
about vendors during the procurement process, as well as performance information
about the knowledge worker after completion of the project. Vendor performance
information will enable organizations to analyze the timeliness of vendor
response, appropriateness of knowledge worker candidates provided by the vendor
and cost competitiveness of the vendor service. We expect to develop and
maintain an extensive database of knowledge worker and vendor information
through relationships with internal, vendor, client and free agent sources. Each
time a knowledge worker completes a project, we will attempt to gather
information about the individual's skills and expertise and the client's
evaluation of the individual's project performance. This data will enable us to
provide organizations with information that they cannot easily produce
themselves or obtain from other sources, including performance metrics and the
prevailing billing rates for specific project expertise. We believe the
availability of vendor and knowledge worker data will encourage organizations to
procure talent through our OPUS XCHANGE marketplace on a recurring basis and
provide a useful tool for staffing vendors to improve their performance.
DEVELOP AND STRENGTHEN CLIENT RELATIONSHIPS FOR OPUSRM
We target our sales and marketing for OPUSRM, which we expect to release
during the first half of 2000, to resource-intensive, project-focused service
organizations, such as IT and web consulting firms, internal IT departments of
Fortune 1000 companies, IT staffing firms and other service firms. We believe
these project-focused organizations are well-positioned to benefit from our
labor resource management service to increase the efficiency of their labor
resource management and employee utilization. We also intend to provide
additional consulting and support services to these organizations and believe
that this on-going relationship will enable us to sell new services as they are
developed. We believe that organizations using OPUS XCHANGE to procure
project-based talent will find OPUSRM attractive because it seamlessly
integrates their internal and external labor resources procurement and
management.
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CONTINUE TO ENHANCE FUNCTIONALITY OF SERVICES
We intend to provide the best available services and tools to empower free
agents and buyers of project-based talent to more effectively manage the labor
procurement process. We will continue to develop enhancements to our services to
improve our user interfaces, searching capabilities and workflow and
collaboration tools. During the first half of 2000, we plan to release our
enhanced version of OPUS XCHANGE, which will provide more advanced vendor
management and performance tracking, and enhanced matching capabilities for
buyers of project-based talent by capturing key performance information in an
easily searchable database to help organizations evaluate the efficiency,
cost-competitiveness, and quality of their suppliers of project talent. We will
continue to invest capital to create a first-class client service organization
by working with clients and developing further enhancements that address their
specific needs.
PURSUE STRATEGIC ACQUISITIONS
From time to time, we evaluate acquisition and investment opportunities in
complementary businesses, products and technologies. We intend to explore
opportunities which may accelerate our growth, attract buyers of project-based
talent, increase free agent talent pool, add new content and advertisers,
enhance our product and services, develop new technologies or assist us in
penetrating new markets.
Products and Services
FREEAGENT.COM
FREEAGENT.COM is a comprehensive portal site designed to aggregate a large
pool of free agent talent and enable free agents to more efficiently access
project opportunities and manage their careers. FREEAGENT.COM offers a broad
range of services to meet the needs of the free agent community, including
back-office administrative services, corporate-style benefits, project
assignments, commercial and professional products and services, community,
content, information sharing and networking. As of December 16, 1999, over
34,000 free agents were registered users of FREEAGENT.COM. Through co-branding
relationships with our strategic alliance partners, we expect that by June 30,
2000 more than 1,000,000 additional knowledge workers will be part of our
database and eligible to be matched to projects through FREEAGENT.COM.
FREEAGENT.COM currently includes the services described below.
E.PORTFOLIOS AND PROJECT OPPORTUNITIES. FREEAGENT.COM enables free agents to
create E.PORTFOLIOS to market themselves to organizations seeking project-based
talent. The typical E.PORTFOLIO includes the free agent's background, skills,
work, project and educational histories, professional references and any other
information which the free agent chooses to include to better market their
services. As organizations list projects on OPUS XCHANGE, our rule-based
intelligent searching technologies match their project requirements with
suitable free agents based on the skills and experience described in their
E.PORTFOLIOS. In addition, by browsing E.PORTFOLIOS on our system, free agents
can locate and team with other free agents who have complementary skills to
collectively bid for projects. Over time, we expect to incorporate additional
functionality into our E.PORTFOLIO service, such as video interviewing
capabilities. As of December 16, 1999, over 11,000 of our registered free agents
had created E.PORTFOLIOS on FREEAGENT.COM.
COMMUNITY, CONTENT, INFORMATION SHARING AND NETWORKING. FREEAGENT.COM
provides a forum where free agents can exchange ideas with professionals who
share common skills and interests or perform complementary services. Free agents
can access content targeted to them through journals, case studies, daily and
weekly challenges, expert advice, Q&A columns, user reviews and success stories.
FREEAGENT.COM enables free agents to participate in online discussions, training
and interactive seminars. Through our strategic alliances, we expect to provide
individual sites within FREEAGENT.COM which will contain industry-specific
content designed for specific segments of our free agent community, such as the
IT, creative and strategic consulting segments. We will also provide free agents
with professional networking opportunities by offering them access to
specialized databases of knowledge workers, where they can find potential
mentors and contacts across a range of professions, backgrounds and interests.
In addition, we also expect to facilitate the
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organization of free agents into project teams, by providing them with web pages
on FREEAGENT.COM where they can manage critical project information and
documents and hold interactive work sessions.
FREEAGENT E.OFFICE SERVICES. FREEAGENT.COM offers free agents a broad range
of back-office administrative services and corporate-level benefits designed
exclusively for them, which we call FREEAGENT E.OFFICE services. These services
and benefits consist of project invoicing, billing and collections, payroll tax
withholding, project expense reimbursement, general liability insurance, group
health insurance, a 401(k) plan and Opus360 stock options.
Free agents typically do not readily have access to these services and
benefits on terms that are comparable to those offered in a traditional
corporate setting. Our FREEAGENT E.OFFICE services offer, on a pre-tax basis,
project expense reimbursement and group medical, dental and life insurance
coverage at premiums priced to reflect the collective purchasing power of the
free agents who buy coverage, as well as the right to participate in a 401(k)
plan with a variety of investment funds. We also offer participating free agents
the opportunity to receive Opus360 stock options. As of December 16, 1999,
approximately 260 of our registered free agents had elected to receive our
FREEAGENT E.OFFICE services.
Free agents who purchase our FREEAGENT E.OFFICE services can choose between
two different membership plans, the terms of which differ based on whether the
free agent desires to receive group healthcare insurance and be eligible to
participate in our 401(k) plan. We expect to offer additional plans in the
future. Free agents who purchase our FREEAGENT E.OFFICE services are our
employees, for whom we withhold payroll taxes and provide IRS Form W-2s.
We believe that our FREEAGENT E.OFFICE services are especially valuable to
free agents who must expend substantial amounts of time managing their projects,
must purchase expensive general liability, errors and omissions or other
insurance to satisfy clients, and must spend significant amounts of time
searching for cost-effective health benefits and pension plans. In addition,
many organizations require IRS Form W-2 hourly contracts, which our FREEAGENT
E.OFFICE services provide. The benefits provided by our FREEAGENT E.OFFICE
services are fully portable, enabling free agents to work on whatever projects
they choose with the knowledge and security that their benefits will remain in
place.
BUSINESS PRODUCTS AND SERVICES. FREEAGENT.COM is also an online marketplace
where free agents can buy commercial and professional products and services
which they can use for their businesses. We expect that as the FREEAGENT.COM
community continues to grow, we will be able to take greater advantage of the
purchasing power of this community to obtain volume price discounts from product
and service vendors that desire to participate in this marketplace.
OPUS XCHANGE
OPUS XCHANGE is a web-based platform that serves as the hub for our
integrated solution. It is designed to enable corporations, professional service
firms, staffing vendors and other buyers of project-based talent to identify and
procure knowledge workers that satisfy their specific resource requirements. We
expect that OPUS XCHANGE will enable buyers of project-based talent to
significantly reduce candidate search and procurement costs by automating the
requisition, approval and engagement processes. OPUS XCHANGE also enables free
agents and staffing firms to search for, and bid on, project opportunities. We
believe that OPUS XCHANGE will benefit both buyers of project-based talent and
free agents by creating a more efficient labor procurement marketplace where
transactions can occur between corporations, professional services firms,
staffing vendors and free agents.
OPUS XCHANGE is designed to automate the following steps of the project
labor procurement process:
- the completion of an online requisition for a knowledge worker;
- the evaluation of qualified candidates for a project;
- the negotiation of project labor rates;
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- the scheduling of candidate interviews;
- the completion of project time and expense reports;
- the completion of online evaluation forms; and
- the online presentation of project invoices and integration with internal
accounting systems.
OPUS XCHANGE is designed to be accessed and used as a stand alone
application or it can be used as an integrated solution together with OPUSRM AND
FREEAGENT.COM. To facilitate transactions in the OPUS XCHANGE marketplace, we
are implementing open XML standards that will enable corporations, professional
service firms, staffing vendors and other buyers and providers of project-based
talent to connect their legacy systems to OPUS XCHANGE.
We expect to release an enhanced version of OPUS XCHANGE during the first
half of 2000 that will incorporate more advanced matching capabilities and the
TCQ(2) vendor management tracking system. TCQ(2) is an internally developed
performance tracking system that evaluates the service of vendors and free
agents based on time, cost, quality and quantity. The enhanced version of OPUS
XCHANGE will capture TCQ(2) data and develop performance metrics for all
transactions conducted through the OPUS XCHANGE marketplace.
TCQ(2) data will be supplied to buyers of project-based talent to enable
them to make better sourcing decisions, such as evaluating competing bids by
professional services firms or free agents for projects or project deliverables.
This data will also be offered to staffing vendors and sellers of project-based
talent in a generalized form to establish benchmarks to enable them to compare
themselves to peers and to improve project performance.
OPUSRM
OPUSRM provides organizations with a labor resource management tool designed
to centralize resource and project information to enable organizations to more
efficiently manage complex projects, increase utilization rates, streamline
project schedules, coordinate project data, predict resource shortages and
surpluses and provide access to performance results. OPUSRM is designed to
optimize core business processes by:
- assigning the most-qualified professionals to a particular project by
matching project requirements with individual skills, expertise, work
preferences and availability;
- monitoring internal and external labor resource utilization
organization-wide, across projects, industries, geographic regions and
personnel groups, to decrease downtime costs and improve profitability;
- delivering real-time project and resource related information online, with
detailed reporting on project finances and labor utilization, to eliminate
the need for labor-intensive, manually generated project and financial
reports;
- disseminating project information on a timely basis to project field
managers for analysis that previously was available only after the
completion of a project through a review of multiple accounting reports;
- capturing post-transaction project data, documentation, e-mail and reports
in an indexed and searchable information database, which can be used to
evaluate the attainment of project objectives and to determine potential
sources of efficiency when designing and implementing future projects; and
- analyzing the performance of organizations and their employees in the
design, staffing and implementation of projects on a continuous basis,
through the use of a customized database of specific performance criteria.
OPUSRM's flexible Internet architecture makes it customizable to the
specific requirements of organizations without substantial additional cost or
lengthy implementation cycles. OPUSRM is designed to manage internal labor
resources and, through seamless integration with OPUS XCHANGE, can also manage
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externally procured resources as if they were employees. OPUSRM can be
integrated with existing systems and can incorporate information feeds such as
news and company data. Through web browsers, our OPUSRM service will permit user
access through the Internet from remote hosting facilities located anywhere in
the world, enabling organizations and free agents to interface and work as teams
on assigned projects using a common platform.
We believe customers will increasingly use software services and e-services
applications instead of using traditional client-server systems, which are often
difficult to learn and costly to maintain. We intend to form strategic
relationships with complementary systems integrators, web integrators, and web
consulting firms to create a valuable support and implementation organization
for OPUSRM.
Customer and Business Alliances
As of December 16, 1999, approximately 220 organizations had procured free
agents through our OPUS XCHANGE platform. These organizations include large and
medium-sized companies that operate across a broad range of industries,
including computer software, computer hardware, finance, telecommunications and
aerospace. Some of the organizations that have procured our FREEAGENT E.OFFICE
employees include:
<TABLE>
<S> <C>
TSR Consulting Company Design Strategy
Lucent Technologies Pfizer Incorporated
NEC Corporation Computer Horizons Corporation
Transaction Information Systems Information Technology Partners
</TABLE>
We have entered into an agreement with CAREERPATH.COM, a leading recruiting
solutions company that provides career counseling and job placement services
over the Internet, to jointly develop a co-branded web site featuring content
and services geared toward free agents. The co-branded site will allow
CAREERPATH.COM's base of employers to list projects and will fully integrate
FREEAGENT.COM services that will allow users to locate and transact projects,
create an E.PORTFOLIO, purchase business-related products and purchase all of
our FREEAGENT E.OFFICE services.
In December 1999, we entered into an agreement with J.P. Morgan & Co., one
of the representatives of the underwriters, to use OPUS XCHANGE to procure its
project-based resource requirements and to participate actively in the continued
development of the enhanced version of OPUS XCHANGE.
Sales and Marketing
We sell our integrated services through our direct sales organization and
strategic alliances. As of December 15, 1999, our direct sales force consisted
of 10 sales professionals located primarily in New York. We plan to expand our
direct sales force in the near future, with regional sales managers to be
located in Chicago, Atlanta, San Francisco, Toronto and other major metropolitan
areas. We have commenced an aggressive marketing campaign which includes print,
radio and online advertising to build our existing base of registered free
agents and to further promote FREEAGENT.COM.
For our OPUSRM service, which we expect to release during the first half of
2000, we typically target our direct sales efforts at senior executives and
chief technology officers within large professional service companies, Fortune
500 IT departments, large IT staffing firms and the service divisions of large
software/ hardware organizations that require assistance in managing a workforce
of varying skills and staffing projects across a wide corporate enterprise. We
work with prospective clients to analyze how OPUSRM can best be integrated into
existing management systems. We intend to use these larger clients to develop a
sales channel into mid-market firms.
Technology
We have developed our technology with a focus on the particular needs of our
different services and customers, balancing flexibility, scalability,
reliability, redundancy, extensibility, maintainability, reusability,
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speed of development, availability of skill-sets and training. We generally have
used standard tools and languages.
We have developed fully Internet-centric applications that are designed for
high-level performance and reliability. We believe that these Internet-centric
applications lower an organization's total cost of ownership because they are
relatively easy to use and maintain and to integrate into an existing intranet
framework. The training required for the use of these applications is minimal,
so that organizations are more likely to use these applications, and upgrades of
these applications are simple to implement across organizations. We believe that
these Internet-centric applications also are generally well-suited for the
application service provider model, which simplifies the installation, upgrade
and maintenance process for these applications.
All of our systems are based on the Microsoft Internet applications
framework. To ensure reliability and scalability, we provide some of these
services on an application server, as well as a web server. All of our systems
use the Microsoft SQL Server relational database.
The core of our OPUSRM service is written in the Java language and does not
use any Microsoft specific functionality. We believe that this will facilitate
our transition in the future to an open standards based system that uses the
Enterprise Java Beans (EJB) framework and to Unix-based systems, including
Linux. We expect to make this transition to provide greater scalability on an as
required basis, as well as to meet the requirements of specific customers.
FREEAGENT.COM is built on Microsoft Active Server Pages using Javascript,
VBscript and VB and Java components. OPUS XCHANGE is also built with the same
Microsoft technologies. We reuse selected code and algorithms across all of our
services, with the goal of increasing reuse as our systems continue in their
life cycles.
Our development team employs object-oriented analysis and design principles
in order to guide the development of software code. Our methodology allows us to
exploit the capabilities of object-oriented programming languages like Java to
build reusable components and designs. This methodology helps to reduce the
risks inherent in developing complex systems and also helps us design our
solutions to meet the varied needs of our customers.
Our application services incorporate components that we have acquired from
third parties, such as PRT Group and USWeb Corporation. In December 1998, we
purchased from PRT the worldwide rights for a vendor management application, as
well as a prototype of OPUS XCHANGE. PRT designed the vendor management
application in the course of its consulting services for The Chase Manhattan
Bank and J.P. Morgan & Company to assist these companies in their vendor
reorganizations. This application was then used by PRT to design an early
prototype of OPUS XCHANGE for use by the Prudential Insurance Company of
America. Our design concepts for OPUS XCHANGE are based on this early prototype.
In 1998, we purchased from USWeb the worldwide rights to the original release of
our OPUSRM solution, which was developed first at Gray Peak Technologies and,
following USWeb's acquisition of Gray Peak, later at USWeb. The original release
of OPUSRM manages the daily operations of the USWeb/CKS Networks Group.
Competition
The market for each of our integrated services is intensely competitive and
rapidly changing and competition is expected to intensify in the future. Our
competitors vary in size and in the scope and breadth of the products and
services that they offer. In addition, because there are relatively low barriers
to entry in some of the markets in which we offer solutions, we expect further
competition from established and emerging companies, as these markets continue
to evolve.
Our FREEAGENT.COM service competes with traditional offline companies that
offer back office, administrative and benefit services to independent
professionals, and new web-based companies, like Niku and Guru.com, that have
created Internet communities with content, products and services geared toward
independent professionals.
Our OPUS XCHANGE service competes with traditional recruiting, search and
placement firms such as headhunters, including those that implement online
services, and online "job board" solutions, like
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Monster.com and large Internet information hubs, or portals, that provide online
job search services for project-based talent. We may experience competition from
potential customers, such as professional services firms and IT consulting
companies, if they are able to develop their own search solutions for
project-based talent internally. We may experience additional competition if
online providers of recruiting services relating to full-time employment enter
the market for project-based labor.
Our OPUSRM service will compete with companies offering traditional
enterprise resource planning solutions, particularly those that adopt resource
management solutions and implement web-based technologies, including companies
such as Niku and Evolve, which provide competitive project labor management
solutions, and business application software vendors that may broaden their
software offerings by internally developing, acquiring or partnering with
independent developers of project labor management software.
Many of our competitors have longer operating histories, larger customer
bases, wider brand recognition and greater financial, technical, marketing and
other resources than we do. Our current and potential competitors may make
strategic acquisitions or develop cooperative relationships, in addition to the
ones they have established, in order to expand their business or offer more
comprehensive solutions than we do. In addition, new technologies and the
expansion of existing technologies may increase competitive pressures on us. We
believe that companies in our target market compete primarily on the basis of
breadth and functionality of services, and the extent of their relationships
with both organizations that procure project-based talent and individuals who
are available for projects. We believe we distinguish ourselves from our
competitors by offering a full complement of solutions geared toward the
procurement and management of project-based talent. However, if we are not able
to compete successfully against current and future competitors, our business
could be materially adversely affected.
Intellectual Property
We depend on our ability to develop and maintain the proprietary aspects of
our technology. To protect our proprietary technology, we rely primarily on a
combination of contractual provisions, confidentiality procedures, trade
secrets, and patent, copyright and trademark laws. We seek to avoid disclosure
of our trade secrets by implementing procedures, including but not limited to,
requiring those persons with access to our proprietary information to execute
confidentiality agreements with us and restricting access to our source codes.
We seek to protect our software, documentation and other written materials under
trade secret and copyright laws, which afford only limited protection. We cannot
assure you that any of our proprietary rights with respect to our products and
services will be viable or of value in the future since the validity,
enforceability and type of protection of proprietary rights in Internet-related
industries are uncertain and still evolving.
We presently have one U.S. patent application pending for the "OPUS360
Knowledge Worker Network" which describes the processes and technology involved
in implementing an Internet-based supply chain solution for matching people and
projects. It is possible that the patent that we have applied for, if issued, or
patents we may apply for in the future, if any, may be successfully challenged
or that no patent will be issued. It is also possible that we may not develop
proprietary products, including technologies that are patentable, that any
patent issued to us may not provide us with any competitive advantages or that
the patents of others will seriously harm our ability to do business. We have
filed applications with the U.S. Patent and Trademark Office for service marks
that include OPUS360, OPUS FREEAGENT, FREEAGENT.COM, FREEAGENT, OPUS XCHANGE and
FREEAGENT XCHANGE. These applications are subject to review, may be opposed by
private parties and registrations may not be issued from these applications. We
have not filed applications for OPUSRM, FREEAGENT E.OFFICE or E.PORTFOLIO.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or services or to obtain and use
information that we regard as proprietary. Policing unauthorized use of our
products is difficult, and while we are unable to determine the extent to which
piracy of our software products exists, software piracy can be expected to be a
persistent problem. In addition, the laws of some foreign countries do not
protect our proprietary rights to as great an extent as do the laws of the U.S.
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Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around patents issued to us or our other intellectual property.
There has been a substantial amount of litigation in the software and
Internet industries regarding intellectual property rights. We cannot be certain
that our products, content and brand names do not or will not infringe upon
valid patents, copyrights or other intellectual property rights held by others.
We expect that the number of infringement claims will increase as more
participants enter our markets.
In July 1999, we received a letter from counsel to the San Jose Mercury News
alleging that our use of the service mark FREE AGENT and our registration of the
domain name WWW.FREEAGENT.COM with Network Solutions, Inc. infringed upon
Mercury News' federal registration of the mark FREE AGENT for a computerized
online matching service and violated Network Solutions' Domain Name Dispute
Policy. The letter requested that we cease all use of the mark FREE AGENT for
online job searching services and transfer the domain name WWW.FREEAGENT.COM to
the Mercury News. While we believe we have valid defenses to the claims, in the
event we are unable to resolve this issue with the Mercury News and it decides
to bring an infringement claim against us or to institute an arbitration
proceeding against us under Network Solutions' Domain Name Dispute Policy, we
would likely incur significant expense in defending against the claim or in
connection with the arbitration proceeding. In addition, if a claim of
infringement is made and we are not successful in defending against the claim,
we could be liable for substantial damages. We could also be required to cease
use of the FREE AGENT mark and transfer our WWW.FREEAGENT.COM domain name to the
Mercury News. We have expended, and will continue to spend, substantial amounts
in order to promote the WWW.FREEAGENT.COM brand name, the benefits of which
would be lost if we could no longer use that mark. In addition, we would need to
incur substantial additional expenses to promote a new brand name. Until such
time as free agents and buyers of project-based talent became aware of any new
brand name and website, our transaction volume could be substantially limited.
It is possible that in the future other third parties may claim that we or
our current or potential future products or services infringe their intellectual
property. We expect that software product developers and providers of electronic
commerce solutions will increasingly be subject to infringement claims as the
number of services, products and competitors in our segment of the industry
grows and the functionality of services and products in different segments of
the industry overlaps. We may be subject to legal proceedings and claims from
time to time relating to the intellectual property of others in the ordinary
course of our business. Any claims, with or without merit, could be
time-consuming, result in costly litigation, cause delays in the introduction of
service or product enhancements or require us to enter into royalty or licensing
agreements. Royalty or licensing agreements, if required, may not be available
on terms acceptable to us or at all, which could seriously harm our business.
Industry Regulation
By entering into employment relationships with the free agents who purchase
FREEAGENT E.OFFICE services, we assume a variety of obligations and
responsibilities of an employer under federal and state laws. Many of these
federal and state laws were enacted prior to the development of non-traditional
employment relationships, such as temporary employment and outsourcing
arrangements, and do not specifically address the obligations and
responsibilities applicable to us by reason of our FREEAGENT E.OFFICE services.
Whether certain laws apply to us depends in many cases upon whether we are
deemed to be an "employer" for purposes of the law. The definition of "employer"
under these laws is not uniform and, therefore, the application of these laws to
our business is not always certain. In many cases, a person's status as an
"employer" is determined by application of a common law test involving the
examination of several factors to determine an employer/employee relationship.
Uncertainty as to the application of laws governing "employer" relationships is
particularly important to us in federal tax and employee benefit matters.
We assume the sole responsibility and liability for the payment of federal
and state employment taxes with respect to wages and salaries paid to our
FREEAGENT E.OFFICE employees out of the gross amounts received
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by us from the organizations to whom they have provided services. To date, the
IRS has relied extensively on the common law test of employment in determining
employer status and the resulting liability for failure to withhold. Upon an
examination of our operations, the IRS or other taxing authorities may determine
that we are not the employer of the free agents who purchase FREEAGENT E.OFFICE
services under the Code provisions applicable to federal employment taxes and,
consequently, that the organizations using these free agents for projects
through our FREEAGENT E.OFFICE services are exclusively responsible for payment
of employment taxes on wages and salaries paid to these free agents. A
determination by the IRS or other taxing authorities that we are not the
employer of free agents who purchase FREEAGENT E.OFFICE services would
negatively impact our ability to report employment taxes for these free agents.
While we believe that we have a reasonable basis for assuming the withholding
obligation for these free agents based on our employment relationships with
them, there can be no assurance as to the ultimate resolution of the issue.
FREEAGENT.COM offers various benefit plans to the free agents who purchase
FREEAGENT E.OFFICE services. These plans include a 401(k) plan, a group health
plan, a group life insurance plan, and a group disability insurance plan.
Generally, employee benefit plans are subject to provisions of both the Code or
the Employee Retirement Income Security Act of 1974, as amended. In order to
qualify for favorable tax treatment under the Code of the payments or
contributions made with respect to these plans, the plans must be established
and maintained by an employer for the exclusive benefit of its employees. An IRS
examination of us and/or an organization using free agents for projects through
our FREEAGENT E.OFFICE services may determine that we are not the employer of
these free agents under the Code provisions applicable to employee benefit
plans. Consequently, we may be unable to offer free agents who purchase
FREEAGENT E.OFFICE services benefit plans that qualify for favorable tax
treatment. If the IRS or other taxing authorities were to conclude that we are
not the employer of these free agents for plan purposes, these free agents could
not continue to make tax favored deductions or contributions with respect to
these benefit plans. This conclusion by the IRS or other taxing authorities
would prevent us from continuing to provide an important corporate-style benefit
as part of our FREEAGENT E.OFFICE services and could have a material adverse
effect on our continuing ability to aggregate a large community of free agents.
While we believe that we have a reasonable basis for concluding that free agents
who purchase our FREEAGENT E.OFFICE services are our employees for purposes of
these laws and regulations, there can be no assurance as to the ultimate
resolution of these issues.
Employee pension and welfare benefit plans are also governed by ERISA. The
United States Supreme Court has held that the common law test of employment must
be applied to determine whether an individual is an employee or an independent
contractor under ERISA. A definitive judicial interpretation of the employer in
the context of the type of arrangement provided by our FREEAGENT E.OFFICE
services has not been established. If we were found not to be an employer for
ERISA purposes, our plans would not be subject to ERISA. As a result of a
finding of this type, we and our plans would not enjoy the preemption of state
law provided by ERISA and could be subject to varying state laws and
regulations, as well as to claims based upon state common laws.
As the employer-employee relationship has evolved, states in the U.S. have
regulated the various aspects of this relationship to varying lengths. Because
many of these labor laws were enacted before the rise of alternative employment
arrangements and services, like those contemplated by our FREEAGENT E.OFFICE
services, the full extent to which these laws cover us is uncertain. FREEAGENT
E.OFFICE services have attributes that may trigger compliance requirements under
state employee leasing laws, employment agency laws or temporary employment
laws, as well as under other state laws. Some states regulate employee leasing
companies, employment agencies and temporary staffing companies, while most
states focus on only one or two of these types of businesses. Some states have
not yet regulated any of these types of businesses. State statutory definitions
and requirements concerning these types of businesses are occasionally similar,
but generally all of them differ in several important respects, requiring us to
consider our legal obligations on a state-by-state basis. To the extent we are
governed by any of these state regulations, we may be subject to additional
licensing requirements and financial oversight. We expect to incur substantial
expenses in order to comply with these laws.
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Employees
As of December 16, 1999, we had 393 full-time employees, including 260 free
agents who had purchased our FREEAGENT E.OFFICE services, and 133 corporate
staff members. Of our corporate staff, 57 were in programming and technical
development, 42 were in sales, marketing, and business development, 15 were in
customer support and operations and 19 were in finance and administration. In
addition, we expect to hire a significant number of new employees for our
corporate staff in the near future. None of our employees is represented by a
labor union or a collective bargaining agreement. We have not experienced any
work stoppages and consider our relations with our employees to be good.
Free agents who purchase our FREEAGENT E.OFFICE services are treated as our
employees. Each of these free agents signs an agreement with us acknowledging
that the free agent will be our employee for so long as the free agent elects to
receive our FREEAGENT E.OFFICE services. The free agent locates, chooses and
negotiates the details of a project assignment, in the same manner as the free
agent would before becoming our legal employee. While the free agent may be our
legal employee, we allow the free agent to retain complete discretion as to the
free agent's procurement, selection and negotiation of project assignments. For
quality assurance reasons, we require that each free agent who purchases our
FREEAGENT E.OFFICE services has a project assignment for which the free agent
will use the service initially. In connection with each assignment, the
FREEAGENT E.OFFICE employee advises us of the details of the project and we
enter into an agreement with the organization assigning the project that sets
out the details of the project and specifies that the free agent shall be our
employee assigned to the project. During the engagement, the free agent submits
to us a time record on an easy-to-complete online form, specifying the hours
worked on the project assignment. We prepare and send a professional invoice to
the party responsible for payment under the project who makes payment directly
to us, and we provide detailed reporting to the free agent of the status of each
project. Upon the request of the free agent, we may also handle collections from
delinquent payors. Upon our receipt of project-related payments, we pay or
reimburse the free agent's project-related expenses, pay the premiums for the
free agent's insurance coverage, including health care coverage if the coverage
has been elected, make the free agent's desired 401(k) plan contributions, if
this service has been elected, withhold any required federal, state and local
taxes and prepare any required IRS Form W-2's or other tax forms. We then remit
the remaining funds to the free agent as wages and salary. We are currently
adopting procedures to ensure that our FREEAGENT E.OFFICE employees meet
appropriate standards, such as the completion of background and credit checks,
ongoing monitoring of project status, the solicitation of performance reviews
from the organizations to whom services are provided and the standardization of
contracts with such organizations.
Facilities
Our corporate headquarters are located at 733 Third Avenue, 17th Floor, New
York, New York 10017, where we occupy approximately 6,000 square feet of office
space pursuant to a lease that expires on December 31, 1999. We intend to
relocate our corporate headquarters to 37 West Thirteenth Street, New York, New
York 10019, where we will lease approximately 25,000 square feet of office
space, following the completion of the renovation of the office space during the
first half of 2000.
Legal Proceedings
Although we are not currently a party to any litigation, we may from time to
time become involved in litigation relating to claims arising from our ordinary
course of business.
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MANAGEMENT
The following table sets forth information relating to our directors and
executive officers.
<TABLE>
<CAPTION>
Name Age Position(s)
- ---- -------- -----------
<S> <C> <C>
Ari B. Horowitz.............. 31 Chairman of the Board, Chief Executive Officer and
President
Carlos B. Cashman............ 27 Chief Technology Officer and Director
Shawn D. Kreloff............. 36 Executive Vice President, Business Development
Allen Berger, Ph.D........... 56 Senior Vice President; General Manager, FREEAGENT.COM;
Chief Marketing Officer
Richard McCann............... 31 Senior Vice President, and Chief Financial Officer
Wendy M. Petty............... 36 Senior Vice President of Sales
Edyse Vogel.................. 50 Senior Vice President of Operations
Kevin M. Callahan............ 31 Vice President and General Manager, Application and
Procurement Services Group
Andrew Grygiel............... 40 Vice President of Product Marketing, Application and
Procurement Services Group
Frank Secada................. 40 Vice President of Engineering
Susan Wu..................... 26 Vice President of Strategic Initiatives
James Cannavino.............. 55 Director
John L. Drew................. 43 Director
John K. Halvey............... 39 Director
Irwin Lieber................. 60 Director
William R. Nuti.............. 36 Director
Barry Rubenstein............. 56 Director
Roger J. Weiss............... 60 Director
</TABLE>
ARI B. HOROWITZ, our co-founder, has served as Chairman of the Board since
inception, as Chief Executive Officer since April 1999 and as President since
November 1999. From June 1998 to March 1999, Mr. Horowitz served as a Senior
Managing Partner of USWeb/CKS. From March 1997 to June 1998, he served as
President and Chief Financial Officer of Gray Peak Technologies. From
September 1994 to March 1997, he served as Chief Financial Officer and as Vice
President, Finance and Business Development of ICon CMT Corp., an Internet
service provider. From July 1992 until September 1994, Mr. Horowitz was a
Principal and Director of Finance, Business Development of Conley Corporation, a
developer of storage management. Mr. Horowitz currently serves as a director of
NetVendor Systems, a provider of e-markets for the industrial, electronics and
automotive sectors. Mr. Horowitz holds a B.A. degree in Economics from the
University of Pennsylvania.
CARLOS B. CASHMAN, our co-founder, has served as Chief Technology Officer
since November 1999, as a director since inception, and as President from
inception until November 1999. From June 1997 until June 1998, Mr. Cashman
served as Chief Information Officer of Gray Peak Technologies. From
February 1996 to June 1997, he served as Chief Technology Officer of Frankfurt
Balkind Partners, an intranet and web design firm. From July 1994 to
January 1996, he was Manager of UNIX Engineering at Conley Corporation, handling
software development, hardware engineering and OEM contracts for Unix products.
Mr. Cashman holds a degree in Information Systems Engineering from the
Massachusetts Institute of Technology.
SHAWN D. KRELOFF has served as Executive Vice President, Business
Development, since April 1999. From June 1998 to March 1999, Mr. Kreloff served
as a Senior Managing Partner of USWeb/CKS. From March 1997 to June 1998, he
served as Chairman and Chief Executive Officer of Gray Peak Technologies. From
1995 through March 1997, he served as Vice President, On-line Services Business
Development, and Director of Operations at Bertelsmann AG. From 1988 through
1995, he served as Vice President of Network
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Services at Credit Suisse First Boston. Mr. Kreloff holds a B.S. degree in
Operations Research (Industrial Engineering) from Syracuse University.
DR. ALLEN BERGER has served as Senior Vice President, as General Manager,
FREEAGENT.COM, and as Chief Marketing Officer since April 1999. From May 1994 to
March 1999, Dr. Berger served as a partner and Vice President, Marketing and
Sales, at Cirrus Healthcare Products, a provider of travel health products which
he co-founded. From 1987 to 1994, he served as Chief Executive Officer of North
American Marketing Enterprises, a company specializing in direct marketing to
the packaged goods industry. From 1982 to 1987, he was a Vice President and
General Manager at Nestle Food Co. From 1979 to 1982, he served as Senior
Marketing Director at Gallo Wine Co. From 1967 to 1979, he served as Marketing
Director at Mars, Inc. Dr. Berger holds a Ph.D. degree in Industrial Psychology
from New York University.
RICHARD MCCANN has served as Senior Vice President and Chief Financial
Officer since August 1999. From June 1998 to July 1999, Mr. McCann served as
Finance Partner of USWeb/CKS. From July 1997 to June 1998, he served as the
Controller of Gray Peak Technologies. From January 1993 to July 1997, he worked
in the field of public accounting, specializing in corporate taxation, for the
firms of Kahan, Steiger & Co., LLP and Richard A. Eisner & Co., LLP. Mr. McCann
holds a B.S. degree in Business Management from the University of Vermont.
WENDY M. PETTY has served as Senior Vice President of Sales since
October 1999. From October 1996 to October 1999, Ms. Petty served in various
senior sales executive positions at Computer Associates International, most
recently as Senior Vice President of Channel Sales. From November 1990 to
October 1996, she held various sales and sales management positions at Cheyenne
Software Inc. While at Cheyenne, Ms. Petty served as Director, North American
Sales, Manager, Corporate Accounts and Western Regional Sales Manager. From 1989
to 1990, she was a consultant to NEC's Computers and Communications division.
From 1987 to 1989, she was the Director of Software Implementations at ENCORE
Systems, a developer of hospitality management software. Ms. Petty holds a B.A.
degree from Fairleigh Dickinson University.
EDYSE VOGEL has served as Senior Vice President of Operations since
June 1999. From July 1996 to June 1999, Ms. Vogel served as Director of Managed
Services for Bell Atlantic Network Integration at the Pinnacle Alliance, the
technology management unit of J.P. Morgan. From 1985 to 1996, Ms. Vogel served
as the Vice President of front office technology at Credit Suisse First Boston.
From 1976 to 1985, Ms. Vogel served as a Senior Manager of Financial and
Administrative Systems at Revlon Consumer Products Corporation. Ms. Vogel holds
a B.A. degree from Hofstra University and an M.A. degree from Kean College.
KEVIN M. CALLAHAN has served as Vice President and General Manager,
Application and Procurement Services Group, since February 1999. From 1997 to
1998, Mr. Callahan served as Director of Business Development at EnergyWorks, a
joint venture of Bechtel and PacifiCorp. From 1995 to 1997, he served as a
consultant with McKinsey & Company, where he focused on operations effectiveness
and procurement. From 1991 to 1993, he was President of Praetor, Inc., a
marketing consulting company which he founded. Mr. Callahan holds a B.A. degree
in History from Yale University and an M.B.A. degree in Operations Management
from the Massachusetts Institute of Technology.
ANDREW GRYGIEL has served as our Vice President of Product Marketing,
Application and Procurement Services Group, since November 1999. From
March 1999 to October 1999, Mr. Grygiel served as Senior Director, Enterprise
Solutions at Chemdex Corporation. From March 1997 to March 1999, he served as
Director, Industry Marketing, of Documentum Inc., a developer of software for
e-commerce applications. From February 1995 to March 1997, he served as Product
Marketing Manager of Hewlett Packard Corporation. From January 1992 to
February 1995, he served as Marketing Manager of Perkin-Elmer Corporation. From
1989 to 1992, he served as Vice President, Marketing, and co-founder of
Analytical Solutions, Inc., a developer of software for wholesale and retail
distribution markets. From 1987 to 1989, he served as Vice President,
Information Systems, at National Medical Services Inc. Mr. Grygiel holds a B.S.
degree from Temple University.
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FRANK SECADA has served as Vice President of Engineering since May 1999.
From 1994 to 1997, Mr. Secada served in a variety of senior management
positions, including Director of Development for Accounting Applications, at
Hyperion Solutions, a vendor of financial reporting tools, accounting and
on-line analytical processing products. From 1985 until 1994, Mr. Secada held a
variety of positions in software development and software management at
Information Builders, Inc., a vendor of middleware, decision support and other
software products.
SUSAN WU has served as Vice President, Strategic Initiatives, since
November 1998. From July 1996 to November 1998, Ms. Wu served in a variety of
positions at USWeb, most recently as a director of Practice Development where
she lead internet initiatives for Reuters, Tower Records and the World Economic
Forum. From 1992 to 1996, she served as a consultant and strategic technologist
for Internet services startups, including Sun Microsystems' Java Soft Group and
Earthlink Network's Systems Group focusing on Internet service providers. Since
1992, she has been active in open source initiatives, particularly in relation
to broad band entertainment. Most recently, she served as Executive Producer and
strategic advisor for GX, an interactive entertainment startup in support of
their gaming initiatives. Ms. Wu holds a B.A. degree in Political Science from
Tufts University.
JAMES CANNAVINO has served as a director since December 1998. Mr. Cannavino
is Chief Executive Officer and Chairman of the Board of CyberSafe Corporation, a
developer of software used for security applications. Prior to joining
CyberSafe, Mr. Cannavino served as President and Chief Operating Officer for
Perot Systems Corporation. Until March 1995, he also held a variety of senior
executive positions at IBM, serving as senior vice president for strategy and
development at the time of his departure from IBM. Mr. Cannavino has served as a
member of the IBM Corporate Executive Committee and Worldwide Management Council
and as a member of the board of directors of IBM's Integrated Services and
Solutions Company. He currently serves as Chairman of the Internet Technology
Committee of Computer Concepts and as Chairman of the Board of Softworks, a
provider of enterprise data, storage and performance management products and
services.
JOHN L. DREW has served as a director since December 1998. Mr. Drew
currently is the Chief Executive Officer of the NetCare Professional Services
Division of Lucent Technologies, and an Executive Vice President of Lucent
Technologies. Mr. Drew joined Lucent in October 1999 following Lucent's
acquisition of International Network Services (INS), a network consulting
company, at which Mr. Drew was the President and Chief Executive Officer.
Mr. Drew joined INS in June 1994 as Vice President of Operations and was
promoted to President in January 1996. During the ten years before he joined
INS, he held a variety of senior executive positions at Unisys Corporation,
serving as Vice President and General Manager for the Network Enabled Systems
Integration Business at the time of his departure. Mr. Drew is also a Director
of Linuxcare. Mr. Drew holds a B.S. degree in Engineering from the U.S. Military
Academy at West Point and an M.S. degree in Business Policy from Columbia
University.
JOHN K. HALVEY has served as a director since September 1999. Mr. Halvey
currently serves as a Senior Vice President at Safeguard Scientifics, Inc., an
Internet-centric holding company focused on acquiring and operating companies in
the e-commerce, e-business and e-communications sectors, where he is in charge
of Safeguard's e-business services operations. Prior to joining Safeguard,
Mr. Halvey was a partner at the law firm of Milbank, Tweed, Hadley & McCloy LLP,
where he served as the head of its Global Technology Transactions Group.
IRWIN LIEBER has served as a director since inception. Mr. Lieber currently
serves as Chairman and Chief Investment Officer of GeoCapital, which he founded
in 1979, and as a director of, or advisor to, Learonal, Inc., Ariel Corporation,
Giga Information Group, Inc. and ScanSource, Inc. Mr. Lieber has served as
President of Wheatley Partners, L.L.C., the General Partner of Wheatley
Partners, L.P., since its inception in 1996. In 1994, he co-founded 21st Century
Partnerships, where he currently serves as a principal. In 1992, he co-founded
Applewood, an investment partnership, where he currently serves as a principal.
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WILLIAM R. NUTI has served as a director since June 1999. Since April 1992,
Mr. Nuti has been employed by Cisco Systems in a variety of positions, most
recently as Senior Vice President responsible for the Europe, Middle East and
Africa Region. From May 1990 to April 1992, he served as a sales manager with
Netrix Corporation, a developer of equipment for integrating voice, data and
video transmission over networks. From May 1988 to April 1990, he was a sales
manager at Network Equipment Technologies. From June 1982 to April 1988, he was
employed in sales and as a senior sales staff member at IBM. Mr. Nuti holds a
B.S. degree in Finance and Economics from Long Island University.
BARRY RUBENSTEIN has served as a director since December 1998.
Mr. Rubenstein currently serves as President and as a director of InfoMedia
Associates, Ltd., which is a General Partner of the 21st Century Partnerships.
He is also Chief Executive Officer of Wheatley Partners, L.L.C. and the General
Partner of Wheatley Foreign Partners, L.P., Seneca Ventures and Woodland Venture
Fund, each of which is an investment partnership. Mr. Rubenstein was a founder
of Novell, Inc., Applied Digital Data Systems, Inc. and Cheyenne Software, Inc.
Mr. Rubenstein also serves as a director of Infonautics, Inc., The Milbrook
Press, Inc. and Source Media Inc.
ROGER J. WEISS has served as a director since October 1998. Mr. Weiss was a
founding principal and is currently a Senior Managing Principal of Weiss,
Peck & Greer Investments and chairman of all of the firm's mutual funds.
Previously, he was associated with A.G. Becker & Co., Inc. and the law firm of
Cleary, Gottlieb, Steen & Hamilton. He also served on the faculty of Stanford
Law School. Mr. Weiss serves as a trustee fellow of Cornell University and is a
member of the Board of Overseers of the Cornell Medical College and Vice
Chairman of the Investment Committee of Cornell University. Mr. Weiss holds A.B.
and J.D. degrees from Cornell University.
Officers
Our officers serve at the discretion of the board of directors and hold
office until their successors are duly elected and qualified or until their
earlier resignation or removal. There are no family relationships among any of
our directors or executive officers.
Directors' Terms
Upon completion of this offering, our board of directors will be divided
into three classes that serve staggered three-year terms as follows:
<TABLE>
<CAPTION>
Class Expiration Board Member
- ----- ---------- ------------
<S> <C> <C>
Class I......................... 2000
Class II........................ 2001
Class III....................... 2002
</TABLE>
As a result, approximately one-third of our board of directors will be
elected each year. Each director will hold office until the appropriate annual
meeting of stockholders, as determined by the year of that director's election
to the board of directors, and until his or her successor has been duly elected
and qualified.
Committees of the Board of Directors
The board of directors established a compensation committee in
January 1999. Prior to this time, the responsibilities of the compensation
committee were handled by the entire board of directors. The compensation
committee reviews and makes recommendations to the board of directors regarding
our compensation policies and all forms of compensation to be provided to our
officers and directors. In addition, the compensation committee reviews the
bonus and stock compensation arrangements for all of our other employees. The
members of the compensation committee are Messrs. Weiss and Halvey, who were
appointed on January 20, 1999 and October 21, 1999, respectively.
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<PAGE>
We expect that the board will establish an audit committee in January 2000.
Director Compensation
Directors do not receive any stated salary for their services as directors
or as members of board committees. However, by resolution of the board of
directors, a fixed fee and expenses may be allowed for attendance at each
meeting of the board of directors or committee. Directors are eligible to
receive stock option grants and stock purchase rights under our 1998 Stock
Option Plan. Mr. Nuti was granted an option to purchase up to 45,000 shares of
common stock under the 1998 Plan at an exercise price of $2.77 per share on
June 1, 1999, and Mr. Drew was granted an option to purchase up to 45,000 shares
of common stock under the 1998 Plan at an exercise price of $4.61 per share on
October 1, 1999. Each of these options vests ratably on an annual basis over a
three-year period and is exercisable until the tenth anniversary of the date of
grant. Mr. Cannavino was granted an option to purchase up to 90,000 shares of
common stock at an exercise price of $1.25 per share on December 24, 1998. This
option vests ratably over three years on an annual basis and is exercisable
until December 24, 2008. Messrs. Lieber and Rubenstein each were granted
warrants on December 24, 1998 to purchase up to 160,000 shares prior to
December 24, 2005 at an exercise price of $1.25 per share.
Compensation Committee Interlocks and Insider Participation
No member of our compensation committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as members of our board of directors or compensation committee.
Executive Compensation
The following table sets forth information concerning the compensation paid
by us for services rendered for the fiscal year ended December 31, 1999 to our
Chief Executive Officer and our other executive officers whose salary and bonus
exceeded $100,000 during 1999. We did not pay any other executive officer over
$100,000 in annual compensation during 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
------------ ------------------
Securities
Salary Underlying Options
Name and Principal Position ($) (#)
- --------------------------- ------------ ------------------
<S> <C> <C>
Ari B. Horowitz............................................. 125,000 500,000
Chairman, Chief Executive Officer and President
Carlos B. Cashman........................................... 100,000 --
Chief Technology Officer
Allen Berger................................................ 100,000 245,000
Senior Vice President and Chief Marketing Officer
Susan Wu.................................................... 104,750 70,000
Vice President, Strategic Initiatives
</TABLE>
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Option Grants During the Fiscal Year Ended December 31, 1999
The following table sets forth information concerning grants of options to
purchase shares of common stock to each of the officers named in the summary
compensation table above during the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
Percentage of Potential Realizable Value at
Total Options Assumed Annual Rates of
Number of Granted to Stock Price Appreciation for
Securities Employees Exercise Option Term (2)
Underlying Options During Price per Expiration -----------------------------
Name Granted (1) Period Share Date 5% 10%
- ---- ------------------ ------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ari B. Horowitz...... 500,000 17.22% $0.55 4/1/09
Carlos B. Cashman.... -- -- -- --
Allen Berger......... 245,000 8.44% $0.50 5/3/09
Susan Wu............. 70,000 2.41% $4.00 10/1/09
</TABLE>
- ------------------------
(1) All options granted to employees were granted under the 1998 Plan. Unless
stated otherwise, options granted under the plan vest over a four-year
period, with 25% of the related option shares vesting at the one-year
anniversary of the date of grant and the remaining option shares vesting in
equal monthly installments over the next 36 months. Options are exercisable
as to vested shares for ten years from the date of grant. All of the options
granted to Mr. Horowitz at an exercise price of $0.55 per share will vest
immediately upon the completion of this offering.
(2) These amounts represent hypothetical gains that could be achieved if those
options are exercised at the end of the option term. These gains are based
on assumed rates of stock price appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration dates, based upon an assumed initial public offering price of
$ per share. These assumptions are not intended to forecast future
appreciation of our stock price. Actual gains, if any, on stock option
exercises are dependent on the future performance of our common stock and
overall market conditions. The potential realizable value computation does
not take into account federal or state income tax consequences of option
exercises or sales of appreciated stock.
Option Values as of December 31, 1999
The following table sets forth information concerning the options held by
each of the officers named in the above summary compensation table.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options in-the-Money Options
Acquired at December 31, 1999 at December 31, 1999 (1)
on Value --------------------------- ---------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ari B. Horowitz(2)........ -- -- -- 500,000
Carlos B. Cashman......... -- -- -- --
Allen Berger.............. -- -- -- 245,000
Susan Wu.................. -- -- 20,000 130,000
</TABLE>
- ------------------------
(1) The information set forth in these columns is based on an assumed initial
public offering price of $ per share, less the exercise price,
multiplied by the number of shares underlying the option.
(2) The option to purchase 500,000 shares granted to Mr. Horowitz on April 1,
1999 will be immediately exercisable in full upon the completion of this
offering.
Employment Agreements
We have entered into employment agreements with Ari B. Horowitz, our
Chairman, Chief Executive Officer and President, and Carlos Cashman, our Chief
Technology Officer. Prior to the completion of this
58
<PAGE>
offering, we intend to enter into employment agreements with Richard McCann, our
Senior Vice President and Chief Financial Officer, Edyse Vogel, our Senior Vice
President of Operations, Allen Berger, our Senior Vice President, General
Manager, FREEAGENT.COM and Chief Marketing Officer, and Kevin Callahan, our Vice
President and General Manager, Application and Procurement Services Group. Our
existing employment agreements with Messrs. Horowitz and Cashman provide for
annual base salaries of $150,000 and, $125,000, respectively. These executive
officers may also receive discretionary bonuses as determined by our
Compensation Committee.
Our employment agreements with these executive officers generally provide or
will provide for three-year terms of employment that are automatically renewable
for successive one-year terms unless either party to the agreement gives the
other prior written notice of non-renewal. Each agreement specifies or will
specify the compensation payable by us if the officer's employment with us
terminates. In the case of Mr. Horowitz, if his employment with us is terminated
for any reason other than resignation without good reason, he, or his legal
representatives, shall be entitled to continue to receive his salary and
benefits for a period of two years after the date of termination and a portion
of his options shall vest and become immediately exercisable. In the case of
Mr. Cashman, if his employment with us is terminated by us without cause or due
to his death, he, or his legal representatives, shall be entitled to continue to
receive his salary and benefits for a period of one year after the date of
termination and our right to repurchase a portion of his shares of common stock
shall lapse. In the case of the other executive officers who will have
employment agreements with us, if the officer's employment with us is terminated
without cause or due to the death or incapacity of the officer, the officer, or
the officer's legal representative, shall be entitled to receive a cash
settlement payment not to exceed the cash compensation received by the officer
in the prior 12-month period, and the vesting of a portion of the officer's
shares of common stock and options to purchase common stock shall accelerate.
Our employment agreement with Mr. Horowitz contains a non-compete provision
that restricts him from competing against us for a period of six months
following the termination of his employment with us. The employment agreements
we intend to enter into with the remainder of these executive officers will
contain non-compete provisions that restrict them from competing against us for
one year following the termination of their employment with us.
1998 Stock Option Plan
Our 1998 Plan provides for the grant of stock options and stock purchase
rights to employees, officers, directors, and consultants of Opus360. Stock
purchase rights granted under the 1998 Plan allow a recipient to purchase shares
of common stock directly from Opus360. Incentive stock options may be granted to
employees, including the free agents who purchase our FREEAGENT E.OFFICE
services, officers and employee directors of Opus360 and non-qualified stock
options and stock purchase rights may be granted to employees, officers,
directors and consultants.
The total number of shares of common stock for which options may be granted
under the 1998 Plan is 4,000,000 shares, plus an annual increase on each
anniversary date of the adoption date of the 1998 Plan equal to the lesser of
100,000 shares, 4% of the aggregate number of shares of common stock outstanding
on the anniversary date or a lower number of shares of common stock determined
by the board of directors. No limitation applies to the total number of shares
of common stock for which stock purchase rights may be granted under the 1998
Plan.
As of November 30, 1999, 3,610,300 shares of common stock were issuable upon
the exercise of outstanding options granted under the 1998 Plan at a weighted
average exercise price of $1.44. No shares of common stock have been issued upon
the exercise of options or under stock purchase rights and 489,700 shares of
common stock remained available for future issuance under the 1998 Plan. The
board of directors may amend the 1998 Plan, subject to any stockholder approval
required under applicable law. Unless terminated earlier by the board of
directors, the 1998 Plan will terminate in August 2008.
59
<PAGE>
The 1998 Plan may be administered by the board of directors or a committee
appointed by the board of directors to administer the 1998 Plan. The
administrator has the authority, among other things, to grant options and stock
purchase rights, to determine the terms and conditions of these awards provided
these awards are not inconsistent with the terms of the 1998 Plan and to reduce
the exercise price of any option to the then current fair market value of the
common stock.
The 1998 Plan provides that no employee, officer, director or consultant of
Opus360 may be granted, in any fiscal year of Opus360, options to purchase more
than 150,000 shares, provided that options to purchase up to an additional
400,000 shares may be granted in connection with the initial service of any of
these persons to Opus360. Stock options granted under the 1998 Plan may not have
a term of more than ten years and, in the case of incentive stock options
granted to persons owning stock that represents more than 10% of the total
combined voting power of all classes of stock of Opus360, the term shall be five
or less years. After the termination of an optionee's employment, directorship
or consulting relationship with Opus360, the optionee's vested stock options
shall remain exercisable for time periods specified by the administrator not to
exceed the applicable option terms and, in the absence of any specified time
periods, for time periods which vary based on whether the termination occurs as
a result of death, disability or otherwise. The exercise price of all incentive
stock options must be at least equal to the fair market value of the common
stock at the time of grant, except in the case of incentive stock options
granted to persons owning stock that represents more than 10% of the total
combined voting power of all classes of the outstanding capital stock of
Opus360, in which case the exercise price must equal at least 110% of the fair
market value of the common stock at the time of grant.
Options granted under the 1998 Plan are generally not transferable, although
the administrator has the discretion to allow their transferability. In the
event of a merger or consolidation of Opus360 with or into another corporation
where the successor corporation issues its securities to Opus360 stockholders or
the sale of all or substantially of Opus360's assets, each outstanding option
and stock purchase right shall be assumed or an equivalent option or stock
purchase right shall be substituted by the successor corporation. If the
successor corporation refuses to assume outstanding options, or make
substitutions for them, each unvested option or stock purchase right shall fully
vest and be exercisable. In the event of a proposed liquidation or dissolution,
the administrator may provide that each outstanding option or stock purchase
right granted under the 1998 Plan shall be exercisable and any Opus360
repurchase right applicable to such option or right shall lapse, provided the
proposed liquidation or dissolution occurs as contemplated.
In addition to stock options, the administrator may issue stock purchase
rights under the 1998 Plan to employees, including free agents who purchase our
FREEAGENT E.OFFICE services, officers, directors and consultants of Opus360. The
administrator determines the number of shares, price, terms and conditions and
restrictions related to a grant of stock purchase rights. Unless the
administrator determines otherwise, the shares of common stock purchased
pursuant to stock purchase rights granted under the 1998 Plan are subject to a
right of repurchase in favor of Opus360 at the holder's original purchase price
upon the termination, for any reason whatsoever, of the holder's service with
Opus360. The rate at which the repurchase right may lapse shall be determined by
the administrator.
We plan to adopt a new stock option plan prior to the completion of this
offering and all future grants will be made under the new plan following its
adoption.
60
<PAGE>
CERTAIN TRANSACTIONS
Issuances of Shares and Warrants
From time to time we have issued and sold shares of our common stock,
preferred stock and warrants to purchase common stock to our employees,
directors and stockholders known to us to beneficially own more than 5% of our
common stock as follows:
In December 1998, we sold shares of our common stock to our officers,
directors and principal stockholders. Among the purchasers was Ari B. Horowitz,
our Chairman of the Board, Chief Executive Officer and President and one of our
co-founders, who purchased 2,100,000 shares of common stock at a price of $.05
per share. In connection with Mr. Horowitz's purchase of common stock, we loaned
him $100,000 at the interest rate of 7% per year, compounded annually.
Mr. Horowitz repaid the loan full in December 1999.
In September 1998, we entered into a software conveyance agreement with
USWeb whereby USWeb assigned rights it held to internally developed software
with a book value of $95,120 to us in exchange for 271,771 shares of common
stock that were issued in December 1998. From June 1998 to March 1999, Ari B.
Horowitz served as a Senior Managing Partner of USWeb and Shawn Kreloff served
as a Senior Managing Partner of USWeb. From June 1998 to July 1999, Richard
McCann served as a Finance Partner of USWeb.
Between December 1998 and April 1999, we sold an aggregate of 8,284,000
shares of our Series A Preferred Stock at a price of $1.25 per share in a
private placement. Among the purchasers in the offering were the following
officers, directors and stockholders:
- 1,472,000 shares to Wheatley Partners, L.P., an entity with which Barry
Rubenstein and Irwin Lieber, two of our directors and members of the
immediate family of Mr. Lieber are affiliated;
- 128,000 shares of Wheatley Foreign Partners, L.P., an entity with which
Messrs. Rubenstein and Lieber and members of the immediate family of
Mr. Lieber are affiliated;
- 160,000 shares to Seneca Ventures, an entity with which Mr. Rubenstein is
affiliated;
- 160,000 shares to Woodland Venture Fund, an entity with which
Mr. Rubenstein is affiliated;
- 160,000 shares to Mr. Rubenstein;
- 200,000 shares to Mr. Lieber and his immediate family members;
- 100,000 shares to G&R Partnership, L.P., an entity with which Roger J.
Weiss, one of our directors, is affiliated;
- 80,000 shares to members of the immediate family of Richard McCann, our
Senior Vice President and Chief Financial Officer; and
- 1,600,000 shares to CrossPoint Venture Partners, L.P.
In December 1998, we granted warrants to purchase an aggregate of up to
568,000 shares of common stock prior to December 24, 2005 with an exercise price
of $1.25 per share. Among the recipients of these warrants were the following
individuals and stockholders:
- 60,000 warrants to G&R Partnership; and
- 20,000 warrants to Leonard Horowitz, the father of Ari B. Horowitz, our
Chairman of the Board, Chief Executive Officer and President.
G&R Partnership warrants to purchase up to 60,000 shares of common stock
prior to December 24, 2005 at an exercise price of $1.25 per share.
61
<PAGE>
In September and October 1999, we sold shares of Series B preferred stock at
a price of $4.61 per share in a private placement. Among the purchasers in the
offering were the following officers, directors and principal stockholders:
- 2,819,956 shares to Safeguard 99 Capital L.P., Pennsylvania Early Stage
Partners and Compucom Systems, Inc., all of which are entities affiliated
with Safeguard Scientifics, Inc., of which John K. Halvey, one of our
directors, is a Senior Vice President;
- 399,132 shares to Wheatley Partners, L.P.;
- 34,707 shares to Wheatley Foreign Partners, L.P.;
- 43,384 shares to Seneca Ventures;
- 43,384 shares to Woodland Venture Fund;
- 43,384 shares to Mr. Rubenstein;
- 32,537 shares to Mr. Lieber;
- 10,846 shares to Applegreen Partners, an entity with which immediate
family members of Mr. Lieber are affiliated;
- 75,922 shares to G&R Partnership, L.P.;
- 216,920 shares to John L. Drew, one of our directors;
- 31,073 shares to immediate family members of Mr. McCann; and
- 1,084,599 shares to CrossPoint Venture Partners 1997, L.P. and CrossPoint
Venture Partners LS 1999 L.P.
All of the foregoing shares of Series A preferred stock and Series B
preferred stock automatically convert into shares of our common stock on a share
for share basis upon consummation of this offering.
CyberSafe License Agreement
In August 1999, we entered into a license agreement with CyberSafe
Corporation under which we granted a license to CyberSafe to use OPUSRM in
object code form and only for CyberSafe's internal business use. James
Cannavino, a member of our board, is the Chairman and Chief Executive Officer of
CyberSafe. Under this license agreement, we agreed that up to 15 concurrent
users of CyberSafe will be permitted to have access to a version of OPUSRM that
we have provided to early adopters of OPUSRM during the period from August 1999
until the earlier of February 15, 2000 and our release to CyberSafe of the
production version of OPUSRM in exchange for CyberSafe's performance of
promotional services for us. CyberSafe's access to the production version of
OPUSRM will end on August 14, 2002. In addition, we perform consulting services
for CyberSafe at hourly rates of $200 or $250 per hour, depending upon the
experience level of our staff members that provide these services.
USWeb Agreements
From October 1998 until November 1999, USWeb provided us with consulting,
software development and related services for which we paid USWeb approximately
$1.2 million.
In April 1999, we subleased approximately 6,933 square feet in the building
located at 733 Third Avenue, New York, New York for the period from April 1999
through August 1999 from USWeb, one of our principal stockholders, for monthly
rental payments of $25,000. The total amount paid to USWeb during 1999 under the
lease was $190,000. This agreement terminated when we entered into a lease
agreement with the owner of the building with respect to the same office.
Legal Services
Since our inception, Leonard Horowitz has provided us with legal services at
the rate of $250 per hour. For these legal services, we paid Mr. Horowitz
approximately $36,000 in 1998 and $144,000 in 1999.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of common stock as of November 30, 1999 and as adjusted to reflect the
sale of the shares of common stock offered by us in this offering, for:
- each person or entity known by us to beneficially own more than 5% of the
common stock;
- each executive officer named in the summary compensation table;
- each of our directors; and
- all executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the SEC.
Under the rules of the SEC, a person is deemed to be a beneficial owner of a
security if that person has or shares voting power, which includes the power to
vote or to direct the voting of such security, or investment power, which
includes the power to dispose of or to direct the disposition of such security.
A person is also deemed to be a beneficial owner of any securities of which that
person has a right to acquire beneficial ownership within 60 days, including
warrants and options. The number of shares of common stock outstanding used in
calculating the percentage for each listed person includes the shares of common
stock underlying options or warrants held by such person that are exercisable
within 60 days of November 30, 1999, but excludes shares of common stock
underlying options or warrants held by any other person.
Except in cases where community property laws apply or as indicated by
footnote, the persons named in the table below have sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by
them.
Percentage of beneficial ownership is based on 24,194,617 shares of common
stock outstanding as of November 30, 1999, assuming the conversion of all of our
outstanding shares of preferred stock and shares of common stock
outstanding after completion of this offering. It assumes that the underwriters'
over-allotment option to purchase is not exercised and excludes any shares
purchased in this offering by the respective beneficial owners, including any
shares offered in the Safeguard Subscription Program.
<TABLE>
<CAPTION>
Beneficial Ownership Before Offering
-----------------------------------------------------------------
Common Stock
Underlying Options and Beneficial
Common Stock Warrants Exercisable Ownership After
Name of Beneficial Owner Outstanding Within 60 Days Total Percentage Offering
- ------------------------ -------------- ---------------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
CrossPoint Venture Partners 2,684,598 -- 2,684,598 11.10%
L.P.(1)
18552 MacArthur Boulevard,
Suite 400
Irvine, California 92612
Safeguard Scientifics, Inc.(2) 3,619,955 -- 3,619,955 14.96%
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087-1945
Wheatley Partners, L.L.C. (3) 2,033,839 -- 2,033,839 8.41%
80 Cuttermill Road, Suite 311
Great Neck, New York 11021
Ari B. Horowitz................. 2,157,143 500,000(8) 2,657,143 10.76%
Carlos B. Cashman............... 1,100,000 -- 1,100,000 4.55%
Allen Berger.................... -- -- --
Susan Wu........................ -- 21,666 21,666 *
James Cannavino................. -- 30,000 30,000 *
John I. Drew.................... 216,919 -- 216,919 *
John K. Halvey(4)............... -- -- -- --
Irwin Lieber(5)................. 2,226,376 160,000 2,386,376 9.80%
William R. Nuti................. -- -- -- --
Barry Rubenstein(6)............. 2,643,991 160,000(9) 2,803,991 11.51%
Roger J. Weiss.................. 175,921(7) 60,000 215,921 0.89%
All executive officers and
directors as a group (18
persons)...................... 11,114,547 1,081,666(10) 12,196,213 48.25%
</TABLE>
63
<PAGE>
- ------------------------------
* Less than 1%.
(1) Includes 1,600,000 shares held by CrossPoint Venture Partners, L.P., 433,839
shares held by CrossPoint Venture Partners 1997, L.P. and 650,759 shares
held by CrossPoint Venture Partners LS 1999, L.P. CrossPoint Venture
Partners, L.P. is the general partner of each of CrossPoint Venture Partners
1997, L.P. and CrossPoint Venture Partners LS 1999, L.P.
(2) Includes 433,839 shares held by CompuCom Systems, Inc. 1,016,919 shares held
by Pennsylvania Early Stage Partners, L.P. and 2,169,197 shares held by
Safeguard 99 Capital L.P. The majority stockholder of CompuCom is Safeguard
Scientifics. The general partner of Pennsylvania Early Stage is Pennsylvania
Early Stage Partners GP, L.L.C., a member of which is SSI Partnership
Holdings (Pennsylvania), Inc., which is a wholly owned subsidiary of
Safeguard Scientifics, of which Mr. John K. Halvey, one of our directors, is
a senior vice president.
(3) Includes 1,871,132 shares held by Wheatley Partners, L.P. and 162,707 shares
held by Wheatley Foreign Partners, L.P. The general partner of Wheatley
Partners, L.P. and a general partner of Wheatley Foreign Partners, L.P. is
Wheatley Partners, LLC, the members of which are Irwin Lieber and Barry
Rubenstein, two of our directors, Jonathan Lieber, Seth Lieber and Barry
Fingerhut. Each of these members disclaims beneficial interest of the shares
held by the Wheatley funds, except to the extent of their respective
pecuniary interests therein arising from their ownership interests.
(4) Includes the 3,619,955 shares held indirectly by Safeguard Scientifics
referred to in Note 2 above. Mr. Halvey, one of our directors, is a senior
vice president of Safeguard Scientifics. Mr. Halvey disclaims beneficial
ownership of these shares.
(5) Includes the 2,033,839 shares held by the Wheatley funds referred to in
Note 3 above and 192,537 shares held by Mr. Lieber. Mr. Lieber, one of our
directors, disclaims beneficial interest of the 2,033,839 shares held by the
Wheatley funds referred to in Note 3 above, except to the extent his
pecuniary interest therein arising from his ownership interest.
(6) Includes the 2,033,839 shares held by the Wheatley funds referred to in
Note 3 above, the 203,384 shares held by Seneca Ventures, the 203,384 shares
held by Woodland Venture Fund and the 203,384 shares held by
Mr. Rubenstein. Mr. Rubenstein is the sole stockholder of Woodland Services
Corp., which is the sole general partner of each of Seneca Ventures and
Woodland Venture Fund. Mr. Rubenstein, one of our directors, disclaims
beneficial interest of the 2,033,839 shares held by the Wheatley funds
referred to in Note 3 above, except to the extent his pecuniary interest
therein arising from his ownership interest.
(7) Includes 175,921 shares held by G&R Partnership, L.P., the general partner
of which is Mr. Weiss, one of our directors.
(8) The option to purchase 500,000 shares granted to Mr. Horowitz on April 1,
1999 will be immediately exercisable in full upon the completion of this
offering.
(9) Includes 60,000 shares issuable upon the exercise of warrants issued to G&R.
(10) Includes the 500,000 shares underlying the option held by Mr. Horowitz
referred to in Note 4 above, as well as the 150,000 shares underlying the
option held by Richard McCann which will be exercisable in full upon the
completion of this offering.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, our authorized capital stock will
consist of 45,000,000 shares of common stock, $0.001 par value per share, and
25,000,000 shares of preferred stock, $0.001 par value per share. As of
November 30, 1999, 7,233,890 shares of common stock were outstanding, 8,284,000
shares of Series A preferred stock were outstanding and 8,676,727 shares of
Series B preferred stock were outstanding. These shares of preferred stock will
automatically convert to shares of common stock on a one-for-one basis upon the
completion of this offering.
The following description of our capital stock, provisions of our restated
certificate of incorporation and our restated bylaws and certain provisions of
Delaware law are summaries thereof and are qualified in their entirety by
reference to the Delaware General Corporation Law, and our restated certificate
of incorporation and our restated bylaws. Copies of our restated certificate of
incorporation and our restated bylaws will be filed with the SEC as exhibits to
the registration statement, of which this prospectus forms a part.
Common Stock
The holders of our common stock are entitled to dividends as our board of
directors may declare from time to time from funds legally available therefor,
subject to the preferential rights of the holders of any shares of our preferred
stock that we may issue in the future. The holders of our common stock are
entitled to one vote per share on any matter to be voted upon by stockholders.
Our restated certificate of incorporation will not provide for cumulative voting
in connection with the election of directors, and accordingly, holders of more
than 50% of the shares voting will be able to elect all of the directors. No
holder of our common stock will have any preemptive right to subscribe for any
shares of capital stock issued in the future.
Upon any voluntary or involuntary liquidation, dissolution, or winding up of
our affairs, the holders of our common stock are entitled to share ratably in
all assets remaining after payment to creditors and subject to prior
distribution rights of any shares of preferred stock that we may issue in the
future. All of the outstanding shares of common stock are, and the shares
offered by us will be, fully paid and non-assessable.
Preferred Stock
As of the closing of this offering, no shares of our preferred stock will be
outstanding. Under our restated certificate of incorporation, our board of
directors, without further action by our stockholders, will be authorized to
issue shares of preferred stock in one or more classes or series. The board may
fix the rights, preferences and privileges of the preferred stock, along with
any limitations or restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences of each
class or series of preferred stock. The preferred stock could have voting or
conversion rights that could adversely affect the voting power or other rights
of holders of our common stock. The issuance of preferred stock could also have
the effect, under certain circumstances, of delaying, deferring or preventing a
change of control of our company. We currently have no plans to issue any shares
of preferred stock.
Section 203 of the Delaware General Corporation Law
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Section 203 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
in a prescribed manner. A "business combination" includes specified types of
mergers, asset sales, and other transactions 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 the past three years did own, 15% of the corporation's voting stock.
65
<PAGE>
Provisions Relating to Mergers and Acquisitions
Some of the provisions of our restated certificate of incorporation and
restated bylaws could have anti-takeover effects. These provisions are intended
to enhance the likelihood of continuity and stability in the composition of the
corporate policies formulated by our board of directors. In addition, these
provisions also are intended to ensure that our board of directors will have
sufficient time to act in what the board of directors believes to be in the best
interests of us and our stockholders. These provisions also are designed to
reduce our vulnerability to an unsolicited proposal for our takeover that does
not contemplate the acquisition of all of our outstanding shares or an
unsolicited proposal for the restructuring or sale of all or part of Opus360
Corporation. The provisions are also intended to discourage certain tactics that
may be used in proxy fights. However, these provisions could delay or frustrate
the removal of incumbent directors or the assumption of control of us by the
holder of a large block of common stock, and could also discourage or make more
difficult a merger, tender offer, or proxy contest, even if such event would be
favorable to the interests of our stockholders.
CLASSIFIED BOARD OF DIRECTORS
Our restated certificate of incorporation will divide our board of directors
into three classes of directors, with each class as nearly equal in number as
possible, serving staggered three-year terms, other than directors who may be
elected by holders of any preferred stock that we may issue. As a result,
approximately one-third of our board of directors will be elected each year. The
classified board provision will help us to assure the continuity and stability
of our board of directors and our business strategies and policies as determined
by our board of directors. The classified board provision could have the effect
of discouraging a third party from making an unsolicited tender offer or
otherwise attempting to obtain control of us without the approval of our board
of directors. In addition, the classified board provision could delay
stockholders who do not like the policies of our board of directors from
electing a majority of our board of directors for two years.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Our restated certificate of incorporation will provide that stockholder
action can only be taken at an annual or special meeting of stockholders and
prohibits stockholder action by written consent in lieu of meeting. Our restated
bylaws will provide that special meetings of stockholders may be called only by
our board of directors or our Chairman, Chief Executive Officer or President.
Our stockholders will not be permitted to call a special meeting of stockholders
or to require that our board of directors call a special meeting.
ADVANCE STOCKHOLDER PROPOSALS AND DIRECTOR NOMINEES
Our restated bylaws will establish an advance notice procedure for our
stockholders to make nominations of candidates for election as directors or to
bring other business before an annual meeting of our stockholders. This
stockholder notice procedure provides that only persons who are nominated by, or
at the direction of, our board of directors or by a stockholder who has given
timely written notice to our Secretary prior to the meeting at which directors
are to be elected will be eligible for election as our directors. The
stockholder notice procedure also provides that at an annual meeting, only such
business may be conducted as has been brought before the meeting by, or at the
direction of, our board of directors or by a stockholder who has given timely
written notice of such stockholder's intention to bring such business before the
meeting. Under the stockholder notice procedure, if a stockholder desires to
submit a proposal or nominate persons for election as directors at an annual
meeting, the stockholder must submit written notice not less than 90 days nor
more than 120 days prior to the first anniversary of the previous year's annual
meeting. In addition, under the stockholder notice procedure, a stockholder's
notice proposing to nominate a person for election as a director or relating to
the conduct of business other than the nomination of directors must contain
specified types of information. If the chairman of a meeting determines that
business was not properly brought before
66
<PAGE>
the meeting in accordance with the stockholder notice procedure, that business
shall not be discussed or transacted.
Number of Directors; Removal; Filling Vacancies
Our restated certificate of incorporation and restated bylaws provide that
our board of directors will consist of not less than nor more than
directors, other than directors elected by holders of any preferred stock that
we may issue, the exact number to be fixed from time to time by resolution
adopted by our directors. Further, subject to the rights of the holders of any
series of our preferred stock, if any, our restated certificate of incorporation
and restated bylaws will authorize our board of directors to elect additional
directors under specified circumstances and fill any vacancies that occur in our
board of directors by reason of death, resignation, removal, or otherwise. A
director so elected by our board of directors to fill a vacancy or a newly
created directorship will hold office until the next election of the class for
which such director has been chosen and until his successor is elected and
qualified. Subject to the rights of the holders of any series of our preferred
stock, if any, our restated certificate of incorporation and restated bylaws
will also provide that, subject to the right of holders of preferred stock to
elect additional directors under specified circumstances, directors may be
removed only for cause and only by the affirmative vote of holders of 66 2/3% of
the voting power of the then outstanding shares of stock entitled to vote
generally in the election of directors, voting together as a single class The
effect of these provisions will be to preclude a stockholder from removing
incumbent directors without cause and simultaneously gaining control of our
board of directors by filling the vacancies created by that removal with its own
nominees.
Restated Certificate of Incorporation
The provisions of our restated certificate of incorporation that would have
anti-takeover effects as described above are subject to amendment, alteration,
repeal, or recession by the affirmative vote of the holders of not less than
two-thirds of the outstanding shares of voting securities. This requirement will
make it more difficult for stockholders to make changes to the provisions in our
restated certificate of incorporation which could have anti-takeover effects by
allowing the holders of a minority of the voting securities to prevent the
holders of a majority of voting securities from amending these provisions of our
restated certificate of incorporation.
Restated Bylaws
Our restated certificate of incorporation will provide that our restated
bylaws are subject to adoption, amendment, alteration, repeal, or recession
either by our board of directors without the assent or vote of our stockholders,
or by the affirmative vote of the holders of not less than two-thirds of the
outstanding shares of voting securities. This provision will make it more
difficult for stockholders to make changes in our restated bylaws by allowing
the holders of a minority of the voting securities to prevent the holders of a
majority of voting securities from amending our restated bylaws.
Limitations on Liability and Indemnification of Officers and Directors
Our restated certificate of incorporation includes a provision that
eliminates the personal liability of our directors 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 to our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper personal
benefit.
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<PAGE>
These provisions are permitted under Delaware law.
Our restated bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law, subject to very limited exceptions;
- we may indemnify our other employees and agents to the same extent that we
indemnify our officers and directors, unless otherwise required by law,
our restated certificate of incorporation, our restated bylaws or
agreements; and
- we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware law, subject to very limited exceptions.
We have obtained directors' and officers' insurance for our directors,
officers and some employees for specified liabilities.
The limitation of liability and indemnification provisions in our restated
certificate of incorporation and restated bylaws may discourage stockholders
from bringing a lawsuit against directors for breach of their fiduciary duty.
They may also have the effect of reducing the likelihood of derivative
litigation against directors and officers, even though an action of this kind,
if successful, might otherwise benefit us and our stockholders. Furthermore, a
stockholder's investment may be adversely affected to the extent we pay the
costs of settlement and damage awards against directors and officers pursuant to
these indemnification provisions. However, we believe that these indemnification
provisions are necessary to attract and retain qualified directors and officers.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees regarding which indemnification is sought,
nor are we aware of any threatened litigation that may result in claims for
indemnification.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is American Stock
Transfer & Trust Company.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our common
stock, and no prediction can be made as to the effect, if any, that market sales
of shares of common stock or the availability of shares of common stock for sale
will have on the market price of the common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock in the public
market or the perception that these sales could occur could adversely affect
prevailing market prices of our common stock and could also adversely affect our
ability to raise capital at a time and on terms favorable to us.
Upon completion of this offering, we will have outstanding a total of
shares of our common stock. Of these shares, all of the shares sold in
this offering will be freely tradable without restriction or further
registration under the Securities Act, unless such shares are held by our
affiliates as that term is defined in Rule 144 under the Securities Act. The
remaining 24,194,617 shares of common stock held by existing stockholders and
the shares subject to outstanding options and warrants are restricted
securities as that term is defined in Rule 144 under the Securities Act.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 or Rule 701 under
the Securities Act. These rules are summarized below.
Subject to the lock-up agreements described below and the provisions of
Rules 144, 144(k) and 701, additional shares will be available for sale in the
public market as follows:
<TABLE>
<CAPTION>
Number of Shares Date
- ---------------- ----
<S> <C>
After 180 days from the effective date of the registration
statement for this prospectus (subject to volume
limitations)
At various times after 180 days from the effective date of
the registration statement for this prospectus.
</TABLE>
Lock-Up Agreements
Our officers and directors and holders of shares of our common stock
and shares of common stock issuable upon the exercise of stock options
or warrants have agreed, subject to limited exceptions, not to offer to sell,
contract to sell, or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of common stock or any options or warrants to
purchase any shares of common stock, or any securities convertible into or
exchangeable for shares of common stock owned as of the date of this prospectus
or later acquired directly by these holders or with respect to which they have
the power of disposition, without the prior written consent of FleetBoston
Robertson Stephens Inc., for a period of 180 days from the effective date of the
registration statement for this prospectus. However, FleetBoston Robertson
Stephens Inc. may, in its sole discretion and at any time or from time to time,
without notice, release all or any portion of securities subject to the lockup
agreement. There are no existing agreements between the representatives and any
of our stockholders, optionholders or warrantholders providing consent to the
sale of shares prior to the expiration of the lock-up period.
Rule 144
In general, under Rule 144, as currently in effect, a person, or persons
whose shares are required to be aggregated, including an affiliate, who has
beneficially owned shares of our common stock for at least one year can sell
within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding (approximately
shares immediately after this offering); or
- the average weekly trading volume in our common stock during the four
calendar weeks preceding the filing of a notice on Form 144 with respect
to the sale.
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<PAGE>
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of public information about us. In
addition, under Rule 144(k), a person who is not one of our affiliates at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, can sell those shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
Options
In general, under Rule 701, any of our employees, directors, consultants or
advisors who purchase shares from us in connection with a compensatory stock
option plan or other written agreement are eligible to resell these shares
90 days after the date of this offering in reliance on Rule 144, without
compliance with certain restrictions contained in Rule 144, including the
holding period. However, the holders of our outstanding options have agreed to
be subject to the restrictions described above under the caption "Lock-Up
Agreements."
After this offering, we intend to register an aggregate of up to 4,100,000
shares of common stock which may be issued under the 1998 Plan. Shares issued
upon exercise of options after the effective date of the registration statement
on Form S-8 will be eligible for resale in the public market without
restriction, subject to Rule 144 limitations applicable to affiliates and the
lock-up agreements noted above.
Registration Rights
After this offering, the holders of 23,293,213 shares of common stock, and
the holders of warrants to purchase 31,000 shares of common stock, will be
entitled to have their shares registered under the Securities Act. Beginning
180 days after the date of the effectiveness of the registration statement for
this prospectus, on the written demand of holders of either
- at least 25% of the outstanding shares of common stock issued upon the
conversion of our Series A preferred stock;
- at least 25% of the outstanding shares of common stock issued upon the
conversion of our Series B preferred stock; or
- at least 25% of the outstanding shares of common stock issued to US
Web/CKS and certain of our officers and employees,
we must use our best efforts to register on Form S-1 these shares and those of
any other stockholders with registrable shares who, by prompt notice, request
registration, subject to the ability of the managing underwriter of an
underwritten offering to reduce the number of shares being sold. We are not
required to effect more than two demand registrations on Form S-1 for either the
holders of the shares of common stock issued upon conversion of the Series A
preferred stock or the holders of the shares of common stock issued upon
conversion of the Series B preferred stock. We are not required to effect more
than one demand registration on Form S-1 for the holders of the shares of common
stock issued to USWeb and some of our officers and employees. In addition, the
holders of registrable shares may demand unlimited registrations on Form S-3 of
these shares, subject to the ability of the managing underwriter of an
underwritten offering to reduce the number of shares being sold. Furthermore, if
we propose to register any of our securities under the Securities Act, either
for our own account, other than a registration filed on Form S-4 or S-8, or for
the account of other security holders exercising registration rights, the
holders of registrable shares are entitled to include their shares in the
registration, subject to the ability of the managing underwriter of an
underwritten offering to reduce the number of shares being sold. All offering
expenses in connection with all of these registrations will be borne by us,
excluding underwriting discounts and commissions.
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<PAGE>
UNDERWRITING
Of the shares offered by this prospectus, shares are being
offered by means of an underwritten public offering and shares are being
offered by means of the Safeguard Subscription Program to stockholders of
Safeguard Scientifics, Inc., one of our principal stockholders.
Underwritten Public Offering
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc., J.P. Morgan & Co.
and E*OFFERING Corp., have severally agreed with us, subject to the terms and
conditions of the underwriting agreement, to purchase from us the number of
shares of common stock indicated opposite their names below. The underwriters
are committed to purchase and pay for all of the shares if any are purchased.
<TABLE>
<CAPTION>
Underwriter Number of Shares
- ----------- ----------------
<S> <C>
FleetBoston Robertson Stephens Inc........................
Bear, Stearns & Co. Inc...................................
J.P. Morgan & Co..........................................
E*OFFERING Corp...........................................
----------------
Total.................................................
</TABLE>
We have been advised that the underwriters propose to offer the shares of
common stock to the public at the initial public offering price located on the
cover page of this prospectus and to dealers at that price less a concession of
not in excess of $ per share, of which $ may be reallowed to
other dealers. After the initial public offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
reduction in this price will change the amount of proceeds to be received by us
as indicated on the cover page of this prospectus.
OVER-ALLOTMENT OPTION.
We have granted to the underwriters an option, exercisable during the 30-day
period after the date of this prospectus, to purchase up to additional
shares of common stock at the same price per share as we will receive for the
shares that the underwriters have agreed to purchase. To the extent that
the underwriters exercise this option, each of the underwriters will have a firm
commitment to purchase approximately the same percentage of additional shares
that the number of shares of common stock to be purchased by it shown in the
above table represents as a percentage of the shares offered by this
prospectus. If purchased, the additional shares will be sold by the underwriters
on the same terms as those on which the shares are being sold. We will be
obligated, under this option, to sell shares to the extent the option is
exercised. The underwriters may exercise the option only to cover
over-allotments made in connection with the sale of the shares of common
stock offered by this prospectus.
71
<PAGE>
The following table shows the per share and total underwriting discounts and
commissions to be paid by us to the underwriters. This information is presented
assuming either no exercise or full exercise by the underwriters of their
over-allotment option.
<TABLE>
<CAPTION>
Without Over- With Over-
allotment Option allotment Option
---------------- ----------------
<S> <C> <C>
Assumed initial public offering price....................... $ $
Underwriting discounts and commissions......................
Proceeds, before expenses, to us............................
</TABLE>
The total expenses of the offering payable by us are estimated at
$ . We are not responsible for expenses associated with the Safeguard
Subscription Program. FleetBoston Robertson Stephens Inc. expects to deliver the
shares of common stock to purchasers on , 2000.
INDEMNITY.
The underwriting agreement contains covenants of indemnity among the
underwriters and us against certain civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
FUTURE SALES.
Each executive officer and director and holders of shares of our
common stock and shares of common stock issuable upon the exercise of
stock options or warrants have agreed, during the period of 180 days after the
date of this prospectus, subject to several exceptions, not to offer to sell,
contract to sell, or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of common stock or any options or warrants to
purchase any shares of common stock, or any securities convertible into or
exchangeable for shares of common stock owned as of the date of this prospectus
or thereafter acquired directly by these holders or with respect to which they
have the power of disposition, without the prior written consent of FleetBoston
Robertson Stephens Inc. However, FleetBoston Robertson Stephens Inc. may, in its
sole discretion and at any time or from time to time, without notice, release
all or any portion of the securities subject to the lock-up agreements. There
are no existing agreements between the representatives and any of our
stockholders, optionholders or warrantholders providing consent to the sale of
shares prior to the expiration of the lock-up period.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of FleetBoston Robertson Stephens Inc.,
subject to several exceptions:
- consent to the disposition of any shares subject to lock-up agreements
prior to the expiration of the lock-up period; or
- issue, sell, contract to sell, or otherwise dispose of, any shares of
common stock, any options to purchase any shares of common stock or any
securities convertible into, exercisable for or exchangeable for shares of
common stock other than our sale of shares in this offering, the issuance
of common stock upon the exercise of outstanding options or warrants, the
issuance of options under existing stock option plans provided that no
portion of the options vests before the expiration of the lock-up period
and the issuance of common stock in connection with an acquisition of
another company if the terms of such issuance provide that the common
stock so issued shall be subject to the terms of the lock-up agreement.
Please refer to the information in this prospectus under the heading
"Shares Eligible for Future Sale."
The underwriters have advised us that they do not intend to confirm sales to
any accounts over which they exercise discretionary authority.
72
<PAGE>
INTERNET DISTRIBUTION.
E*OFFERING Corp. has agreed to allocate a portion of the shares that it
purchases to E*TRADE Securities, Inc. A prospectus in electronic format will be
made available on Internet sites maintained by E*OFFERING and E*TRADE.
E*OFFERING and E*TRADE will accept conditional offers to purchase shares from
all of their customers that complete and pass online eligibility profiles. In
the event that the demand for shares from the customers of E*TRADE exceeds the
amount of shares allocated to it, E*TRADE will use a random allocation
methodology to distribute shares in even lots of 100 shares per customer. These
are no plans to direct shares to particular Internet purchasers.
DIRECTED SHARES.
Of the shares of common stock to be sold by us to the public
generally, we have requested that the underwriters reserve up to shares of
common stock for sale at the initial public offering price to directors,
officers, employees and other individuals designated by us. The number of shares
of common stock available for sale to the general public will be reduced to the
extent that such individuals purchase all or a portion of these reserved shares.
Any reserved shares which are not purchased shall be offered by the underwriters
to the general public on the same basis as the common shares offered hereby.
NO PRIOR PUBLIC MARKET.
Before this offering, there has been no public market for the common stock.
Consequently, the initial public offering price for the common stock offered by
this prospectus will be determined through negotiations between us and the
representatives. Among the factors considered in these negotiations were
prevailing market conditions, our financial information, market valuations of
other companies that we and the representatives believe to be comparable to us,
estimates of our business potential, the present state of our development and
other factors deemed relevant.
LISTING.
We will apply to have our shares approved for quotation on the Nasdaq
National Market under the symbol "OPUS."
STABILIZATION.
The representatives have advised us that under Regulation M under the
Securities Exchange Act, some participants in the offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A stabilizing bid is a bid for or
the purchase of the common stock on behalf of the underwriters for the purpose
of fixing or maintaining the price of the common stock. A syndicate covering
transaction is the bid for or purchase of the common stock on behalf of the
underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A penalty bid is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by the underwriter or syndicate member is purchased by the
representatives in a syndicate covering transaction and has therefore not been
effectively placed by the underwriter or syndicate member. The representatives
have advised us that these transactions may be effected on the Nasdaq National
Market or otherwise and, if commenced, may be discontinued at any time.
Safeguard Subscription Program
As part of this offering, we are offering shares of our common stock
in the Safeguard Subscription Program to stockholders of Safeguard, one of our
principal stockholders. Safeguard's stockholders may subscribe for one share of
our common stock for every shares of Safeguard
73
<PAGE>
common stock held by them, and may not transfer the opportunity to subscribe to
another person except involuntarily by operation of law. Persons who owned at
least 100 shares of Safeguard common stock as of December 16, 1999 are eligible
to purchase shares from us under the program. Stockholders who own less than 100
shares of Safeguard common stock will be ineligible to participate in the
Safeguard Subscription Program.
Under a standby stock purchase agreement, which will be filed as an exhibit
to the registration statement relating to this prospectus, Safeguard will
purchase from us any of the shares offered by us under the program that are not
purchased by the stockholders of Safeguard. Distribution of share certificates
purchased through the Safeguard Subscription Program will be made to the
purchasers as soon as practicable following the closing of the sale of the
shares to the public. It is expected that sales under the Safeguard Subscription
Program will be reflected in purchasers' book-entry accounts at the Depository
Trust Company, if any, upon the closing of these sales. After the closing of
these sales, we will mail stock certificates to all purchasers who do not
maintain book-entry accounts at the Depository Trust Company. The purchase price
under the program, whether paid by Safeguard or its stockholders, will be the
same price per share as set forth on the cover page of this prospectus. All
shares will be sold either to Safeguard or to stockholders of Safeguard.
FleetBoston Robertson Stephens Inc. will receive a % management fee on all
shares offered through the Safeguard Subscription Program, including any shares
actually purchased by Safeguard. The management fee represents compensation for
the underwriters' role as it relates to due diligence, participation in the
drafting of this prospectus, and general coordination of the overall offering.
Safeguard will not receive any compensation from Opus360 or any other person,
with respect to this offering, including any underwriting discounts or
commissions.
The following table shows the per share and total offering price, management
fee to be paid by us to the underwriters and the proceeds before expenses to us.
<TABLE>
<CAPTION>
Per Share Total
--------- --------
<S> <C> <C>
Public offering price.......................................
Management fee..............................................
Proceeds, before expenses, to Opus360.......................
</TABLE>
The total proceeds, before expenses, to be received by us from both the
underwritten public offering and the Safeguard Subscription Program will be
approximately $ million, assuming no exercise of the over-allotment
option.
The expenses of the Safeguard Subscription Program, exclusive of the
management fee to be paid to the underwriters, are payable by Safeguard.
Safeguard is an underwriter with respect to the shares included in the
Safeguard Subscription Program. Safeguard is not an underwriter with respect to
the other shares offered by this prospectus. Safeguard is not included in the
term "underwriter" as used in this prospectus. Safeguard's sole condition to
purchase any shares that are not purchased by its stockholders in the Safeguard
Subscription Program is that the conditions to the underwriter's obligations
have been met. This means that Safeguard will be required to purchase these
shares if, and only if, the underwriters are obligated to purchase shares.
Safeguard has not participated in any discussions or negotiations with us and
the underwriters regarding the initial public offering price. Safeguard will not
have any right to seek indemnification from us regarding its agreement to accept
underwriter liability with respect to the shares included in the Safeguard
Subscription Program.
FleetBoston Ventures
FleetBoston Ventures, an affiliate of FleetBoston Robertson Stephens, Inc.,
owns 216,920 shares of Series B preferred stock, which will convert shares of
common stock on a one-for-one basis upon the closing of this offering.
74
<PAGE>
J.P. Morgan & Co. Incorporated
In December 1999, we entered into an agreement with J.P. Morgan & Co., one
of the representatives of the underwriters, to use OPUS XCHANGE to procure its
project-based resource requirements and to participate actively in the continued
development of the enhanced version of OPUS XCHANGE. In connection with this
agreement, in December 1999, we issued to an affiliate of J.P. Morgan & Co.
26,000 shares of our common stock in exchange for consulting services performed
under the agreement.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by O'Sullivan Graev & Karabell, LLP, New York, New York. The
O'Sullivan Graev profit sharing plan holds 40,000 shares of Series A preferred
stock, which will automatically convert into shares of common stock on a
one-for-one basis upon the closing of this offering. Various legal matters in
connection with this offering will be passed upon for the underwriters by
Morrison & Foerster LLP, New York, New York.
EXPERTS
The financial statements for Opus360 Corporation as of December 31, 1998 and
for the period from August 17, 1998 (our inception) to December 31, 1998 and the
financial statements for The Churchill Benefit Corporation as of December 31,
1997 and 1998 and for the years ended December 31, 1997 and 1998 included in
this prospectus have been so included in reliance on the reports of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, upon
authority of said firm as experts in auditing and accounting.
WHERE YOU CAN GET MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 (including
exhibits and schedules thereto) under the Securities Act with respect to the
common stock to be sold in this offering. This prospectus, which constitutes a
part of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits and schedules which are part
of the registration statement. For further information with respect to us and
the common stock, reference is made to the registration statement and the
exhibits and the schedules thereto.
You may read and copy all or any portion of the registration statement or
any reports, statement or other information in the Opus360 files in the SEC's
public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of
these documents upon payment of a duplicating fee, by writing to the SEC. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. Opus360's SEC filings, including the registration
statement, will also be available to you on the SEC's Internet site
(http://www.sec.gov). As a result of this offering, we will become subject to
the information and reporting requirements of the Securities Exchange Act and,
in accordance therewith, will file periodic reports, proxy statements and other
information with the SEC.
75
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
OPUS360 CORPORATION
Independent Auditor's Report................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and
September 30, 1999........................................ F-3
Consolidated Statements of Operations for the period from
August 17, 1998 (inception) to September 30, 1998 and the
nine months ended September 30, 1999...................... F-4
Consolidated Statements of Stockholders' Equity for the
period from August 17, 1998 (inception) to September 30,
1998 and the nine months ended September 30, 1999......... F-5
Consolidated Statements of Cash Flows for the period from
August 17, 1998 (inception) to September 30, 1998 and the
nine months ended September 30, 1999...................... F-6
Notes to Consolidated Financial Statements.................. F-7
THE CHURCHILL BENEFIT CORPORATION
Independent Auditor's Report................................ F-26
Balance Sheets as of December 31, 1997 and 1998............. F-27
Statements of Operations for the years ended December 31,
1997 and 1998............................................. F-28
Statement of Stockholders' Equity for the years ended
December 31, 1997 and 1998................................ F-29
Statements of Cash Flow for the years ended December 31,
1997 and 1998............................................. F-30
Notes to Financial Statements............................... F-31
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
Opus360 Corporation:
We have audited the accompanying balance sheet of Opus360 Corporation as of
December 31, 1998, and the related statement of operations, stockholders' equity
and cash flows for the period August 17, 1998 (inception) to 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 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 Opus360 Corporation as of
December 31, 1998, and the results of its operations and its cash flows for the
period August 17, 1998 (inception) to December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
November 24, 1999, except as to
paragraphs 8 and 9 of note 2
which are as of December 20, 1999
F-2
<PAGE>
OPUS360 CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Pro Forma
December 31, September 30, September 30,
1998 1999 1999
------------ ------------- -------------
(Unaudited) (Unaudited)
(See Note 1)
<S> <C> <C> <C>
Assets
Current assets:
Cash................................................ $ 5,817,926 $ 3,549,505 $ 3,549,505
Accounts receivable................................. 12,000 1,625,114 1,625,114
Short-term investments.............................. -- 37,170,674 37,170,674
Prepaid expenses and other.......................... 2,432 134,102 134,102
Receivable from Series B convertible stockholders... -- 1,507,000 1,507,000
----------- ------------ ------------
Total current assets.......................... 5,832,358 43,986,395 43,986,395
Property and equipment, net........................... 54,427 917,344 917,344
Goodwill, net of accumulated amortization of $231,174
(unaudited) as of September 30, 1999................ -- 1,881,472 1,881,472
Deferred loan costs................................... -- 43,643 43,643
Other assets.......................................... -- 17,848 17,848
----------- ------------ ------------
Total assets.................................. $ 5,886,785 $ 46,846,702 $ 46,846,702
=========== ============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.................................... $ 68,474 $ 1,102,855 $ 1,102,855
Accrued expenses.................................... 339,520 1,939,180 1,939,180
Accrued wages....................................... -- 2,371,346 2,371,346
Due to stockholder.................................. 224,893 971,609 971,609
----------- ------------ ------------
Total current liabilities..................... 632,887 6,384,990 6,384,990
Temporary equity...................................... -- 1,225,000 1,225,000
Stockholders' equity:
Series A convertible preferred stock, $0.001 par
value, 8,400,000 shares authorized, 4,636,000 and
8,284,000 shares issued and outstanding,
respectively, and zero shares outstanding on a pro
forma basis....................................... 4,636 8,284 --
Series B convertible preferred stock, $0.001 par
value, 8,700,000 shares authorized, 0 and
8,676,727 shares issued and outstanding,
respectively, and zero shares outstanding on a pro
forma basis....................................... -- 8,677 --
Common stock, $0.001 par value, 45,000,000 shares
authorized, 6,332,486 and 6,963,468 issued and
outstanding, respectively, and 23,924,196 shares
outstanding on a pro forma basis.................. 6,332 6,963 23,924
Additional paid-in capital.......................... 6,384,152 57,038,834 57,038,834
Stock subscription receivable....................... (106,500) (269,000) (269,000)
Deferred compensation............................... -- (4,024,247) (4,024,247)
Accumulated deficit................................. (1,034,722) (13,529,747) (13,529,747)
Accumulated other comprehensive loss................ -- (3,052) (3,052)
----------- ------------ ------------
Total stockholders' equity.................... 5,253,898 39,236,712 39,236,712
----------- ------------ ------------
Commitments and contingenies
Total liabilities and stockholders' equity.... $ 5,886,785 $ 46,846,702 $ 46,846,702
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
OPUS360 CORPORATION
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Period from Period from
August 17, 1998 August 17, 1998 Nine months
(inception) to (inception) to ended
December 31, September 30, September 30,
1998 1998 1999
--------------- --------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenue............................................. $ -- -- 241,269
Cost of revenues.................................... -- -- 198,012
------------ --------- ------------
Gross profit........................................ -- -- 43,257
Operating expenses:
Sales and marketing............................... 80,389 -- 3,750,776
Product development............................... 551,736 21,827 4,298,845
General and administrative........................ 406,840 124,444 3,740,040
Depreciation and amortization..................... 1,555 -- 309,679
Amortization of equity-based compensation......... -- -- 716,911
------------ --------- ------------
Total operating expenses........................ 1,040,520 146,271 12,816,251
------------ --------- ------------
Loss from operations............................ (1,040,520) (146,271) (12,772,994)
Other income:
Interest income................................... 5,798 -- 297,586
Interest expense.................................. -- -- (19,617)
Loss before income taxes........................ (1,034,722) (146,271) (12,495,025)
Income tax expense.................................. -- -- --
------------ --------- ------------
Net loss........................................ $ (1,034,722) (146,271) (12,495,025)
============ ========= ============
Historical basic and diluted net loss per share..... $ (0.17) $ (0.03) $ (1.89)
============ ========= ============
Shares used in the calculation of historical basic
and
diluted net loss per share........................ 6,080,232 5,383,333 6,626,019
============ ========= ============
Pro forma basic and diluted net loss per share
(note 1).......................................... $ (0.10) $ (0.53)
============ ============
Shares used in the calculation of pro forma basic
and
diluted net loss per share (note 1)............... 10,716,232 23,586,746
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
OPUS360 CORPORATION
Consolidated Statement of Stockholders' Equity
Period from August 17, 1998 (inception) to December 31, 1998
and Nine Months ended September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Class A Convertible Class B Convertible
Preferred Stock Preferred Stock Common Stock Additional Stock
--------------------- --------------------- --------------------- Paid-in Subscriptions
Shares Amount Shares Amount Shares Amount Capital Receivable
--------- --------- --------- --------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at August 17, 1998
(inception) $ $ $ $ $
Issuance of common stock..... 6,060,714 6,060 528,940 (106,500)
Issuance of common stock for
technology................. 271,771 272 94,848
Issuance of Class A
convertible preferred
stock...................... 4,636,000 4,636 5,790,364
Expenses incurred in
connection with equity
offerings.................. (30,000)
Net loss.....................
--------- --------- --------- --------- --------- --------- ----------- ---------
Balance at December 31,
1998................... 4,636,000 4,636 -- -- 6,332,485 6,332 6,384,152 (106,500)
Issuance of Class A
convertible preferred
stock...................... 3,648,000 3,648 4,556,352 (195,000)
Issuance of Class B
convertible preferred
stock...................... 8,676,727 8,677 39,991,323
Issuance of shares in
connection with
acquisition................ 630,983 631 1,749,369
Reclass amount subject to put
agreement.................. (1,225,000)
Expenses incurred in
connection with equity
offering................... (2,148)
Proceeds from stock
subscriptions receivable... 32,500
Record equity base
compensation expense to a
shareholder................ 303,985
Record deferred compensation
for issuance of options to
employees.................. 3,804,326
Record deferred compensation
for issuance of options to
non-employees.............. 632,847
Amortization of deferred
compensation for employee
stock options..............
Amortization of deferred
compensation for non-
employee stock options.....
Issuance of warrants to a
bank....................... 63,260
Issuance of warrants for
services................... 554,000
Issuance of warrants for
services................... 127,168
Issuance of warrants for
services................... 99,200
Net loss.....................
Unrealized holding loss on
short term investments.....
Comprehensive loss
--------- --------- --------- --------- --------- --------- ----------- ---------
Balance at September 30,
1999 (unaudited)....... 8,284,000 $ 8,284 8,676,727 $ 8,677 6,963,468 $ 6,963 $57,038,834 $(269,000)
========= ========= ========= ========= ========= ========= =========== =========
<CAPTION>
Other
Deferred Accumulated Comprehensive
Compensation Deficit Loss Total
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Balance at August 17, 1998
(inception) $ $ $ $
Issuance of common stock..... 428,500
Issuance of common stock for
technology................. 95,120
Issuance of Class A
convertible preferred
stock...................... 5,795,000
Expenses incurred in
connection with equity
offerings.................. (30,000)
Net loss..................... (1,034,722) (1,034,722)
----------- ------------ ---------- ------------
Balance at December 31,
1998................... -- (1,034,722) -- 5,253,898
Issuance of Class A
convertible preferred
stock...................... 4,365,000
Issuance of Class B
convertible preferred
stock...................... 40,000,000
Issuance of shares in
connection with
acquisition................ 1,750,000
Reclass amount subject to put
agreement.................. (1,225,000)
Expenses incurred in
connection with equity
offering................... (2,148)
Proceeds from stock
subscriptions receivable... 32,500
Record equity base
compensation expense to a
shareholder................ 303,985
Record deferred compensation
for issuance of options to
employees.................. (3,804,326) --
Record deferred compensation
for issuance of options to
non-employees.............. (632,847) --
Amortization of deferred
compensation for employee
stock options.............. 389,777 389,777
Amortization of deferred
compensation for non-
employee stock options..... 23,149 23,149
Issuance of warrants to a
bank....................... 63,260
Issuance of warrants for
services................... 554,000
Issuance of warrants for
services................... 127,168
Issuance of warrants for
services................... 99,200
Net loss..................... (12,495,025) (12,495,025)
Unrealized holding loss on
short term investments..... (3,052) (3,052)
------------
Comprehensive loss (12,498,077)
----------- ------------ ---------- ------------
Balance at September 30,
1999 (unaudited)....... $(4,024,247) $(13,529,747) $ (3,052) $ 39,236,712
=========== ============ ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
OPUS360 CORPORATION
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Period from Period from
August 17, 1998 August 17, 1998 Nine months
(inception) to (inception) to ended
December 31, September 30, September 30,
1998 1998 1999
--------------- --------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(1,034,722) $(146,271) $(12,495,025)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................... 1,555 -- 309,679
Non cash product development expense............ 95,120 95,120 99,200
Non cash compensation expense................... -- -- 716,911
Non cash advertising expense.................... -- -- 127,168
Non cash advisory expense....................... -- -- 554,000
Non cash interest expense associated with
issuance of warrants.......................... -- -- 19,617
Loss on disposal of equipment................... -- -- 8,482
Changes in operating assets and liabilities:
Account receivables........................... (12,000) -- (402,666)
Prepaid expenses and other current assets..... (2,432) -- (131,419)
Other assets.................................. -- -- (13,840)
Accounts payable.............................. 68,474 -- 737,436
Accrued expenses.............................. 339,520 -- 185,306
Accrued wages................................. -- -- 2,371,346
Due to stockholder............................ 224,893 551,151 746,716
----------- --------- ------------
Net cash provided by (used in) operating
activities.................................. $ (319,592) $ 500,000 $ (7,167,089)
=========== ========= ============
Cash flows from investing activities:
Acquisition of property and equipment............... (55,982) -- (944,257)
Increase in short term investments.................. -- -- (37,173,726)
Cash acquired in connection with acquisition of
subsidiary........................................ -- -- 128,550
----------- --------- ------------
Net cash used in investing activities....... $ (55,982) $ -- $(37,989,433)
=========== ========= ============
Cash flows from financing activities:
Net proceeds from issuance of Series A convertible
preferred stock................................. $ 5,765,000 $ -- $ 4,365,000
Net proceeds from issuance of Series B convertible
preferred stock................................. -- -- 38,490,601
Net proceeds from issuance of common stock........ 428,500 145,000 32,500
----------- --------- ------------
Net cash provided by financing activities... 6,193,500 145,000 42,888,101
----------- --------- ------------
Net increase (decrease) in cash............. 5,817,926 645,000 (2,268,421)
Cash:
Beginning of period............................... -- -- 5,817,926
----------- --------- ------------
End of period..................................... $ 5,817,926 $ 645,000 $ 3,549,505
=========== ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements
December 31, 1998
(Amounts as of Nine Months ended September 30, 1999 are unaudited)
(1) Organization and Summary of Accounting Policies
(A) ORGANIZATION AND DESCRIPTION OF BUSINESS
Opus360 Corporation ("Opus" or the "Company") was incorporated on
August 17, 1998, under the laws of Delaware.
Opus provides an integrated web-based business to business solution for
putting people and projects together. The Company's e-commerce solution is
intended to streamline the procurement and management of professional services
and is comprised of two segments.
- FREEAGENT.COM SERVICE--which includes FREEAGENT.COM, a web-site that
enables independent professionals to manage their careers by offering
access to project opportunities and corporate products and services; and,
FREEAGENT E.OFFICE, a back-office and employer service for independent
professionals. Independent professionals who elect to receive FREEAGENT
E.OFFICE services are the Company's contractual employees for federal
income tax purposes and for whom the Company prepares IRS Form W-2's. The
Company enters into contracts with organizations for projects to be
performed by FREEAGENT E.OFFICE employees, processes invoices on their
behalf and, upon receipt of amounts due from the contracting organization
for the services rendered by FREEAGENT E.OFFICE employees, remits the
amount to them after deducting payroll taxes, the fees charged by the
Company and directing amounts to their health insurance and 401(k)
retirement plan, as directed by the FREEAGENT E.OFFICE employees.
- APPLICATION AND PROCUREMENT SERVICES--which includes OPUS XCHANGE, a
web-based platform designed to enable corporations, professional service
firms, staffing vendors and other buyers of project-based labor to procure
these services in an exchange-based environment by using search
technologies to match people with projects; and, OPUSRM, a labor resource
management service designed to centralize resource and project information
and enable organizations to manage their internal and external labor
resources.
On May 27, 1999, the Company acquired the Churchill Benefit Corporation
("Churchill"), a company that provides back-office and employer services similar
to those of the Company's E.OFFICE service.
(B) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Opus and it's wholly owned subsidiary, Churchill Benefit Corporation
(collectively, the "Company"). All intercompany account balances and
transactions have been eliminated in consolidation.
The accompanying consolidated financial statements reflect a change in how
the Company's subsidiary, Churchill Benefit Corporation, recognizes revenue. The
Company currently recognizes as revenue the monthly fees it charges to its
E.OFFICE employees for providing E.OFFICE services as these services are
provided. Previously, Churchill recorded as revenue, the gross billings from
services provided by its E.OFFICE employees to customers with whom Churchill
contracts, invoices and collects on behalf of its E.OFFICE employees. Churchill
would then record a corresponding charge to cost of revenues for the same amount
less its E.OFFICE service fee. This change in Churchill's revenue recognition
policy has no effect on historical net income or loss.
The Company believes its current revenue recognition policy clarifies its
financial position and results of operations and is consistent with the view of
the Securities and Exchange Commission ("SEC") on revenue recognition issued in
Staff Accounting Bulletin No. 101.
F-7
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
December 31, 1998
(Amounts as of Nine Months ended September 30, 1999 are unaudited)
In December 1999, the Board of Directors authorized the filing of a
registration statement with the SEC that would permit the Company to sell shares
of the Company's common stock in connection with a proposed initial public
offering ("IPO"). In conjunction with a qualified IPO, all outstanding shares of
Series A and B preferred stock automatically convert into shares of the
Company's common stock on a one for one basis. Accordingly, the effect of the
conversions has been reflected in the accompanying unaudited pro forma balance
sheet as if they had occurred as of September 30, 1999.
(C) INTERIM FINANCIAL INFORMATION (UNAUDITED)
The interim financial statements of the Company as of September 30, 1999 and
the statements of operations, stockholders' equity and cash flows for the nine
months ended September 30, 1999 are unaudited. Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the financial position and
results of operations and cash flows, have been included in such unaudited
financial statements. The results of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the results to be expected
for the entire year.
(D) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(E) REVENUE RECOGNITION
To date, the Company has only generated revenue from charging fees to
independent professionals who receive the Company's E.OFFICE services, which
include back office and administrative services. Independent professionals who
elect to receive FREEAGENT E.OFFICE services are the Company's contractual
employees for federal income tax purposes and for whom the Company prepares IRS
Form W-2's. The Company enters into contracts with organizations for projects to
be performed by FREEAGENT E.OFFICE employees, processes invoices on their behalf
and, upon receipt of amounts due from the contracting organization for the
services rendered by the FREEAGENT E.OFFICE employees, remits the amount to them
after deducting payroll taxes, the fees charged by the Company and directing
amounts to their health insurance and the Company's 401(k) plan.
The Company recognizes an initial sign-up fee and monthly E.OFFICE fees as
its services are provided to such E.OFFICE employees on a monthly basis. The
Company recognizes the initial sign-up fee over the period of the E.OFFICE
employees' initial contract term.
Company revenue from the sale of banner ads on FREEAGENT.COM will be
recognized ratably in the period in which the advertisement is displayed,
provided that no significant Company obligations remain and collection of the
resulting receivable is probable, and to date, no revenue has been recognized
for this service.
FREEAGENT business services revenues will consist of commission-based and
fee-based services and products provided through FREEAGENT.COM by the Company's
business partners. Business service revenues that are commission-based will be
recognized as revenues when the transaction is consummated and business service
revenues that are fee-based will be recognized as revenues over the related
subscription term.
F-8
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
December 31, 1998
(Amounts as of Nine Months ended September 30, 1999 are unaudited)
Revenue from OPUS XCHANGE project listing will consist of fees that are paid
by organizations that list projects on OPUS XCHANGE and will be recognized over
the applicable period for which the project is listed. To date, no revenue has
been recognized for this service.
Revenue from OPUS XCHANGE project placement will consist of a
transaction-based fee (either variable or fixed), paid when an organization that
has listed a project on OPUS XCHANGE procures the services of a registered free
agent to perform services for the project and will be recognized as revenue
either when a free agent is engaged for a project or over time if the free agent
is a FREEAGENT E.OFFICE employee. To date, no revenue has been recognized for
this service.
(F) COST OF REVENUE
Cost of revenues consist primarily of salaries paid to staff that help
administer the Company's E.OFFICE SERVICES. Additional costs of revenues include
costs associated with operating FREEAGENT.COM and OPUS XCHANGE, including
certain technical personnel, equipment leasing costs, telecommunications charges
and depreciation.
(G) INVESTMENT SECURITIES
Investment securities at September 30, 1999 consist of corporate debt
securities and U.S. government agency securities. The Company classifies all of
the debt securities as available-for-sale. Available-for-sale securities are
recorded at fair value. Unrealized holding gains and losses, net of the related
tax effect, on available-for-sale securities are excluded from earnings and are
reported as a separate component of other comprehensive income until realized.
Realized gains and losses from the sale of available-for-sale securities are
determined on a specific identification basis.
A decline in the market value of any available-for-sale security below cost
that is deemed to be other than temporary results in a reduction in the carrying
amount to fair value. The impairment is charged to earnings and a new cost basis
for the security is established. Premiums and discounts are amortized or
accreted over the life of the related available-for-sale security as an
adjustment to yield using the effective interest method. Dividend and interest
income is recognized when earned.
The breakdown of unrealized gains and losses as of September 30, 1999
(unaudited) is as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair Market
Cost Gain Loss Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Government agency debt securities............... $33,312,141 2,616 (13,955) 33,300,802
Corporate debt securities....................... 3,863,621 6,251 -- 3,869,872
----------- ----- ------- ----------
Total........................................... $37,175,762 8,867 (13,955) 37,170,674
=========== ===== ======= ==========
</TABLE>
(H) ADVERTISING COSTS
Advertising costs are expensed as incurred. For the period from August 17,
1998 (inception) to December 31, 1998 and for the nine months ended
September 30, 1999, advertising expenses amounted to approximately $0 and
$463,783, respectively.
F-9
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
December 31, 1998
(Amounts as of Nine Months ended September 30, 1999 are unaudited)
(I) ACCOUNTS RECEIVABLE AND ACCRUED WAGES PAYABLE
Accounts receivable represents amounts invoiced by the Company on behalf of
its E.OFFICE employees for services rendered to a customer that has contracted
with the Company. Accrued wages represents the amounts owed to the Company's
E.OFFICE employees for services rendered under contracts with third parties.
(J) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the related assets,
generally ranging from three to five years.
(K) IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the carrying value of its long-lived assets under the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. SFAS No. 121 requires impairment losses to be recorded on long-
lived assets used in operations, including goodwill, when indicators of
impairment are present and the undiscounted future cash flows estimated to be
generated by those assets are less than the assets' carrying amount. If such
assets are impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceeds the fair market value of the
assets. Assets to be disposed of are reported at the lower of the carrying value
or fair market value, less costs to sell.
(L) INTANGIBLE ASSETS
Intangible assets consists of goodwill and is amortized on a straight-line
basis over the expected periods to be benefited, generally 3 years. Accumulated
amortization for the nine month period ended September 30, 1999 was $231,174.
(M) FINANCIAL INSTRUMENTS
The following summary disclosures are made in accordance with the provisions
of SFAS No. 107, Disclosures about Fair Value of Financial Instruments. Fair
market value is defined in the statement as the amount at which an instrument
could be exchanged in a current transaction between willing parties.
The carrying amounts of accounts receivables, prepaid expenses and other
assets, accounts payable and accrued expenses approximate fair market value due
to the short maturity of these instruments.
(N) PRODUCT DEVELOPMENT COSTS
The Company accounts for product development costs in accordance with SFAS
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," under which certain software development costs incurred
subsequent to the establishment of technological feasibility are capitalized and
amortized over the estimated lives of the related products. Technological
feasibility is established upon completion of a working model. Through September
30, 1999, all development costs have been charged to product development expense
in the accompanying consolidated statements of operations.
(O) INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS No, 109,
"Accounting for Income Taxes." SFAS No. 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and
F-10
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
December 31, 1998
(Amounts as of Nine Months ended September 30, 1999 are unaudited)
tax bases of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse.
(P) STOCK BASED COMPENSATION
The Company accounts for stock-based compensation arrangements in accordance
with SFAS No. 123, "Accounting for Stock-Based Compensation," which 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 apply the provisions of Accounting Principles Board ("APB") Opinion
No. 25 and provide pro forma net earnings (loss) disclosures for employee stock
option grants as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.
(Q) SEGMENT INFORMATION
The Company discloses information regarding segments in accordance with SFAS
No. 131 "Disclosure about Segments of an Enterprise and Related Information."
SFAS No. 131 establishes standards for reporting of financial information about
operating segments in annual financial statements and requires reporting
selected information about operating segments in interim financial reports. (See
note 10).
(R) COMPREHENSIVE INCOME
The Company reports comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes rules for the
reporting and display of comprehensive income and its components. SFAS No. 130
requires unrealized holding gains and losses, net of related tax effects, on
available for sale securities to be included in other comprehensive income until
realized.
(S) BASIC AND DILUTED NET LOSS PER SHARE
The Company calculates earnings per share in accordance with SFAS No. 128,
"Computation of Earnings Per Share" and SEC Staff Accounting Bulletin No. 98.
Accordingly, basic earnings per share is computed using the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. Pursuant to SAB No. 98, all options, warrants or other potentially
dilutive instruments issued for nominal consideration, prior to the anticipated
effective date of an initial public offering (including the IPO), are required
to be included in the calculation of basic and diluted net loss per share, as if
they were outstanding for all periods presented. As of September 30, 1999, the
Company has recorded the fair market value of all equity instruments issued for
all periods presented and accordingly does not have any nominal issuances.
Common equivalent shares consist of the incremental common shares issuable upon
the conversion of the Company's preferred stock (using the if-converted method)
and shares issuable upon the exercise of stock options and warrants (using the
treasury stock method); common equivalent shares are excluded from the
calculation if their effect is anti-dilutive.
(T) RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Company adopted the American Institute of Certified
Public Accounts (AICPA) Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1
requires that entities capitalize certain costs related to internal use software
once certain criteria have been met. Adoption of SOP 98-1 did not have a
material impact on the Company's financial condition or results of operations.
F-11
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
December 31, 1998
(Amounts as of Nine Months ended September 30, 1999 are unaudited)
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires that all start-up costs
related to new operations must be expensed as incurred. In addition, all
start-up costs that were capitalized in the past must be written off when SOP
98-5 is adopted. The Company implemented SOP 98-5 on January 1, 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
has not yet analyzed the impact of this pronouncement on its financial
statements.
(2) Acquisition of The Churchill Benefit Corporation
On May 27, 1999, Opus acquired 100% of the outstanding common stock of The
Churchill Benefit Corporation ("Churchill") in exchange for 630,983 shares (the
"Initial Shares") of the Company's common stock valued at approximately $2.773
per share, or $1.75 million.
The former owner of Churchill is potentially entitled to an additional
270,421 shares of the Company's common stock placed in escrow (the "Escrow
Shares") and, commencing 18 months from the date of closing, $850,000 of the
Company's common stock based on the fair market value on that date (the
"Additional Shares").
F-12
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
December 31, 1998
(Amounts as of Nine Months ended September 30, 1999 are unaudited)
The Escrow and Additional Shares vest ratably over 3 years from the date of
the agreement based on the continuous employment of the seller and a key
executive and are subject to downward adjustment based on a target number of
free agents subscribing to the Company's E.OFFICE service one year from the date
of the acquisition agreement.
As of September 30, 1999, the Company can not determine if the former
shareholder of Churchill will be entitled to any Escrow or Additional Shares.
After determination of amounts owed to the former owner of Churchill, the
Company will charge to compensation expense that portion of the Escrow and
Additional Shares which have been earned based on the fair market value of the
Company's common stock on that date. The Company will then amortize to
compensation expense the unvested Escrow and Additional Shares over the
remaining vesting period.
In connection with the Churchill acquisition, the Company granted the former
owner of Churchill the right to sell or "put" all shares earned by the former
owner under the acquisition agreement to the Company if the Company has not
completed an IPO by the third anniversary of the acquisition closing date. The
acquisition agreement provides a formula to calculate the amount that the
Company would be required to pay, which is equal to approximately $1,225,000 as
of September 30, 1999.
The acquisition agreement further provides that the Company may buy back or
"call" all of the shares earned by the former owner at any time prior to the
third anniversary of the acquisition closing date if the Company has completed a
qualified private offering prior to that date. In the event the Company
exercises its call right, the former owner of Churchill can either sell his
shares to the Company, or give up his put right.
In September 1999, the Company completed a qualified private offering;
however, the Company did not exercise its call option until after September 30,
1999. Accordingly, all amounts and shares subject to the former owners' put
right have been classified as temporary equity.
On December 20, 1999, the Company exercised its call right and the former
owner agreed to forfeit his future put rights. The Company will reflect this
transaction in its consolidated financial statements as of December 31, 1999.
The acquisition has been accounted for using the purchase method and,
accordingly, the results of operations of Churchill are included in the
Company's consolidated financial statements from the date of acquisition. The
purchase price has been preliminarily allocated to the Company's historical
assets and liabilities based on the carrying values of the acquired assets and
liabilities, as these carrying values are estimated to approximate fair market
value of the assets acquired and liabilities assumed. Goodwill of $2,112,646
created as a result of the Churchill transaction will be amortized over three
years and was calculated as follows:
<TABLE>
<S> <C>
Value of Initial Shares..................................... $1,750,000
Acquisition costs........................................... 296,945
Negative net assets acquired................................ 65,701
----------
Excess purchase price over net assets acquired.............. $2,112,646
==========
</TABLE>
On a pro forma basis as if the acquisition of Churchill had taken place on
January 1, 1998 and carried forward to the interim period presented, the
Company's revenue, net loss, and basic and diluted net loss per
F-13
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
December 31, 1998
(Amounts as of Nine Months ended September 30, 1999 are unaudited)
share would have been $798,813 and $540,137, $(1,830,198) and $(13,213,736), and
$(0.27) and $(1.90) per share, for the periods ended December 31, 1998 and
September 30, 1999, respectively.
(3) Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
Computer equipment................................. $55,982 $948,814
Furniture and fixtures............................. -- 47,819
------- --------
55,982 996,633
Less accumulated depreciation...................... (1,555) (79,289)
------- --------
Total.......................................... $54,427 $917,344
======= ========
</TABLE>
(4) Concentrations
At December 31, 1998 and September 30, 1999 five clients accounted for
approximately $828,000 and $520,000 of accounts receivable, respectively.
(5) Related Party Transactions
A stockholder of the Company provides and charges the Company for the use of
office space, equipment as well as certain administrative personnel. The
stockholder does not mark-up these costs to the Company which aggregated
$224,893, $146,271 and $928,678 for the period from August 17, 1998 (inception)
to December 31, 1998, the period from August 17, 1998 (inception) to
September 30, 1998 and the nine months ended September 30, 1999.
In August 1999, the Company entered into an agreement with CyberSafe
Corporation, a company whose Chairman and CEO is a member of the Company's board
of directors. The CyberSafe agreement provides for CyberSafe to assist in the
development of the Company's OPUSRM product by implementing a pre-release
version and providing feedback to the Company about the product.
(6) Line of Credit
In May 1999, the Company entered into a $1,000,000 line of credit with a
bank which consists of 2 parts: (1) a $750,000 committed revolving line with a
term of one year and (2) a $250,000 committed equipment line with a term of four
years. In connection with this line of credit, the bank received warrants to
purchase 15,000 shares of common stock at $1.25 per share. The warrants are
immediately exercisable and expire in May 2006. The annual interest rate on the
revolving and equipment line is equal to the prime rate plus 1.25%.
On June 11, 1999 the Company issued a letter of credit for $650,000 to a
third party which is guaranteed by the $750,000 committed revolving line.
On August 17, 1999 the Company entered into an additional $1,500,000
equipment facility with the same bank whereby the bank received additional
warrants to purchase 16,000 shares of common stock at
F-14
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
December 31, 1998
(Amounts as of Nine Months ended September 30, 1999 are unaudited)
$2.77 per share. The warrants are immediately exercisable and expire on
August 17, 2006. Under this agreement, the Company may borrow in $50,000
increments until December 31, 1999, and is obligated to repay any amounts
borrowed monthly, over a 36 month period. The annual interest rate on this
facility is equal to the three-year Treasury bill as of the date of funding plus
3%. The Company currently has no outstanding balance under this line.
Each line requires the maintenance of certain non-financial and financial
covenants, including the maintenance of $2,000,000 of tangible net worth, and
provides that amounts borrowed be collateralized by some of the Company's
assets.
In connection with each issuance of warrants to the bank, the Company
recorded in the aggregate, approximately $63,260 as deferred loan costs,
representing the fair market value of the warrants issued at each date,
calculated using the Black-Scholes pricing model. Deferred loan costs are being
amortized to interest expense over the lives of the respective lines of credit.
(7) Commitments
Registration Rights:
Beginning 180 days after the effective date of the Company's IPO, certain
holders of the Company's common stock and warrants will be entitled to have
their shares registered under the Securities Act of 1933 upon written demand of
either:
- at least 25% of the outstanding shares of common stock issued upon the
conversion of the Company's Series A preferred stock;
- at least 25% of the outstanding shares of common stock issued upon the
conversion of the Company's Series B preferred stock; or
- at least 25% of the outstanding shares of common stock issued to US Web
Corporation and certain of the Company's officers and employees.
The Company will be responsible for all expenses in connection with the
above registration rights.
Operating Leases:
The Company leases certain computer and office equipment and office space
under noncancelable operating leases expiring at various dates through 2002.
On September 13, 1999, the Company signed a new lease for office space which
it intends to occupy in the first half of 2000. In connection with signing the
new lease, the Company provided the landlord a letter of credit for $650,000
which is guaranteed by the Company's line of credit. The table below includes
amounts related to the new lease.
F-15
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
December 31, 1998
(Amounts as of Nine Months ended September 30, 1999 are unaudited)
Future minimum annual lease payments under noncancelable operating leases as
of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Operating
Lease
----------
<S> <C>
1999........................................................ $ 507,162
2000........................................................ 412,182
2001........................................................ 186,711
2002........................................................ 115,711
2003........................................................ 99,996
Thereafter.................................................. 574,977
----------
$1,896,739
==========
</TABLE>
Rent expense for the period from August 17, 1998 (inception) to
December 31, 1998, the period from August 17, 1998 (inception) to September 30,
1998 and the nine-month period ended September 30, 1999 (unaudited) was $24,000,
$0 and $378,416, respectively.
(8) Income taxes
The Company has not recorded a provision for income tax expenses, as it has
incurred a net operating loss in every period since its inception. At
September 30, 1999, the Company had a net operating loss carryforward of
$11.1 million which gives rise to substantially all of its $5.1 million net
deferred tax asset. The Company has recorded a valuation allowance in the amount
of $5.1 million to fully eliminate the deferred tax asset.
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
Computed expected tax benefit...................... $(351,805) $(4,165,859)
State and local income tax benefits,
Net of federal income tax........................ (55,172) (696,012)
Expenses not deductible for tax purposes........... 36,008 181,954
Others............................................. (24,584) 9,756
Increase in valuation allowance.................... 395,553 4,670,161
--------- -----------
$ -- $ --
========= ===========
</TABLE>
F-16
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
December 31, 1998
(Amounts as of Nine Months ended September 30, 1999 are unaudited)
Temporary differences that give rise to the components of deferred tax
assets as of December 31, 1998 and September 30, 1999 (unaudited) are as
follows:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward.................. $ 304,914 $ 4,442,743
Accrued bonus and vacation....................... 66,499 247,828
Fixed assets..................................... 528 --
Others........................................... 23,614 25,396
Deferred compensation............................ -- 380,666
--------- -----------
Total gross deferred tax assets................ 395,553 5,096,633
--------- -----------
Less valuation allowance........................... (395,553) (5,065,714)
--------- -----------
Net deferred tax assets........................ $ -- $ 30,919
--------- -----------
Deferred tax liabilities:
Fixed assets..................................... -- (30,919)
--------- -----------
Total gross deferred tax liabilities........... -- (30,919)
--------- -----------
Net deferred tax............................... $ -- $ --
========= ===========
</TABLE>
A valuation allowance has been recorded to reduce deferred tax assets that
are more likely than not expected to be realized. Management believes that
sufficient uncertainty exists regarding the realizability of these items and
that a full valuation allowance is required.
(9) Basic and Diluted Net Loss Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Period from Period from
August 17, 1998 August 17, 1998 Nine Months
(inception) to (inception) to Ended
December 31, 1998 September 30, 1998 September 30, 1999
----------------- ------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Numerator:
Net loss.................................. $(1,034,722) $ (146,271) $(12,495,025)
=========== ========== ============
Denominator:
Basic and diluted loss per share weighted
average shares.......................... 6,080,232 5,383,333 6,332,485
=========== ========== ============
Basic and diluted net loss per share...... $ (0.17) $ (0.03) $ (1.97)
=========== ========== ============
</TABLE>
Diluted net loss per share for the period from August 17, 1998 (inception)
to December 31, 1998, the period from August 17, 1998 (inception) to
September 30, 1999, and the nine month period ended September 30, 1999 does not
include the effect of options and warrants to purchase 1,518,000, 0, and
4,328,575 shares of common stock, respectively, or 4,636,000, 0 and 16,960,727
shares of common stock
F-17
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
December 31, 1998
(Amounts as of Nine Months ended September 30, 1999 are unaudited)
issuable upon the conversion of Series A and B preferred stock on an "as-if
converted" basis, respectively, as the effect of their inclusion is
anti-dilutive for each period.
The following table sets forth the computation of the unaudited pro forma
basic and diluted loss per share, assuming conversion of the preferred stock.
<TABLE>
<CAPTION>
Period from
August 17, 1998 Nine Months
(inception) to Ended
December 31, 1998 September 30, 1999
----------------- ------------------
(Unaudited)
<S> <C> <C>
Numerator:
Net loss................................. $(1,034,722) $(12,495,025)
=========== ============
Denominator:
Weighted average number of common
shares................................. 6,080,232 6,626,019
Assumed conversion of preferred stock and
temporary equity to common shares...... 4,636,000 16,960,727
----------- ------------
10,716,232 23,586,746
=========== ============
Pro forma basic and diluted net loss per
share.................................. $(0.10) $(0.53)
=========== ============
</TABLE>
F-18
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
December 31, 1998
(Amounts as of Nine Months ended September 30, 1999 are unaudited)
(10) Stockholders' Equity
COMMON STOCK:
Between August and December 1998, the Company sold 6,060,715 shares of
common stock to founders, employees and investors for approximately $535,000 at
prices ranging between $0.05 and $0.35 per share. In connection with the sale of
certain shares to the founders and employees, the Company accepted demand
promissory notes of $106,500, which carry interest of 7%. Amounts due under
these notes of $106,500 and $74,000 as of December 31, 1998 and September 30,
1999, respectively, have been classified as subscription receivables and
deducted from stockholders' equity in the accompanying financial statements.
Pursuant to agreements between the Company's Chairman and CEO, certain
employees who purchased approximately 3,139,140 shares of common stock in August
and September 1998 agreed to sell their shares first to the Company's CEO and
second to the Company, for the same price paid by such employees, in the event
the employees voluntarily leave the Company prior to January 1, 2001. In
September 1999, the Company's CEO exercised his right under one such agreement
and acquired 57,140 shares for approximately $20,000, or $0.35 per share. In
connection with this transaction, the Company recorded compensation expense of
approximately $304,000, or $5.32 per share, representing the difference between
the price paid, of $0.35 per share and the fair market value of the common stock
on that date, $5.67 per share. In the event, the CEO exercises his rights for
any of the remaining 3,082,000 shares, the Company will be required to record
compensation expense for the difference between the amounts paid by the CEO and
the fair market value of the Common Stock on the date of purchase.
In October 1998, the Company entered into an agreement with USWeb
Corporation whereby the Company acquired certain prototype technology in
exchange for 271,771 shares of common stock at a fair value of $0.35 per share,
or $95,120. The Company has expensed this amount in accordance with
SFAS No. 86. The Company's CEO was formerly a senior managing partner of USWeb.
PREFERRED STOCK:
In December 1998, the Company sold 4,636,000 shares of Series A convertible
preferred stock to third parties for $5,795,000, or $1.25 per share. The Series
A preferred stock is convertible on a one for one basis, subject to
anti-dilution protection, and has preference to the Company's common stock in
the event of liquidation. The holders of the Series A preferred stock vote on an
as-if-converted basis, and are entitled to dividends only when and if declared
by the Company.
From January through March 1999, the Company sold an additional 3,648,000
shares of Series A convertible preferred stock to third parties for $4,560,000,
or $1.25 per share. In connection with the sale of 156,000 shares of Series A
preferred stock in March 1999, the Company accepted a promissory note of
$195,000 which carries a 8% interest rate and is payable on February 22, 2002.
Amounts due under this note have been classified as subscription receivable, and
deducted from stockholders' equity in the accompanying consolidated financial
statements.
In connection with advising the Company during the Series A financing,
certain Series A investors also received warrants to purchase 568,000 shares of
common stock at fair market value, or $1.25 per share. The warrants are
immediately exercisable and expire December 24, 2005.
F-19
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
December 31, 1998
(Amounts as of Nine Months ended September 30, 1999 are unaudited)
In 1998 and 1999, the Company incurred approximately $32,000 in expenses in
connection with selling its Series A preferred stock.
On September 3, 1999, the Company sold 8,676,727 shares of Series B
convertible preferred stock to third parties for $40,000,000, or $4.61 per
share. The Series B preferred stock is convertible on a one for one basis,
subject to anti-dilution protection, and has preference to the Company's common
stock in the event of liquidation. The holders of the Series B preferred stock
vote on an as-if-converted basis, and are entitled to dividends only when and if
declared by the Company.
STRATEGIC AND ADVISORY AGREEMENTS
GREENHILL & CO.:
On September 3, 1999, the Company entered into an agreement with Greenhill &
Co. ("Greenhill") whereby Greenhill will act as the Company's mergers and
acquisitions advisor for a period of six months or until the Company has either
acquired two identified targets or completed acquisitions aggregating $30
million (the "Initial Term"). Unless otherwise terminated, the agreement shall
be automatically renewed (a) following the Initial Term and shall continue until
the Company has completed either $250 million of cumulative acquisitions or a
total of four previously identified targets that have an aggregate value of at
least $100 million (the "First Renewal Term") and (b) following the First
Renewal Term, until the Company has completed at least $750 million of
cumulative acquisitions or a total of ten previously identified targets (the
"Second Renewal Term").
As consideration for the above services, Greenhill is entitled to
1) warrants to immediately purchase 300,000 shares of the Company's common stock
at $4.61 per share upon the commencement of the Initial Term, 2) warrants to
immediately purchase 300,000 shares of the Company's common stock at the greater
of the latest round of private financing or the IPO price upon the earlier of
the commencement of the First Renewal Term or the pricing of a qualified IPO,
and 3) warrants to immediately purchase 300,000 shares of the Company's common
stock at the greater of the latest round of private financing or, if the Company
has completed a qualified IPO, at the then fair market value upon commencement
of the Second Renewal Term.
In connection with the issuance of the Greenhill Initial Term warrants, the
Company recorded expense of approximately $554,000 representing the fair market
value of the warrants, associated with the initial term of the contract,
calculated using the Black-Scholes pricing model.
KIRSHENBAUM BOND PARTNERS:
In June 1999, the Company entered into an agreement with Kirshenbaum Bond
Partners ("KBP") whereby KBP will develop and build an advertising and branding
campaign for the Company in exchange for monthly fees to be paid in cash and
warrants to purchase shares of the Company's common stock. All warrants issued
under this agreement will have a strike price of $0.01 and are immediately
exercisable. The agreement also provides that, after the Company has completed
its IPO, all monthly fees are to be paid only in cash.
In connection with the KBP warrants issued through September 30, 1999, the
Company recorded expense of approximately $127,168, representing the fair market
value of the warrants calculated using the Black-Scholes pricing model.
F-20
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
December 31, 1998
(Amounts as of Nine Months ended September 30, 1999 are unaudited)
SAPIENT CORPORATION:
In May 1999, the Company entered into an agreement with Sapient Corporation
("Sapient") whereby Sapient will assist the Company in developing its OPUSRM
product in exchange for warrants to immediately purchase 80,000 shares of Common
Stock at $1.25. In connection with the granting of warrants to Sapient, the
Company recorded expense of approximately $99,000, representing the fair market
value of the warrants calculated using the Black-Scholes pricing model.
STOCK OPTIONS:
In October 1998, the Company adopted the 1998 Stock Option Plan ("Plan")
which provides for the granting of non-qualified and incentive stock options to
employees, board members and advisors. Options granted under the Plan are for
periods not to exceed ten years.
For the nine months ended September 30, 1999, the Company, in connection
with the granting of 2,325,250 stock options to employees and board members,
recorded deferred compensation expense of $3,804,326. This represents the
difference between the deemed fair value of the Company's common stock, for
accounting purposes based upon subsequent valuation events, and the exercise
price of related options. Deferred compensation related to employees and board
members is being amortized over the vesting period of the options, which is
generally four years. The amount recognized as expense during the nine months
ended September 30, 1999 relating to employee and board member options amounted
to $389,778. Excluding additional options granted to employees and board members
after September 30, 1999, the Company expects to amortize unamortized deferred
compensation expense of $3,414,548 as follows:
<TABLE>
<S> <C>
For the three months ended December 31, 1999................ $237,770
For the year ended December 31, 2000........................ $951,081
For the year ended December 31, 2001........................ $951,081
For the year ended December 31, 2002........................ $951,081
For the year ended December 31, 2003........................ $323,535
</TABLE>
In connection with the granting of 115,125 stock options in 1999 to
non-employees, the Company recorded deferred compensation expense of
approximately $632,847 for the nine months ended September 30, 1999. The Company
will amortize deferred compensation for those options issued to non-employees in
accordance with EITF 96-18 and will record expense for the fair market value of
the options at each interim reporting date over which the options vest. The
amount recognized as expense during the nine months ended September 30, 1999
relating to non-employee options amounted to $23,149. The Company cannot
presently determine the amount of future compensation expense it may record
related to options issued to non-employees as these amounts are subject to
adjustment based on the fair market value of the underlying options at each
reporting date.
F-21
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
December 31, 1998
(Amounts as of Nine Months ended September 30, 1999 are unaudited)
The following transactions occurred with respect to the Company's 1998 Stock
Option Plan:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
---------- --------------
<S> <C> <C>
Granted............................................. 950,000 $ 0.82
Canceled............................................ -- --
----------
Outstanding, December 31, 1998...................... 950,000 0.82
Granted............................................. 2,518,275 1.11
Canceled............................................ (357,900) (0.96)
----------
Outstanding, September 30, 1999..................... 3,110,375 $ 1.04
==========
</TABLE>
The following table summarizes information concerning outstanding options at
December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------ Options Exercisable
Weighted- ----------------------------
Average Weighted- Weighted
Range of Number Remaining Average Number Average
Exercise Price Outstanding Contractual Life Exercise Price Outstanding Exercise Price
-------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.48-$0.67 475,000 9.83 $0.57 20,671 $0.57
$0.75-$1.01 240,000 9.90 $0.91 5,692 $0.87
$1.18-$1.25 235,000 9.98 $1.21 1,318 $1.21
--------- -------
950,000 27,681
========= =======
</TABLE>
The following table summarizes information concerning outstanding options at
September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------ Options Exercisable
Weighted- ----------------------------
Average Weighted- Weighted
Range of Number Remaining Average Number Average
Exercise Price Outstanding Contractual Life Exercise Price Outstanding Exercise Price
-------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.48-$0.67 2,065,000 9.43 $0.52 296,823 $0.53
$0.75-$1.01 240,000 9.09 $0.91 50,569 $0.90
$1.18-$1.25 179,100 9.33 $1.20 39,655 $1.20
$2.20-$2.77 616,525 9.55 $2.74 28,501 $2.71
$4.00 9,750 9.84 $4.00 417 $4.00
--------- -------
3,110,375 415,965
========= =======
</TABLE>
Pro forma information regarding net loss is required by SFAS No. 123 which
also requires that the information be determined as if the Company has accounted
for its stock options under the fair value method
F-22
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
December 31, 1998
(Amounts as of Nine Months ended September 30, 1999 are unaudited)
of the statement. The fair value for these options was estimated using the
minimum value method with the following assumptions:
<TABLE>
<CAPTION>
1998 1999
--------------------- ---------------------
<S> <C> <C>
Average risk-free interest rate............ 4.68% ~ 5.07% 4.63% ~ 5.23%
Dividend yield............................. 0.0% 0.0%
Average life............................... 6.9 years 6.8 years
</TABLE>
Because determination of fair value of all options granted after such time
as the Company becomes a public entity will include an expected volatility
factor in addition to the factors described in the preceding paragraph, the
above results may not be representative of future periods. The Company's pro
forma information is as follows:
<TABLE>
<CAPTION>
1998 1999
------------ -------------
<S> <C> <C>
Pro forma net loss available to common
stockholders................................... $(1,038,646) $(12,703,251)
Pro forma basic and diluted loss per share....... $(0.17) $(1.92)
</TABLE>
(11) Segment Information
In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," the Company's reportable segments are
business units that offer different products and services throughout the United
States.
The Company's reportable segments are as follows:
- FREEAGENT.COM SERVICES--which includes FREEAGENT.COM, a web-site that
enables independent professionals to manage their careers by offering
access to project opportunities and corporate products and services; and,
FREEAGENT E.OFFICE, a back-office and employer service for independent
professionals. Independent professionals who elect to receive FREEAGENT
E.OFFICE services are the Company's contractual employees for federal
income tax purposes and for whom the Company prepares IRS Form W-2's. The
Company enters into contracts with organizations for projects to be
performed by FREEAGENT E.OFFICE employees, process invoices on their
behalf and, upon receipt of amounts due from the contracting organization
for the services rendered by the FREEAGENT E.OFFICE employees, remit the
amount to them after deducting payroll taxes, the fees charged by the
Company and directing amounts to their health insurance and 401(k)
retirement plans, as directed by the FREEAGENT E.OFFICE employee.
- APPLICATION AND PROCUREMENT SERVICES--which includes OPUS XCHANGE, a
web-based platform designed to enable corporations, professional service
firms, staffing vendors and other buyers of project-based labor to procure
these services in an exchange-based environment by using search
technologies to match people with projects; and, OPUSRM, a labor resource
management service designed to centralize resource and project information
and enable organizations to manage their internal and external labor
resources.
The Company's accounting policies for these segments are the same as those
described in the summary of Significant Accounting Policies.
F-23
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
December 31, 1998
(Amounts as of Nine Months ended September 30, 1999 are unaudited)
The table below presents information about segments used by the chief
operating decision-maker of Opus for the period from August 17, 1998 (inception)
to December 31, 1998 and the nine months ended September 30, 1999.
<TABLE>
<CAPTION>
Application
and
Procurement FreeAgent
Services Services Total
----------- ---------- -----------
<S> <C> <C> <C>
1999:
Revenues.............................. $ -- $ 241,269 $ 241,269
Gross (loss) profit................... (92,985) 136,242 43,257
Net loss before equity-based
compensation charges................ (9,687,518) (2,090,596) (11,778,114)
Total assets.......................... 44,566,781 2,214,220 46,846,702
1998:
Revenues.............................. $ -- $ -- $ --
Gross profit.......................... -- -- --
Net income (loss)..................... (1,034,722) -- (1,034,722)
Total assets.......................... 5,832,358 -- 5,832,358
</TABLE>
For the nine months ended September 30, 1999, the reconciliation between
segment net loss and net loss from operations is as follows:
<TABLE>
<S> <C>
Segment net operating loss.................................. $(11,778,114)
Equity-based compensation................................... 716,911
Enterprise net operating loss............................... $(12,495,025)
</TABLE>
(12) Employee Benefit Plan
During 1999 and 1998, the Company sponsored a 401(k) Defined Contribution
Retirement Plan ("the Plan") under which substantially all full-time employees
were eligible to participate. The Company made no matching contributions to the
Plan during 1999 and 1998. In addition, the Company's Churchill subsidiary
provides a separate 401(k) plan for its E.OFFICE MEMBERS.
The Churchill plan allows for employees to contribute up to 15% of eligible
compensation and a discretionary match by the Company. The Company's
contribution to the subsidiary's 401(k) plan from May 27, 1999, the date
Churchill was acquired, to September 30, 1999 was $345,674.
The Company does not provide any post retirement or any post employment
benefits.
(13) Events Subsequent to September 30, 1999 (Unaudited)
CAREERPATH.COM:
On November 21, 1999, the Company entered into an agreement with
CareerPath.com ("CareerPath") a Company that provides career counseling and job
placement services on the Internet. The agreement provides for the Company and
CareerPath to jointly develop a co-branded web-site that will feature the
content and services of both companies. CareerPath and the Company agreed to
jointly share up to $90,000 of the costs
F-24
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
December 31, 1998
(Amounts as of Nine Months ended September 30, 1999 are unaudited)
associated with building the site and will promote the site to each others
member base. Any costs above $180,000 will be the responsibility of the Company.
The Company and CareerPath agreed to a revenue sharing arrangement for
transactions conducted through the co-branded site, including subscriptions for
products and services and advertising revenue.
As part of the agreement, the Company agreed to advance $500,000 to
CareerPath against CareerPath's year one share of revenues generated on the
co-branded site and to purchase $1.5 million of advertising on CareerPath's site
as well as their affiliated newspapers.
The Company has agreed to pay the revenue share advance and advertising fees
in restricted common stock at a fair market value of $12.23 per share or 163,570
shares. Upon issuance of the stock to CareerPath, the Company will record the
$500,000 revenue share advance and $1.5 million advertising advance as a
subscription receivable and prepaid advertising, respectively.
JP MORGAN:
In December 1999, the Company entered into an agreement with J.P. Morgan
Corporation ("J.P. Morgan") whereby J.P. Morgan will assist the Company in
developing its enhanced OPUS XCHANGE product in exchange for 26,000 shares of
Opus Common Stock. The Company will charge to product development expense the
fair market value of the shares issued to J.P. Morgan.
F-25
<PAGE>
Independent Auditors' Report
To the Stockholder
The Churchill Benefit Corporation
We have audited the accompanying balance sheets of The Churchill Benefit
Corporation as of December 31, 1997 and 1998 and the related statements of
operations, stockholder's 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 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 The Churchill Benefit
Corporation 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
New York, New York
October 8, 1999
F-26
<PAGE>
THE CHURCHILL BENEFIT CORPORATION
Balance Sheets
December 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash...................................................... $ 3,564 $ 83,916
Accounts receivable....................................... 1,435,806 1,792,542
Other current assets...................................... -- 5,494
---------- ----------
Total current assets.................................... 1,439,370 1,881,952
Property and equipment, net of accumulated depreciation of
$7,890 in 1997 and $27,242 in 1998........................ 9,678 6,522
---------- ----------
$1,449,048 $1,888,474
========== ==========
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable and accrued expenses..................... $ 30,026 $ 11,364
Accrued wages............................................. 1,198,343 1,645,440
---------- ----------
Total current liabilities............................... 1,228,369 1,656,804
---------- ----------
Stockholder's equity:
Common stock, $1 par value, 1,000 shares authorized,
issued and outstanding.................................. 1,000 1,000
Retained earnings......................................... 219,679 230,670
---------- ----------
Total stockholder's equity.............................. 220,679 231,670
---------- ----------
Commitments................................................. $1,449,048 $1,888,474
========== ==========
</TABLE>
See the accompanying notes to financial statements.
F-27
<PAGE>
THE CHURCHILL BENEFIT CORPORATION
Statements of Operations
Years ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Revenues.................................................... $657,524 $798,813
Cost of revenues............................................ 16,376 68,171
-------- --------
Gross profit.............................................. 641,148 730,642
General and administrative expenses......................... 525,031 523,662
-------- --------
Operating income.......................................... 116,117 206,980
Interest income............................................. 2,343 2,544
-------- --------
Net income................................................ $118,460 $209,524
======== ========
Basic and diluted net loss per share........................ $ 118.46 $ 209.52
======== ========
Weighted average shares outstanding used in basic and fully
diluted net loss.......................................... 1,000 1,000
======== ========
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
THE CHURCHILL BENEFIT CORPORATION
Statements of Stockholder's Equity
Years ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
Common Stock Total
------------------- Retained Stockholder's
Shares Amount Earnings Equity
-------- -------- --------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996.......................... 1,000 $1,000 $ 185,151 $ 186,151
Distribution to stockholder........................... -- -- (83,932) (83,932)
Net income............................................ -- -- 118,460 118,460
----- ------ --------- ---------
Balance at December 31, 1997.......................... 1,000 1,000 219,679 220,679
Distribution to stockholder........................... -- -- (198,533) (198,533)
Net income............................................ -- -- 209,524 209,524
----- ------ --------- ---------
Balance at December 31, 1998.......................... 1,000 $1,000 $ 230,670 $ 231,670
===== ====== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
THE CHURCHILL BENEFIT CORPORATION
Statements of Cash Flows
Years ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Cash flows provided by operating activities:
Net income................................................ $ 118,460 $ 209,524
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation............................................ 5,007 19,352
Cash provided by (used for) changes in:
Accounts and unbilled receivables..................... (426,297) (356,736)
Other current assets.................................. -- (5,494)
Accounts payable and accrued expenses................. (12,974) (18,662)
Accrued labor......................................... 517,005 447,097
--------- ---------
Net cash provided by operating activities........... 201,201 295,081
--------- ---------
Cash flows used in investing activities:
Additions to property and equipment....................... (225) (16,196)
--------- ---------
Net cash used in investing activities............... (225) (16,196)
--------- ---------
Cash flows used in financing activities:
Repayment of stockholder loan............................. (21,704) --
Distributions to stockholders............................. (83,932) (198,533)
--------- ---------
Net cash used in financing activities (105,636) (198,533)
Net increase in cash and cash equivalents........... 95,340 80,352
Cash and cash equivalents at beginning of year.............. (91,776) 3,564
--------- ---------
Cash and cash equivalents at end of year.................... $ 3,564 $ 83,916
========= =========
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
THE CHURCHILL BENEFIT CORPORATION
Notes to Financial Statements
December 31, 1997 and 1998
(1) Summary of Significant Accounting Policies
(A) OPERATIONS
The Churchill Benefit Corporation (the "Company") was incorporated in 1986
under the laws of New Jersey and maintains its headquarters in Florida. The
Company has reincorporated in the state of Delaware. The Company is an
S-corporation and is owned by one individual.
The Company was organized to provide back office services to independent
professionals, including billing and collection, in exchange for a monthly fee.
The Company treats each of these individuals as an employee for federal income
tax purposes ("Contract Employees"). The monthly fee charged by the Company has
varied over the years.
The Company's Contract Employees are primarily information technology
professionals and are responsible for finding their own customers. The Company
then contracts, invoices and collects from the customers on behalf of the
Contract Employees. As part of its agreement with the Contract Employees, the
Company is not obligated to remit any money to the Contract Employee until it
has collected from the customer for whom the Contract Employee has performed
services. Upon collection, the Company remits the money to the employees after
withholding the appropriate payroll taxes, the health and retirement benefits
which the Contract Employee has elected to receive, and the Company's monthly
fee. In certain cases, the Company will pay the employee prior to collection of
the related receivable.
BASIS OF PRESENTATION
The accompanying financial statements reflect a change in how the Company
recognizes revenue. The Company currently recognizes as revenue the monthly fee
it charges to its Contract Employees for providing its E.OFFICE services as
these services are provided. Previously, the Company recorded as revenue the
gross billings from services provided by its Contract Employees to customers
with whom the Company contracts, invoices and collects on behalf of its Contract
Employees. The Company would then record a corresponding charge to cost of
revenues for the same amount less its service fee. This change in the Company's
revenue recognition policy has no effect on historical net income or loss.
The Company believes its current revenue recognition policy clarifies its
financial position and result of operations and is consistent with the view of
the Securities and Exchange Commission on revenue recognition issued in Staff
Accounting Bulletin No. 101. (See footnote 7).
(B) CASH
The Company considers all highly liquid securities with original maturities
of three months or less to be cash equivalents.
(C) ACCOUNTS RECEIVABLE AND ACCRUED WAGES PAYABLE
Accounts receivable represents amounts invoiced by the Company on behalf of
its Contract Employees for services rendered to a customer that has contracted
with the Company. Included in accounts receivable is approximately $462,000 and
$509,000 as of December 31, 1997 and 1998, respectively, representing services
performed by the Company's Contract Employees prior to year-end and invoiced
shortly thereafter. Accrued wages represents the amounts owed to the Company's
Contract Employees for services rendered under contracts with third parties.
F-31
<PAGE>
THE CHURCHILL BENEFIT CORPORATION
Notes to Financial Statements (Continued)
December 31, 1997 and 1998
(D) REVENUE RECOGNITION
The Company recognizes as revenue the fees it charges to its contract
employees in the period in which it provides its services.
(E) COST OF REVENUES
Cost of revenues primarily includes salaries paid to the Company's staff
that help administer the Company's services.
(F) PROPERTY AND EQUIPMENT
Furniture and equipment consists of office furniture and computer equipment,
and is being depreciated using the straight-line method over the estimated
useful lives of the related assets, which range from three to seven years.
Depreciation expense totaled $5,007 and $19,932 for the years ended
December 31, 1997 and 1998, respectively.
(G) ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures 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.
(H) INCOME TAXES
The Company operates as an S-corproration under the Internal Revenue Code
and therefore, was not subject to federal and state corporate income taxes.
Under the S-corporation provision of the Code, the shareholders of the Company
include their share of the Company's income on their personal income tax
returns. Accordingly, these financial statements contain no provision or benefit
and no assets or liabilities for federal or state income taxes.
For the years ended December 31, 1997 and 1998, net income would have been
approximately $71,100 and $125,700, respectively, assuming the Company's income
before taxes was subject to a combined federal and state income tax rate of 40%.
(I) RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income" which establishes standards for reporting and
displaying comprehensive income and its components in a full set of general
purpose financial statements. The adoption of this standard has had no impact on
the Company's financial statements. Accordingly, the Company's comprehensive net
loss is equal to its net loss for all periods presented.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1") which provides guidance for
determining whether computer software is internal-use software and on accounting
for the proceeds of computer software originally developed or obtained for
internal use and then subsequently sold to the public. It also provides guidance
on capitalization of the costs incurred for computer
F-32
<PAGE>
THE CHURCHILL BENEFIT CORPORATION
Notes to Financial Statements (Continued)
December 31, 1997 and 1998
software developed or obtained for internal use. The Company has not yet
determined the impact, if any, of adopting SOP 98-1, which will be effective for
the Company's year ending December 31, 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information" which establishes standards for the way
that a public enterprise reports information about operating segments in annual
financial statements, and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. In the initial
year of application, comparative information for earlier years must be restated.
The Company has determined that it does not have any separately reportable
business segments.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
has not yet analyzed the impact of this pronouncement on its financial
statements.
(2) Furniture and Equipment
Furniture and equipment at December 31, 1997 and 1998 consist of the
following:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Office equipment......................................... 4,749 $ 10,286
Office furniture......................................... 5,707 5,707
Computer equipment....................................... 7,112 17,771
-------- --------
Total.................................................. 17,568 33,764
Less accumulated depreciation............................ (7,890) (27,242)
-------- --------
Furniture and equipment, net........................... 9,678 $ 6,522
======== ========
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1998 totaled
approximately $5,000 and $19,350, respectively, and is included in general and
administrative expense in the accompanying statements of operations.
(3) Commitments
The Company is obligated under various non-cancelable lease agreements
primarily for office space that expire over the next two years. Future minimum
rental payments under non-cancelable operating leases as of December 31, 1998
are:
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
1999........................................................ $28,282
2000........................................................ 15,780
-------
Total minimum lease payments................................ 44,062
=======
</TABLE>
Rental expense for the years ended December 31, 1997 and 1998 were $17,000
and $23,000 respectively.
F-33
<PAGE>
THE CHURCHILL BENEFIT CORPORATION
Notes to Financial Statements (Continued)
December 31, 1997 and 1998
(4) Retirement Plans
The Company has a 401(k) defined contribution retirement plan. The plan
allows for employees to contribute up to 15% of eligible compensation and a
discretionary match by the Company. The Company elected not to make any matching
contributions for the years ended December 31, 1997 and 1998.
(5) Concentrations
At December 31, 1997 and 1998, five clients accounted for $558,000 and
$828,000 of unbilled and billed accounts receivable respectively.
(6) Subsequent Events
On May 27, 1999, the Company entered into an agreement with the Opus360
Corporation ("Opus360"), whereby the sole shareholder of the Company sold 100%
of the issued and outstanding shares of the Company in exchange for common stock
of Opus360. Subsequent to sale, the Company became a wholly owned subsidiary of
Opus360.
(7) Change in Accounting Policy
The following table shows the impact of the Company's change in accounting
policy regarding revenue recognition for the years ended December 31, 1997 and
1998.
<TABLE>
<CAPTION>
1997 1998
---------------------- ----------------------
Current Previous Current Previous
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Revenue........................ $657,524 $13,219,650 $798,813 $19,682,012
Cost of revenue................ 16,376 12,562,126 68,171 18,883,199
Gross profit................... 641,148 657,524 730,642 798,813
Net income..................... $118,460 $ 118,460 $209,524 $ 209,524
</TABLE>
F-34
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses, other than underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of common stock being registered. All of the amounts shown are estimated except
the Securities and Exchange Commission registration fee, the National
Association of Securities Dealers, Inc. filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $17,160
NASD filing fee............................................. $ 7,000
Nasdaq National Market listing fee.......................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses.................................. *
Transfer agent and registrar fees........................... *
Miscellaneous fees and expenses............................. *
-------
Total................................................... $ *
=======
</TABLE>
- ------------------------
* To be supplied by amendment.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes
a court to award, or a corporation's board of directors to grant, indemnity to
directors, officers and certain other persons in terms sufficiently broad to
permit such indemnification under certain circumstances for liabilities
(including reimbursement for expenses incurred) arising under the Securities Act
of 1933, as amended (the "Securities Act").
The Registrant's restated certificate of incorporation and by laws will
provide that, to the fullest extent permitted by the laws of the State of
Delaware, no director will be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Furthermore, the Registrant's certificate of incorporation provides that, except
as prohibited by law, each of the Registrant's directors and officers is
entitled to be indemnified by the Registrant against all expenses and liability
incurred in connection with any legal proceeding brought against him or her by
virtue of his or her position as a director or officer. This right to
indemnification may extend to a person serving as an employee or other
representative of the Registrant or a subsidiary of the Registrant. A person
entitled to indemnification thereunder is entitled to have the Registrant
advance to him or her the expenses of a legal proceeding brought against him or
her.
These provisions of the Registrant's certificate of incorporation and by
laws do not eliminate the fiduciary duties of the directors and officers of the
Registrant, and in appropriate circumstances, equitable remedies such as
injunctive or other forms of relief will remain available under the laws of the
State of Delaware. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Registrant for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, and for dividends or approval of stock repurchases or
redemptions that are unlawful under the laws of the State of Delaware. This
provision does not affect a director's responsibilities under any other law,
such as federal securities laws or state or federal environmental laws.
The DGCL also allows the Registrant to purchase insurance covering the
Registrant's directors and officers against liability asserted against them in
their capacity as directors and officers. The Registrant
II-1
<PAGE>
expects to obtain directors' and officers' liability insurance. The underwriting
agreement to be entered into between the Registrant and FleetBoston Robertson
Stephens Inc., Bear, Stearns & Co. Inc., J.P. Morgan & Co. and E*OFFERING Corp.,
as representatives of the underwriters, also provides for the indemnification of
officers, directors and controlling persons of the Registrant against certain
liabilities.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted. The Registrant is not aware of any threatened litigation
or proceeding that may result in a claim for such indemnification.
Item 15. Recent Sales of Unregistered Securities
The Registrant has issued and sold the securities set forth below since its
inception in August 1998.
1. On August 20, 1998, the Registrant issued 1 share of common stock to Ari B.
Horowitz in consideration for services rendered to the Registrant.
2. In December 1998, the Registrant sold 6,332,486 shares of common stock, at
prices ranging from $.05 per share to $.35 per share, to fifteen investors.
3. On December 24, 1998, the Registrant issued warrants to purchase 568,000
shares of common stock at an exercise price of $1.25 per share to six
investors.
4. Between December 24, 1998 and April 15, 1999, the Registrant sold 8,284,000
shares of Series A preferred stock, at a price of $1.25 per share, to
fifty-two investors.
5. On February 24, 1999, the Registrant issued a warrant to purchase 1,600
shares of common stock at an exercise price of $1.25 per share to an
individual in consideration for services rendered to the Registrant.
6. On May 3, 1999, the Registrant issued a warrant to purchase 80,000 shares of
common stock at an exercise price of $1.25 per share to Sapient Corporation.
7. On May 14, 1999, the Registrant issued a warrant to purchase 15,000 shares
of common stock at an exercise price of $1.25 per share to Silicon Valley
Bank.
8. On July 5, 1999, the Registrant issued a warrant to purchase 2,525 shares of
common stock at an exercise price of $2.77 per share to an individual in
consideration for services rendered to the Registrant.
9. On August 17, 1999, the Registrant issued a warrant to purchase 16,000
shares of common stock at an exercise price of $2.77 per share to Silicon
Valley Bank.
10. On August 31, 1999, the Registrant issued a warrant to purchase 19,783
shares of common stock at an exercise price of $.01 per share to Kirshenbaum
Bond & Partners in consideration for advertising services rendered to the
Registrant.
11. In September and October 1999, the Registrant sold 8,676,727 shares of
Series B preferred stock, at a price of $4.61 per share, to eighty-seven
investors.
12. On October 15, 1999, the Registrant issued a warrant to purchase 300,000
shares of common stock at an exercise price of $4.61 per share to Greenhill
in consideration for and in connection with financial advisory services
rendered to the Registrant.
13. On November 30, 1999, the Registrant issued a warrant to purchase 7,457
shares of common stock at an exercise price of $.01 per share to Kirshenbaum
Bond & Partners in consideration for advertising services rendered to the
Registrant.
Between October 1998 and November 30, 1999, the Registrant granted stock
options to purchase of shares of common stock at exercise prices ranging
from $.50 to $4.61 per share to employees, consultants and directors pursuant to
the Registrant's 1998 Plan.
II-2
<PAGE>
The above-described transactions were exempt from registration pursuant to
either (i) Section 4(2) of the Securities Act or Regulation D promulgated
thereunder as transactions not involving a public offering or (ii) Rule 701
promulgated under the Securities Act. No underwriters were involved in
connection with the sales of securities referred to in this Item 15.
Item 16(a). Exhibits and Financial Statement Schedules
<TABLE>
<S> <C>
1.1* Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2* Amended and Restated Certificate of Incorporation of the
Registrant.
3.3 Bylaws of the Registrant.
3.4* Amended and Restated Bylaws of the Registrant.
4.1* Certificate for Shares.
5.1* Opinion of O'Sullivan Graev & Karabell, LLP.
10.1 Lease Agreement dated August 10, 1999, between the
Registrant and Samson Associates, LLC as amended.
10.2 Modification and Extension of Lease dated August 6, 1999,
between the Registrant and Royal Realty Corp.
10.3 Employment Agreement dated April 1, 1999, between the
Registrant and Ari B. Horowitz.
10.4 Employment Agreement dated February 16, 1999, between the
Registrant and Carlos B. Cashman.
10.5 Loan and Security Agreement dated May 19, 1999, between
Silicon Valley Bank and the Registrant.
10.6 Loan and Security Agreement dated August 17, 1999, between
Silicon Valley Bank and the Registrant.
10.7* Registration Rights Agreement dated December 27, 1998, among
the Registrant and the Investor Parties thereto.
10.8 The Registrant's 1998 Stock Option Plan
10.9(+ ) Letter Agreement dated October 15, 1999, between the
Registrant and J.P. Morgan Corporation.
10.10(+ ) Letter Agreement dated November 21, 1999, between the
Registrant and CareerPath.com, Inc.
10.11 Standard Form of FREEAGENT E.OFFICE services Agreement.
10.12 Series A Securities Purchase Agreement dated December 24,
1998, among the Registrant and the signatories thereto.
10.13 Series B Securities Purchase Agreement dated September 3,
1999, among the Registrant and the purchasers of the Series
B Convertible Preferred Stock.
10.14 Agreement and Plan of Merger dated May 27, 1999, among the
Registrant, The Churchill Benefit Corporation, William Bahr
and Churchill Acquisition Corp.
21.1 Subsidiaries of the Registrant.
23.1* Consent of O'Sullivan Graev & Karabell, LLP (included in
Exhibit 5.1).
23.2 Consent of KPMG, LLP, independent accountants.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
24.1 Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
99.1* Form of letter to holders of more than 100 shares of
Safeguard Scientifics, Inc. describing the Safeguard
Subscription Program for Opus360 Corporation.
99.2* Form of Letter to Brokers describing the Safeguard
Subscription Program.
99.3* Form of Subscription Agreement for the Safeguard
Subscription Program.
99.4* Stock Purchase Agreement between the Registrant and
Safeguard Scientifics relating to the Safeguard Subscription
Program.
</TABLE>
- ------------------------
* To be filed by amendment.
+ We intend to request confidential treatment of certain provisions of this
exhibit pursuant to Rule 406 of the Securities Act of 1933. The entire
agreement has been filed separately with the Securities and Exchange
Commission.
Item 17. Undertakings.
The Registrant hereby undertakes 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the 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.
The Registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in 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.
2. For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Opus360 Corporation has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunder duly authorized, in the City of New
York, State of New York, on December 20, 1999.
<TABLE>
<S> <C> <C>
OPUS360 CORPORATION
By: /s/ ARI B. HOROWITZ
-----------------------------------------
Ari B. Horowitz
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND
PRESIDENT
</TABLE>
POWER OF ATTORNEY
We, the undersigned directors and/or officers of Opus360 Corporation (the
"Registrant"), hereby severally constitute and appoint Ari B. Horowitz and
Richard McCann, and each of them individually, with full powers of substitution
and resubstitution, our true and lawful attorneys, with full powers to each of
them to sign for us, in our names and in the capacities indicated below, the
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission, and any and all amendments to said Registration Statement (including
post-effective amendments), and any registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, in connection with the
registration under the Securities Act of 1933, as amended, of equity securities
of the Registrant, and to file or cause to be filed the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, and hereby ratifying and
confirming all that said attorneys, and each of them, or their substitute or
substitutes, shall do or cause to be done by virtue of this Power of Attorney.
This power of attorney may be executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ ARI B. HOROWITZ Chairman of the Board and Chief
- ------------------------------------ Executive Officer (Principal December 21, 1999
Ari B. Horowitz Executive Officer)
/s/ CARLOS B. CASHMAN Chief Technology Officer, Secretary
- ------------------------------------ and Director December 21, 1999
Carlos B. Cashman
Senior Vice President, Chief
/s/ RICHARD MCCANN Financial Officer, and Assistant
- ------------------------------------ Secretary (Principal Financial December 21, 1999
Richard McCann Officer and Principal Accounting
Officer)
/s/ JAMES CANNAVINO Director
- ------------------------------------ December 21, 1999
James Cannavino
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ IRWIN LIEBER Director
- ------------------------------------ December 21, 1999
Irwin Lieber
/s/ ROGER J. WEISS Director
- ------------------------------------ December 21, 1999
Roger J. Weiss
/s/ BARRY RUBENSTEIN Director
- ------------------------------------ December 21, 1999
Barry Rubenstein
/s/ WILLIAM R. NUTI Director
- ------------------------------------ December 21, 1999
William R. Nuti
/s/ JOHN K. HALVEY Director
- ------------------------------------ December 21, 1999
John K. Halvey
/s/ JOHN L. DREW Director
- ------------------------------------ December 21, 1999
John L. Drew
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- --------------------- ------------------------------------------------------------ --------
<S> <C> <C>
1.1* Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2* Amended and Restated Certificate of Incorporation of the
Registrant.
3.3 Bylaws of the Registrant.
3.4* Amended and Restated Bylaws of the Registrant.
4.1* Certificate for Shares.
5.1* Opinion of O'Sullivan Graev & Karabell, LLP.
10.1 Lease Agreement dated August 10, 1999, between the
Registrant and Samson Associates, LLC as amended.
10.2 Modification and Extension of Lease dated August 6, 1999,
between the Registrant and Royal Realty Corp.
10.3 Employment Agreement dated April 1, 1999, between the
Registrant and Ari B. Horowitz.
10.4 Employment Agreement dated February 16, 1999, between the
Registrant and Carlos B. Cashman.
10.5 Loan and Security Agreement dated May 19, 1999, between
Silicon Valley Bank and the Registrant.
10.6 Loan and Security Agreement dated August 17, 1999, between
Silicon Valley Bank and the Registrant.
10.7* Registration Rights Agreement dated December 27, 1998, among
the Registrant and the Investor Parties thereto.
10.8 The Registrant's 1998 Stock Option Plan
10.9(+ ) Letter Agreement dated October 15, 1999, between the
Registrant and J.P. Morgan Corporation.
10.10(+ ) Letter Agreement dated November 21, 1999, between the
Registrant and CareerPath.com, Inc.
10.11 Standard Form of FREEAGENT E.OFFICE services Agreement.
10.12 Series A Securities Purchase Agreement dated December 24,
1998, among the Registrant and the signatories thereto.
10.13 Series B Securities Purchase Agreement dated September 3,
1999, among the Registrant and the purchasers of the Series
B Convertible Preferred Stock.
10.14 Agreement and Plan of Merger dated May 27, 1999, among the
Registrant, The Churchill Benefit Corporation, William Bahr
and Churchill Acquisition Corp.
21.1 Subsidiaries of the Registrant.
23.1* Consent of O'Sullivan Graev & Karabell, LLP (included in
Exhibit 5.1).
23.2 Consent of KPMG, LLP, independent accountants.
24.1 Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page
- --------------------- ------------------------------------------------------------ --------
<S> <C> <C>
99.1* Form of letter to holders of more than 100 shares of
Safeguard Scientifics, Inc. describing the Safeguard
Subscription Program for Opus360 Corporation.
99.2* Form of Letter to Brokers describing the Safeguard
Subscription Program.
99.3* Form of Subscription Agreement for the Safeguard
Subscription Program.
99.4* Stock Purchase Agreement between the Registrant and
Safeguard Scientifics relating to the Safeguard Subscription
Program.
</TABLE>
- ------------------------
* To be filed by amendment.
+ We intend to request confidential treatment of certain provisions of this
exhibit pursuant to Rule 406 of the Securities Act of 1933. The entire
agreement has been filed separately with the Securities and Exchange
Commission.
<PAGE>
Exhibit 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
OPUS360 CORPORATION
The undersigned, CARLOS CASHMAN, being the President and
Secretary of OPUS360 CORPORATION, a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), on behalf of said
corporation, hereby certifies as follows:
FIRST: The present name of the Corporation is "Opus360
Corporation." The date of filing of the original Certificate of Incorporation of
the Corporation with the Secretary of State of Delaware was August 17, 1998. The
name under which the Corporation was originally incorporated was Enterspect
Corporation.
SECOND: The Amended and Restated Certificate of Incorporation
of the Corporation as in effect on the date hereof is hereby superceded and
amended and restated to read in its entirety as set forth on EXHIBIT A hereto.
THIRD: That said Second Amended and Restated Certificate of
Incorporation was duly adopted in accordance with the provisions of Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate this 2nd day of September, 1999.
----------------------------------------
President and Secretary
<PAGE>
EXHIBIT A
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
OPUS360 CORPORATION
ARTICLE I
The name of the corporation is Opus360 Corporation (the
"Corporation").
ARTICLE II
The purpose for which the Corporation is organized is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE III
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 70,000,000, consisting of (a)
45,000,000 shares of Common Stock, par value $.001 per share (the "Common
Stock"), and (b) 25,000,000 shares of Preferred Stock, par value $.001 per share
(the "Preferred Stock"), consisting of 8,400,000 shares of Series A Convertible
Preferred Stock, par value $.001 per share (the "Series A Preferred Stock") and
8,700,000 shares of Series B Convertible Preferred Stock, par value $.001 per
share (the "Series B Preferred Stock") and 7,900,000 shares reserved for
issuance in the discretion of the Board.
The undesignated shares of Preferred Stock may be issued from
time to time in one or more series, each of such series to have such terms as
stated in the resolution or resolutions providing for the establishment of such
series adopted by the Board. The Board is hereby expressly authorized to issue
from time to time the undesignated shares of Preferred Stock in one or more
series, and, in connection with the establishment of any such series by
resolution or resolutions, to determine and fix such voting powers, full or
limited, or no voting powers, and such other powers, designations, preferences
and relative, participating, optional and other rights, and the qualifications,
limitations and restrictions thereof, including, without limitation, dividend
rights, conversion rights, redemption privileges and liquidation preferences,
<PAGE>
as shall be stated in such resolution or resolutions, all to the fullest extent
permitted by the Delaware General Corporation Law. Without limiting the
generality of the foregoing, the resolution or resolutions providing for the
establishment of any series of Preferred Stock may, to the extent permitted by
law, provide that such series shall be superior to, rank equally with or be
junior to the Preferred Stock of any other series. Except as otherwise expressly
provided in the resolution or resolutions providing for the establishment of any
series of Preferred Stock, no vote of the holders of shares of Preferred Stock
or Common Stock shall be a prerequisite to the issuance of any shares of any
series of the Preferred Stock authorized by and complying with the conditions of
this Certificate of Incorporation.
The designations, powers, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations and restrictions thereof in respect of the Series A Preferred Stock,
the Series B Preferred Stock and the Common Stock are as follows:
PREFERRED STOCK
1. DIVIDENDS.
When, as, and if declared by the Board out of funds legally
available for that purpose, the holders of Series A Preferred Stock and Series B
Preferred Stock shall be entitled to share in any dividends declared (other than
dividends in the form of Common Stock which shall be covered by an adjustment to
the Series A Conversion Price or Series B Conversion Price as provided in
Section 4(e)(iii) or Section 4(f)(iii), as applicable) and paid or set aside for
the Common Stock on a ratable basis based upon the number of shares of Common
Stock into which the Series A Preferred Stock or Series B Preferred Stock, as
applicable, is then convertible.
2. LIQUIDATION.
Upon a Liquidation, after payment or provision for payment of
the debts and other liabilities of the Corporation, the holders of Series A
Preferred Stock and Series B Preferred Stock shall be entitled to receive, out
of the remaining assets of the Corporation available for distribution to its
stockholders, with respect to each share of Series A Preferred Stock or Series B
Preferred Stock the greater of (i) the amount they would have received had they
converted the Series A Preferred Stock or Series B Preferred Stock into Common
Stock immediately prior to such Liquidation (including any declared but unpaid
dividends on such shares of Common Stock), or (ii) an amount equal to the
Liquidation Amount of such share, before any distribution shall be made to the
holders of the Common Stock or any other class of capital stock of the
Corporation ranking junior to the Series A Preferred Stock or Series B Preferred
Stock. If upon any Liquidation the assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the holders of
Preferred Stock the full Liquidation Amount to which they shall be entitled, the
holders of Series A Preferred Stock and Series B Preferred Stock shall share
(PARI PASSU with any other class of preferred stock then outstanding which is
not by its terms junior to the Series A Preferred Stock or the Series B
Preferred Stock) in any distribution of assets in accordance with such full
Liquidation Amount (PRO RATA in accordance with the total Liquidation Amount
that each such holder would have received had there been such sufficient
-2-
<PAGE>
assets). After the payment of the full Liquidation Amount to the holders of
Series A Preferred Stock and Series B Preferred Stock, such holders of Series A
Preferred Stock and Series B Preferred Stock shall have no claim to any
remaining assets of the Corporation, if any. Whenever the distribution provided
for in this Section 2 shall be payable in securities or property, other than
cash, the value of such distribution shall be the fair market value of such
securities or other property as determined in good faith by the Board.
3. VOTING RIGHTS.
(a) Each share of Series A Preferred Stock and Series B
Preferred Stock entitles the holder thereof to such number of votes as shall
equal the number of shares of Common Stock into which such share of Series A
Preferred Stock or Series B Preferred Stock, as applicable, is then convertible
pursuant to Section 4 at the record date for the determination of stockholders
entitled to vote or, if no record date is established, at the date such vote is
taken. The holders of Series A Preferred Stock and Series B Preferred Stock
shall be entitled to vote on all matters as to which holders of Common Stock
shall be entitled to vote, in the same manner and with the same effect as such
holders of Common Stock, voting together with the holders of Common Stock as one
class.
(b) The Corporation shall not, without the affirmative consent or
approval of the holders of a majority of the shares of Series A Preferred Stock
then outstanding:
(i) in any manner authorize, create, designate, issue or sell
any class or series of capital stock (including any shares of treasury
stock) or rights, options, warrants or other securities convertible
into or exercisable or exchangeable for capital stock or any debt
security which by its terms is convertible into or exchangeable for any
equity security or has any other equity feature or any security that is
a combination of debt and equity, which, in each case, as to the
payment of dividends, distribution of assets or redemptions, including,
without limitation, distributions to be made upon a Liquidation, is
senior to or on parity with the Series A Preferred Stock;
(ii) in any manner alter or change the terms, designations,
powers, preferences or relative, participating, optional or other
special rights, or the qualifications, limitations or restrictions, of
the Series A Preferred Stock;
(iii) take any action to cause any amendment, alteration or
repeal of any of the provisions of (A) the Certificate of Incorporation
or (B) the By-laws of the Corporation, if such amendment, alteration or
repeal would have an adverse effect on the rights of the holders of the
Series A Preferred Stock;
(iv) increase the number of authorized shares of Series A
Preferred Stock;
(v) redeem, purchase or otherwise acquire for value any share
or shares of the Corporation (except for such acquisitions of shares
made pursuant to an agreement which permits the Corporation to
repurchase such shares upon termination of services with the
Corporation); or
-3-
<PAGE>
(vi) reclassify the shares of Common Stock or any other shares
of series of capital stock hereafter created junior to the Series A
Preferred Stock into shares of any class of capital stock ranking
either as to payment of dividends, distribution or assets or
redemption, senior to or on parity with the Series A Preferred Stock.
(c) The Corporation shall not, without the affirmative consent or
approval of the holders of a majority of the shares of Series B Preferred Stock,
as applicable, then outstanding:
(i) in any manner authorize, create, designate, issue or sell
any class or series of capital stock (including any shares of treasury
stock) or rights, options, warrants or other securities convertible
into or exercisable or exchangeable for capital stock or any debt
security which by its terms is convertible into or exchangeable for any
equity security or has any other equity feature or any security that is
a combination of debt and equity, which, in each case, as to the
payment of dividends, distribution of assets or redemptions, including,
without limitation, distributions to be made upon a Liquidation, is
senior to or on parity with the Series B Preferred Stock;
(ii) in any manner alter or change the terms, designations,
powers, preferences or relative, participating, optional or other
special rights, or the qualifications, limitations or restrictions, of
the Series B Preferred Stock;
(iii) take any action to cause any amendment, alteration or
repeal of any of the provisions of (A) the Certificate of Incorporation
or (B) the By-laws of the Corporation, if such amendment, alteration or
repeal would have an adverse effect on the rights of the holders of the
Series B Preferred Stock;
(iv) increase the number of authorized shares of Series B
Preferred Stock;
(v) redeem, purchase or otherwise acquire for value any share
or shares of the Corporation (except for such acquisitions of shares
made pursuant to an agreement which permits the Corporation to
repurchase such shares upon termination of services with the
Corporation); or
(vi) reclassify the shares of Common Stock or any other shares
of series of capital stock hereafter created junior to the Series B
Preferred Stock into shares of any class of capital stock ranking
either as to payment of dividends, distribution or assets or
redemption, senior to or on parity with the Series B Preferred Stock.
4. CONVERSION.
(a) Upon the terms set forth in this Section 4, each holder of shares
of Series A Preferred Stock or Series B Preferred Stock shall have the right, at
such holder's option, at any time and from time to time, to convert such shares
into the number of fully paid and nonassessable shares of Common Stock as (i) in
the case of the Series A Preferred Stock, is equal to the number of shares of
Series A Preferred Stock multiplied by the quotient obtained by dividing (A) the
Series A Original Issuance Price by (B) the Series A Conversion Price (as
-4-
<PAGE>
defined below), as last adjusted and then in effect, by surrender of the
certificate representing such share and (ii) in the case of the Series B
Preferred Stock, is equal to the number of shares of Series B Preferred Stock
multiplied by the quotient obtained by dividing (A) the Series B Original
Issuance Price by (B) the Series B Conversion Price (as defined below), as last
adjusted and then in effect, by surrender of the certificate representing such
share. The conversion price per share of Series A Preferred Stock (the "Series A
Conversion Price") shall initially be the Series A Original Issuance Price but
shall be subject to adjustment pursuant to Section 4(e) below. The conversion
price per share Series B Preferred Stock (the "Series B Conversion Price") shall
initially be the Series B Original Issuance Price but shall be subject to
adjustment pursuant to Section 4(f) below. The holder of any shares of Series A
Preferred Stock or Series B Preferred Stock may exercise the conversion right
pursuant to this Section 4(a) by delivering to the Corporation the certificate
for the shares to be converted, duly endorsed or assigned in blank or to the
Corporation (if required by it), accompanied by written notice stating that the
holder elects to convert such shares and stating the name or names (with
address) in which the certificate or certificates for the shares of Common Stock
are to be issued. Conversion shall be deemed to have been effected on the date
when such delivery is made or upon the consummation of a Qualified Offering as
provided below, if applicable (in each such case, the "Conversion Date").
(b) Upon the terms set forth in this Section 4, each share of Series A
Preferred Stock and Series B Preferred Stock shall be automatically converted
into Common Stock in accordance with the following. Each share of Series A
Preferred Stock shall automatically be converted to that number of fully paid
and nonassessable shares of Common Stock equal to the quotient obtained by
dividing (A) the Series A Original Issuance Price by (B) the applicable Series A
Conversion Price, as last adjusted and then in effect, upon the consummation of:
(x) a Qualified Offering; or (y) a Sale of the Corporation in which the sale
price for a share of Common Stock is equivalent to at least 300% of the then
applicable Series A Conversion Price at the time of consummation of such Sale of
the Corporation. Each share of Series B Preferred Stock shall automatically be
converted to that number of fully paid and nonassessable shares of Common Stock
equal to the quotient obtained by dividing (A) the Series B Original Issuance
Price by (B) the applicable Series B Conversion Price, as last adjusted and then
in effect, upon the consummation of: (x) a Qualified Offering; or (y) a Sale of
the Corporation in which the sale price for a share of Common Stock is
equivalent to at least 217% of the then applicable Series B Conversion Price at
the time of consummation of such Sale of the Corporation.
(c) As promptly as practicable after the conversion of any shares of
Series A Preferred Stock or Series B Preferred Stock into Common Stock under
Section 4(a) or 4(b) above, the Corporation shall issue and deliver to or upon
the written order of such holder, to the place designated by such holder, a
certificate or certificates for the number of full shares of Common Stock to
which such holder is entitled, and a cash amount in respect of any fractional
interest in a share of Common Stock as provided in Section 4(d) below. The
person in whose name the certificate or certificates for Common Stock are to be
issued shall be deemed to have become a stockholder of record on the Conversion
Date unless the transfer books of the Corporation are closed on that date, in
which event such person shall be deemed to have become a stockholder of record
on the next succeeding date on which the transfer books are open, but the
-5-
<PAGE>
Series A Conversion Price or Series B Conversion Price, as applicable, used
shall be that in effect on the Conversion Date, and the rights of the holder of
the shares of Series A Preferred Stock or Series B Preferred Stock, as the case
may be, so converted shall cease on the Conversion Date. Upon conversion of only
a portion of the number of shares covered by a certificate representing shares
of Series A Preferred Stock or Series B Preferred Stock, as the case may be,
surrendered for conversion, the Corporation shall issue and deliver to or upon
the written order of the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new certificate covering the
number of shares of Series A Preferred Stock or Series B Preferred Stock, as
applicable, representing the unconverted portion of the certificate so
surrendered.
(d) Upon conversion, the Corporation will not issue fractional shares
of its Common Stock and shall distribute cash in lieu of such fractional shares.
In such a case, the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to the product of (i) the price of one
share of Common Stock as determined in good faith by the Board and (ii) such
fractional interest.
(e) The Series A Conversion Price for each share of Series A Preferred
Stock shall be subject to adjustment from time to time as follows:
(i) If the Corporation shall, at any time or from time to time
after the Series A Original Issuance Date, issue any shares of Common
Stock (or be deemed to have issued shares of Common Stock as provided
herein), other than Excluded Stock, without consideration or for a
consideration per share less than the Series A Conversion Price for
such Series A Preferred Stock, in effect immediately prior to the
issuance of such Common Stock, then the Series A Conversion Price, as
in effect immediately prior to each such issuance, shall forthwith be
lowered to a price equal to the quotient obtained by dividing:
(A) an amount equal to the sum of (x) the total
number of shares of Common Stock outstanding on a
Fully-Diluted Basis immediately prior to such issuance,
multiplied by the Series A Conversion Price in effect
immediately prior to such issuance, and (y) the consideration
received by the Corporation upon such issuance; by
(B) the total number of shares of Common Stock
outstanding on a Fully-Diluted Basis immediately after the
issuance of such Common Stock.
(ii) For the purposes of any adjustment of the Series A
Conversion Price pursuant to clause (i) above, the following provisions
shall be applicable:
(A) In the case of the issuance of Common Stock for
cash in a public offering or private placement, the
consideration shall be deemed to be the amount of cash paid
therefor before deducting therefrom any discounts, commissions
or placement fees payable by the Corporation to any
underwriter or placement agent in connection with the issuance
and sale thereof.
-6-
<PAGE>
(B) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
value per share thereof as determined in good faith by the
Board of Directors of the Corporation, irrespective of any
accounting treatment.
(C) In the case of the issuance of options to
purchase or rights to subscribe for Common Stock, securities
by their terms convertible into or exchangeable for Common
Stock, or options to purchase or rights to subscribe for such
convertible or exchangeable securities except for options to
acquire Excluded Stock:
(1) the aggregate maximum number of shares
of Common Stock deliverable upon exercise of such
options to purchase or rights to subscribe for Common
Stock shall be deemed to have been issued at the time
such options or rights were issued and for a
consideration equal to the consideration (determined
in the manner provided in Sections 4(e)(ii)(A) and
4(e)(ii)(B) above), if any, received by the
Corporation upon the issuance of such options or
rights plus the minimum purchase price provided in
such options or rights for the Common Stock covered
thereby;
(2) the aggregate maximum number of shares
of Common Stock deliverable upon conversion of or in
exchange (assuming the satisfaction of any conditions
to convertibility or exchangeability including,
without limitation, the passage of time, but without
taking into account anti-dilution provisions) for any
such convertible or exchangeable securities or upon
the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the
time such securities, options, or rights were issued
and for a consideration equal to the consideration
received by the Corporation for any such securities
and related options or rights (excluding any cash
received on account of accrued interest or accrued
dividends), plus the additional consideration, if
any, to be received by the Corporation upon the
conversion or exchange of such securities or the
exercise of any related options or rights (the
consideration in each case to be determined in the
manner provided in Sections 4(e)(ii)(A) and
4(e)(ii)(B) above);
(3) on any change in the number of shares or
exercise price of Common Stock deliverable upon
exercise of any such options or rights or conversions
of or exchanges for such securities, other than a
change resulting from the antidilution provisions
thereof, the Series A Conversion Price shall
forthwith be readjusted to the Series A Conversion
Price as would have been obtained had the adjustment
made upon the issuance of such options, rights or
securities not converted prior to such change or
options or rights related to
-7-
<PAGE>
such securities not converted prior to such change
been made upon the basis of such change; and
(4) on the expiration of any such options or
rights, the termination of any such rights to convert
or exchange or the expiration of any options or
rights related to such convertible or exchangeable
securities, the Series A Conversion Price shall
forthwith be readjusted to the Series A Conversion
Price as would have been obtained had the adjustment
made upon the issuance of such options, rights,
securities or options or rights related to such
securities been made upon the basis of the issuance
of only the number of shares of Common Stock actually
issued upon the exercise of such options or rights,
upon the conversion or exchange of such securities,
or upon the exercise of the options or rights related
to such securities and subsequent conversion or
exchange thereof.
(iii) If, at any time after the Series A Original Issuance
Date, the number of shares of Common Stock outstanding is increased by
a stock dividend payable in shares of Common Stock or by a subdivision
or split-up of shares of Common Stock, then, following the record date
for the determination of holders of Common Stock entitled to receive
such stock dividend, subdivision or split-up, the Series A Conversion
Price shall be appropriately decreased so that the number of shares of
Common Stock issuable on conversion of each share of Series A Preferred
Stock shall be increased in proportion to such increase in outstanding
shares.
(iv) If, at any time after the Series A Original Issuance
Date, the number of shares of Common Stock outstanding is decreased by
a combination of the outstanding shares of Common Stock, then,
following the record date for such combination, the Series A Conversion
Price shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion of each share of Series A Preferred
Stock shall be decreased in proportion to such decrease in outstanding
shares.
(v) In the event of any capital reorganization of the
Corporation, any reclassification of the stock of the Corporation
(other than a change in par value or from par value to no par value or
from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or any consolidation
or merger of the Corporation (other than any such consolidation or
merger which shall constitute a Sale of the Corporation), each share of
Series A Preferred Stock shall after such reorganization,
reclassification, consolidation, or merger be convertible into the kind
and number of shares of stock or other securities or property of the
Corporation or of the corporation resulting from such consolidation or
surviving such merger to which the holder of the number of shares of
Common Stock deliverable (immediately prior to the time of such
reorganization, reclassification, consolidation or merger) upon
conversion of such share of Series A Preferred Stock would have been
entitled upon such reorganization, reclassification, consolidation or
merger. The provisions of this clause
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shall similarly apply to successive reorganizations, reclassifications,
consolidations or mergers.
(vi) No adjustment in the Series A Conversion Price shall be
required unless such adjustment would require an increase or decrease
of at least 5% in such Series A Conversion Price; provided, that any
adjustments not required to be made by virtue of this sentence shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under Sections 4(e)(i) through 4(e)(v) above shall be
made to the nearest one hundredth (1/100) of a cent or the nearest one
tenth (1/10) of a share, as the case may be.
(vii) In any case in which the provisions of this Section 4(e)
shall require that an adjustment shall become effective immediately
after a record date of an event, the Corporation may defer until the
occurrence of such event (A) issuing to the holder of any share of
Series A Preferred Stock converted after such record date and before
the occurrence of such event the shares of capital stock issuable upon
such conversion by reason of the adjustment required by such event in
addition to the shares of capital stock issuable upon such conversion
before giving effect to such adjustments, and (B) if applicable, paying
to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section 4(d) above; provided, however, that
the Corporation shall deliver to such holder an appropriate instrument
evidencing such holder's right to receive such additional shares and
such cash.
(viii) Whenever the Series A Conversion Price shall be
adjusted as provided in Section 4(e)(iv), the Corporation shall make
available for inspection during regular business hours, at its
principal executive offices or at such other place as may be designated
by the Corporation, a statement, signed by its chief executive officer,
showing in detail the facts requiring such adjustment and the Series A
Conversion Price that shall be in effect after such adjustment. The
Corporation shall also cause a copy of such statement to be sent by
first class certified mail, return receipt requested and postage
prepaid, to each holder of Series A Preferred Stock affected by the
adjustment at such holder's address appearing on the Corporation's
records.
(ix) If the Corporation shall propose to take any action of
the types described in clauses (iii), (iv) or (v) of this Section 4(e),
the Corporation shall give notice to each holder of shares of Series A
Preferred Stock, which notice shall specify the record date, if any,
with respect to any such action and the date on which such action is to
take place. Such notice shall also set forth such facts with respect
thereto as shall be reasonably necessary to indicate the effect of such
action (to the extent such effect may be known at the date of such
notice) on the Series A Conversion Price and the number, kind or class
of shares or other securities or property which shall be deliverable or
purchasable upon the occurrence of such action or deliverable upon
conversion of shares of Series A Preferred Stock. In the case of any
action which would require the fixing of a record date, such notice
shall be given at least twenty (20) days prior to the date so fixed,
and in case of all other action, such notice shall be given at least
thirty (30) days prior to
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the taking of such proposed action. Failure to give such notice, or any
defect therein, shall not affect the legality or validity of any such
action.
(x) The Corporation shall at all times keep reserved, free
from preemptive rights, out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of
Series A Preferred Stock, sufficient shares of Common Stock to provide
for the conversion of all outstanding shares of Series A Preferred
Stock.
(xi) In the event that holders of at least a majority of the
then outstanding Series A Preferred Stock consent in writing to limit,
or waive in its entirety, any anti-dilution adjustment to which the
holders of the Series A Preferred Stock would otherwise be entitled
hereunder, the Corporation shall not be required to make any adjustment
whatsoever with respect to any Series A Preferred Stock in excess of
such limit or at all, as the terms of such consent may dictate.
(xii) The computations of all amounts under this Section 4(e)
shall be made assuming all other anti-dilution or similar adjustments
to be made to the terms of all other securities resulting from the
transaction causing an adjustment pursuant to this Section 4(e) have
previously been made so as to maintain the relative economic interest
of the Series A Preferred Stock VIS A VIS all other securities issued
by the Corporation.
(xiii) The Corporation shall take or cause to be taken such
steps as shall be necessary to ensure that the par value per share of
Common Stock is at all time less than or equal to the Series A
Conversion Price.
(xiv) The Corporation shall not, by amendment of its
Certificate of Incorporation or through any reorganization,
recapatilization, transfer or assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the
provisions of this Section 4 and in the taking of all such action as
may be necessary or appropriate in order to protect the conversion
rights of the holders of the Series A Preferred Stock against
impairment.
(f) The Series B Conversion Price for each share of Series B Preferred
Stock shall be subject to adjustment from time to time as follows:
(i) If the Corporation shall, at any time or from time to time
after the Series B Original Issuance Date, issue any shares of Common
Stock (or be deemed to have issued shares of Common Stock as provided
herein), other than Excluded Stock, without consideration or for a
consideration per share less than the Series B Conversion Price for
such Series B Preferred Stock, in effect immediately prior to the
issuance of such Common Stock, then the Series B Conversion Price, as
in effect immediately prior to each such issuance, shall forthwith be
lowered to a price equal to the quotient obtained by dividing:
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(A) an amount equal to the sum of (x) the total number of
shares of Common Stock outstanding on a Fully-Diluted Basis immediately
prior to such issuance, multiplied by the Series B Conversion Price in
effect immediately prior to such issuance, and (y) the consideration
received by the Corporation upon such issuance; by
(B) the total number of shares of Common Stock outstanding on
a Fully-Diluted Basis immediately after the issuance of such Common
Stock.
(ii) For the purposes of any adjustment of the Series B Conversion
Price pursuant to clause (i) above, the following provisions shall be
applicable:
(A) In the case of the issuance of Common Stock for cash in a
public offering or private placement, the consideration shall be deemed
to be the amount of cash paid therefor before deducting therefrom any
discounts, commissions or placement fees payable by the Corporation to
any underwriter or placement agent in connection with the issuance and
sale thereof.
(B) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair value per share thereof
as determined in good faith by the Board of Directors of the
Corporation, irrespective of any accounting treatment.
(C) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable
securities except for options to acquire Excluded Stock:
(1) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to purchase or
rights to subscribe for Common Stock shall be deemed to have
been issued at the time such options or rights were issued and
for a consideration equal to the consideration (determined in
the manner provided in Sections 4(f)(ii)(A) and 4(f)(ii)(B)
above), if any, received by the Corporation upon the issuance
of such options or rights plus the minimum purchase price
provided in such options or rights for the Common Stock
covered thereby;
(2) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (assuming
the satisfaction of any conditions to convertibility or
exchangeability including, without limitation, the passage of
time, but without taking into account anti-dilution
provisions) for any such convertible or exchangeable
securities or upon the exercise of options to purchase or
rights to subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange
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thereof shall be deemed to have been issued at the time such
securities, options, or rights were issued and for a
consideration equal to the consideration received by the
Corporation for any such securities and related options or
rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the additional
consideration, if any, to be received by the Corporation upon
the conversion or exchange of such securities or the exercise
of any related options or rights (the consideration in each
case to be determined in the manner provided in Sections
4(f)(ii)(A) and 4(f)(ii)(B) above);
(3) on any change in the number of shares or exercise
price of Common Stock deliverable upon exercise of any such
options or rights or conversions of or exchanges for such
securities, other than a change resulting from the
antidilution provisions thereof, the Series B Conversion Price
shall forthwith be readjusted to the Series B Conversion Price
as would have been obtained had the adjustment made upon the
issuance of such options, rights or securities not converted
prior to such change or options or rights related to such
securities not converted prior to such change been made upon
the basis of such change; and
(4) on the expiration of any such options or rights,
the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such
convertible or exchangeable securities, the Series B
Conversion Price shall forthwith be readjusted to the Series B
Conversion Price as would have been obtained had the
adjustment made upon the issuance of such options, rights,
securities or options or rights related to such securities
been made upon the basis of the issuance of only the number of
shares of Common Stock actually issued upon the exercise of
such options or rights, upon the conversion or exchange of
such securities, or upon the exercise of the options or rights
related to such securities and subsequent conversion or
exchange thereof.
(iii) If, at any time after the Series B Original Issuance Date, the
number of shares of Common Stock outstanding is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up of shares of
Common Stock, then, following the record date for the determination of holders
of Common Stock entitled to receive such stock dividend, subdivision or
split-up, the Series B Conversion Price shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
Series B Preferred Stock shall be increased in proportion to such increase in
outstanding shares.
(iv) If, at any time after the Series B Original Issuance Date, the
number of shares of Common Stock outstanding is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date for such
combination, the Series B Conversion Price shall be appropriately increased so
that the number of shares
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of Common Stock issuable on conversion of each share of Series B Preferred Stock
shall be decreased in proportion to such decrease in outstanding shares.
(v) In the event of any capital reorganization of the
Corporation, any reclassification of the stock of the Corporation
(other than a change in par value or from par value to no par value or
from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or any consolidation
or merger of the Corporation (other than any such consolidation or
merger which shall constitute a Sale of the Corporation), each share of
Series B Preferred Stock shall after such reorganization,
reclassification, consolidation, or merger be convertible into the kind
and number of shares of stock or other securities or property of the
Corporation or of the corporation resulting from such consolidation or
surviving such merger to which the holder of the number of shares of
Common Stock deliverable (immediately prior to the time of such
reorganization, reclassification, consolidation or merger) upon
conversion of such share of Series B Preferred Stock would have been
entitled upon such reorganization, reclassification, consolidation or
merger. The provisions of this clause shall similarly apply to
successive reorganizations, reclassifications, consolidations or
mergers.
(vi) No adjustment in the Series B Conversion Price shall be
required unless such adjustment would require an increase or decrease
of at least 2% in such Series B Conversion Price; provided, that any
adjustments not required to be made by virtue of this sentence shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under Sections 4(f)(i) through 4(f)(v) above shall be
made to the nearest one hundredth (1/100) of a cent or the nearest one
tenth (1/10) of a share, as the case may be.
(vii) In any case in which the provisions of this Section 4(f)
shall require that an adjustment shall become effective immediately
after a record date of an event, the Corporation may defer until the
occurrence of such event (A) issuing to the holder of any share of
Series B Preferred Stock converted after such record date and before
the occurrence of such event the shares of capital stock issuable upon
such conversion by reason of the adjustment required by such event in
addition to the shares of capital stock issuable upon such conversion
before giving effect to such adjustments, and (B) if applicable, paying
to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section 4(d) above; provided, however, that
the Corporation shall deliver to such holder an appropriate instrument
evidencing such holder's right to receive such additional shares and
such cash.
(viii) Whenever the Series B Conversion Price shall be
adjusted as provided in Section 4(f)(iv), the Corporation shall make
available for inspection during regular business hours, at its
principal executive offices or at such other place as may be designated
by the Corporation, a statement, signed by its chief executive officer,
showing in detail the facts requiring such adjustment and the Series B
Conversion Price that shall be in effect after such adjustment. The
Corporation shall also cause a copy of such
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statement to be sent by first class certified mail, return receipt
requested and postage prepaid, to each holder of Series B Preferred
Stock affected by the adjustment at such holder's address appearing on
the Corporation's records.
(ix) If the Corporation shall propose to take any action of
the types described in clauses (iii), (iv) or (v) of this Section 4(f),
the Corporation shall give notice to each holder of shares of Series B
Preferred Stock, which notice shall specify the record date, if any,
with respect to any such action and the date on which such action is to
take place. Such notice shall also set forth such facts with respect
thereto as shall be reasonably necessary to indicate the effect of such
action (to the extent such effect may be known at the date of such
notice) on the Series B Conversion Price and the number, kind or class
of shares or other securities or property which shall be deliverable or
purchasable upon the occurrence of such action or deliverable upon
conversion of shares of Series B Preferred Stock. In the case of any
action which would require the fixing of a record date, such notice
shall be given at least twenty (20) days prior to the date so fixed,
and in case of all other action, such notice shall be given at least
thirty (30) days prior to the taking of such proposed action. Failure
to give such notice, or any defect therein, shall not affect the
legality or validity of any such action.
(x) The Corporation shall at all times keep reserved, free
from preemptive rights, out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of
Series B Preferred Stock, sufficient shares of Common Stock to provide
for the conversion of all outstanding shares of Series B Preferred
Stock.
(xi) In the event that holders of at least a majority of the
then outstanding Series B Preferred Stock consent in writing to limit,
or waive in its entirety, any anti-dilution adjustment to which the
holders of the Series B Preferred Stock would otherwise be entitled
hereunder, the Corporation shall not be required to make any adjustment
whatsoever with respect to any Series B Preferred Stock in excess of
such limit or at all, as the terms of such consent may dictate.
(xii) The computations of all amounts under this Section 4(f)
shall be made assuming all other anti-dilution or similar adjustments
to be made to the terms of all other securities resulting from the
transaction causing an adjustment pursuant to this Section 4(f) have
previously been made so as to maintain the relative economic interest
of the Series B Preferred Stock VIS A VIS all other securities issued
by the Corporation.
(xiii) The Corporation shall take or cause to be taken such
steps as shall be necessary to ensure that the par value per share of
Common Stock is at all time less than or equal to the Series B
Conversion Price.
(xiv) The Corporation shall not, by amendment of its
Certificate of Incorporation or through any reorganization,
recapatilization, transfer or assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith
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assist in the carrying out of all the provisions of this Section 4 and
in the taking of all such action as may be necessary or appropriate in
order to protect the conversion rights of the holders of the Series B
Preferred Stock against impairment.
The Corporation shall pay all documentary, stamp or other
transactions taxes attributable to the issuance or delivery of shares of capital
stock of the Corporation upon conversion of any shares of Series A Preferred
Stock or Series B Preferred Stock; PROVIDED, HOWEVER, that the Corporation shall
not be required to pay any taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificate for such shares in a
name other than that of the holder of the shares of Series A Preferred Stock or
Series B Preferred Stock in respect of which such shares are being issued.
All shares of Common Stock which may be issued in connection
with the conversion provisions set forth will, upon issuance by the Corporation,
be validly issued, fully paid and nonassessable and free from all taxes, liens
or charges with respect thereto.
Any notice required by the provisions of this Section 4 to be
given the holders of shares of Series A Preferred Stock or Series B Preferred
Stock shall be deemed given if deposited in the United States mail, postage
paid, and addressed to each holder or record at his address appearing on the
stock books of the Corporation or if sent by E-mail to the E-mail address in the
Corporation's records.
5. DEFINITIONS.
As used herein, the following terms shall have the following
meanings:
(a) "Affiliate" has the meaning ascribed to it in the Series A
Securities Purchase Agreement and the Series B Securities Purchase Agreement.
(b) "Board" shall mean the Board of Directors of the Corporation.
(c) "Common Stock Equivalent" shall mean all shares of Common Stock
outstanding and all shares of Common Stock issuable (without regard to any
present restrictions on such issuance) upon the conversion, exchange or exercise
of all securities of the Corporation that are convertible, exchangeable or
exercisable for Common Stock and all Common Stock appreciation rights, phantom
Common Stock rights and other rights to acquire, or to receive or to be paid
amounts of, the Common Stock.
(d) "Excluded Stock" shall mean (i) up to 4,000,000 shares (as adjusted
equitably for stock dividends, stock splits, combinations, etc.) of Common Stock
issuable upon exercise of stock options granted to officers and employees of the
Corporation or its subsidiaries as approved by the Board (or a Committee
thereof), (ii) shares of Common Stock issued upon conversion of shares of Series
A Preferred Stock or Series B Preferred Stock, including in the case of (i) and
(ii) above and (vii) below, any additional shares of Common Stock as may be
issued by virtue of antidilution provisions, if any, applicable to such options,
warrants or shares, as the case may be, (iii) shares of the Corporation's stock
issued in connection with acquisitions
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of any person or entity, (iv) equity kickers issued in connection with bona fide
debt offerings, joint ventures or technology licensing arrangements, (v) shares
of the Corporation's stock issued in connection with equipment financing
transactions, (vi) stock issued in connection with a Qualified Offering, (vi)
shares of the Corporation's stock issued upon stock splits or other subdivisions
or combination of shares of Stock, and (vii) shares of Common Stock issuable
upon exercise of warrants and options outstanding as of the date hereof.
(e) "Fully-Diluted Basis" shall mean the total number of shares of the
Corporation's Common Stock outstanding plus the number of shares that would be
issued assuming conversion of all convertible securities and the exercise of all
options and warrants.
(f) "Liquidation" shall mean any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation and a Sale of the
Corporation.
(g) "Liquidation Amount" shall mean (i) as to each share of Series A
Preferred Stock, the Series A Original Issuance Price plus any accrued but
unpaid dividends and (ii) as to each share of Series B Preferred Stock, the
Series B Original Issuance Price plus any accrued but unpaid dividends.
(h) "Qualified Offering" shall mean (i) an underwritten public offering
of shares of Common Stock registered pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), or a Rule 144A offering under the Securities
Act, involving (A) with reference to the Series A Preferred Stock, aggregate
proceeds (net of all underwriting discounts, commissions and expenses) to the
Corporation of at least $20,000,000 and involving a per share offering price of
at least 400% of the then applicable Series A Conversion Price and (B) with
reference to the Series B Preferred Stock, aggregate proceeds (net of all
underwriting discounts, commissions and expenses) to the Corporation of at least
$30,000,000 and involving a per share offering price of at least 200% of the
then applicable Series B Conversion Price or (ii) any other public offering in
connection with which at least two-thirds of the Series A Preferred Stock and at
least two-thirds of the Series B Preferred Stock is converted into Common Stock.
(i) "Sale of the Corporation" shall mean the closing of (i) the sale of
all or substantially all of the Corporation's assets to a Person who is not an
Affiliate of the Corporation, (ii) the sale or transfer of shares of capital
stock of the Corporation (whether outstanding or newly issued) to one or more
Persons who are not Affiliates of the Corporation, or (iii) the merger or
consolidation of the Corporation with or into another Person who is not an
Affiliate of the Corporation, in each case in clauses (i) and (ii) above under
circumstances in which the holders of a majority in voting power of the
outstanding capital stock of the Corporation, immediately prior to such
transaction, own less than a majority in voting power of the outstanding capital
stock of the Corporation or the surviving or resulting corporation or acquirer,
as the case may be, immediately following such transaction. A sale (or multiple
related sales) of one or more subsidiaries of the Corporation (whether by way of
merger, consolidation, reorganization or sale of all or substantially all assets
or securities) which constitutes all or substantially all of the consolidated
assets of the Corporation shall be deemed a Sale of the Corporation.
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(j) "Series A Original Issuance Date" for the Series A Preferred Stock
means the date of original issuance of the first share of the Series A Preferred
Stock.
(k) "Series A Original Issuance Price" shall mean $1.25 per share of
Series A Preferred Stock.
(l) "Series A Securities Purchase Agreement" shall mean that certain
agreement dated as of December 24, 1998, among the Corporation and the
purchasers of Series A Preferred Stock, as the same may be amended, modified or
supplemented from time to time.
(m) "Series B Original Issuance Date" for the Series B Preferred Stock
means the date of original issuance of the first share of the Series B Preferred
Stock.
(n) "Series B Original Issuance Price" shall mean $4.61 per share of
Series B Preferred Stock.
(o) "Series B Securities Purchase Agreement" shall mean that certain
agreement dated the date hereof among the Corporation and the purchasers of
Series B Preferred Stock, as the same may be amended, modified or supplemented
from time to time.
(p) "Stockholders Agreement" shall mean that certain agreement dated as
of December 24, 1998 among the stockholders of the Corporation, as the same may
be further amended, modified or supplemented from time to time.
COMMON STOCK
Each holder of shares of Common Stock shall be entitled to one
vote for each share of Common Stock held on all matters as to which holders of
Common Stock shall be entitled to vote. Except for and subject to those rights
expressly granted to the holders of the Preferred Stock, or except as may be
provided by the laws of the State of Delaware, the holders of Common Stock shall
have exclusively all other rights of stockholders including, but not by way of
limitation, (i) the right to receive dividends, when and as declared by the
Board out of assets legally available therefor and (ii) in the event of any
distribution of assets upon a Liquidation or otherwise, the right to receive
ratably and equally all the assets and funds of the Corporation remaining after
the payment to the holders of shares of the holders of the Preferred Stock of
the specific amounts which they are entitled to receive, respectively, upon such
Liquidation as herein provided.
ARTICLE IV
The business and affairs of the Corporation shall be managed
by or under the direction of the Board, and the directors need not be elected by
ballot unless required by the By-laws of the Corporation.
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ARTICLE V
A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under the Delaware General Corporation Law, or
(iv) for any transaction from which the director derived any improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. Any repeal or modification of this provision
shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
ARTICLE VI
The address of the Corporation's registered office in the
State of Delaware is 9 East Lockerman Street, City of Dover, County of Kent. The
Corporation's registered agent at such address is National Register Agents, Inc.
ARTICLE VII
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the state of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Delaware General Corporation Law, order a meeting of the creditors
or class of creditors, and/or of the stockholders or class of stockholders of
the Corporation, as the case may be, to be summoned in such matter as the said
court directs. If a majority in number representing 3/4 in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
* * * * * *
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Exhibit 3.3
BY-LAWS
OF
ENTERSPECT CORPORATION
ARTICLE I
OFFICES
1.1 REGISTERED OFFICE.
Except as may be changed by the board of directors, the corporation's
registered office in the State of Delaware shall be established and maintained
at Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of
New Castle, State of Delaware, and The Corporation Trust Company shall be the
registered agent of the corporation in charge of the corporation's registered
office in the State of Delaware.
1.2 OTHER OFFICES.
The corporation may have other offices, either within or without the
State of Delaware, at such place or places as the board of directors may from
time to time appoint or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 ANNUAL MEETINGS.
Annual meetings of stockholders for the election of directors and for
any other proper business, shall be held at such place, either within or without
the State of Delaware, and at such time and date as the board of directors, by
resolution, shall determine and as set forth in the notice of the meeting.
2.2 OTHER MEETINGS.
Meetings of stockholders for any purpose other than the election of
directors may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting.
2.3 VOTING.
Each stockholder entitled to vote in accordance with the terms of the
corporation's certificate of incorporation and these by-laws shall be entitled
to one vote, in person or by proxy, for each share of stock entitled to vote
held by that stockholder, but no proxy shall be voted after three years from its
date unless that proxy provides for a longer period. The vote for directors,
<PAGE>
and, upon the demand of any stockholder, the vote upon any question before the
meeting, shall be by ballot. All elections for directors shall be decided by
plurality vote; all other questions shall be decided by majority vote except as
otherwise provided by the corporation's certificate of incorporation or the laws
of the State of Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, 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 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.
2.4 QUORUM.
Except as otherwise required by law, by the corporation's certificate
of incorporation or by these by-laws, the presence, in person or by proxy, of
stockholders holding a majority of the stock of the corporation entitled to vote
shall constitute a quorum at all meetings of the stockholders. In case a quorum
shall not be present at any meeting, a majority in interest of the stockholders
entitled to vote thereat, present in person or by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until the requisite amount of stock entitled to vote shall be
present. At any such adjourned meeting at which the requisite amount of stock
entitled to vote shall be represented, any business may be transacted that might
have been transacted at the meeting as originally noticed; but only those
stockholders entitled to vote at the meeting as originally noticed shall be
entitled to vote at any adjournment or adjournments thereof.
2.5 SPECIAL MEETINGS.
Special meetings of the stockholders for any purpose or purposes may be
called by the Chairman or Vice-Chairman of the Board of Directors, Chief
Executive Officer, President or Secretary, or by resolution of the majority of
the board of directors or at the request in writing of the stockholders holding
25% or more of the outstanding stock of the corporation. Any business
(regardless of whether specified in the notice of meeting) may be conducted at a
special meeting.
2.6 NOTICE OF MEETINGS.
Written notice, stating the place, date and time of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten (10)
nor more than sixty (60) days before the date of the meeting.
2.7 ACTION WITHOUT MEETING.
Unless otherwise provided by the corporation's certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders, or any action that may be
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taken at any annual or special meeting, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take that action at a meeting at which all shares entitled to vote thereon were
present and voted and shall be delivered as provided in the laws of the State of
Delaware. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing as provided in the laws of the State of Delaware.
ARTICLE III
DIRECTORS
3.1 NUMBER AND TERM.
The number of directors constituting the board of directors shall be
not more than eight nor less than one, as fixed from time to time in these
by-laws or by action the board of directors. The initial number of directors
shall be three (3). The directors shall be elected at the annual meeting of the
stockholders and each director shall be elected to serve until his or her
successor shall be elected and shall qualify. Directors need not be
stockholders.
3.2 RESIGNATIONS.
Any director, member of a committee or other officer may resign at any
time. That resignation shall be made in writing, and shall take effect at the
time specified therein, and if no time be specified, at the time of its receipt
by the president or secretary. The acceptance of a resignation shall not be
necessary to make it effective.
3.3 VACANCIES.
If the office of any director, member of a committee or other officer
becomes vacant, the remaining directors in office, though less than a quorum, by
a majority vote, may appoint any qualified person to fill the vacancy and that
person shall hold office for the unexpired term and until his successor shall be
duly elected and qualified, provided, however, that if there are no directors
then in office due to a vacancy, the stockholders may elect a successor who
shall hold office for the unexpired term and until his successor shall be duly
elected and qualified.
3.4 REMOVAL.
(a) Except as hereinafter provided, any director or directors may be
removed either for or without cause at any time by the affirmative vote of the
holders of a majority of all the shares of stock outstanding and entitled to
vote, at a special meeting of the stockholders called for the purpose, and the
vacancies thus created may be filled, at the meeting held for the purpose of
removal, by the affirmative vote of a majority in interest of the stockholders
entitled to vote.
(b) Unless the corporation's certificate of incorporation otherwise
provides, stockholders may effect removal of a director who is a member of a
classified board of directors
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only for cause. If the corporation's certificate of incorporation provides for
cumulative voting and if less than the entire board is to be removed, no
director may be removed without cause if the votes cast against his removal
would be sufficient to elect him if then cumulatively voted at an election of
the entire board of directors, or, if there be classes of directors, at an
election of the class of directors of which he is a part.
(c) If the holders of any class or series are entitled to elect one or
more directors by the provisions of the corporation's certificate of
incorporation, these provisions shall apply, with respect to the removal without
cause of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole.
3.5 INCREASE OF NUMBER.
The number of directors may be increased by the affirmative vote of a
majority of the directors, though less than a quorum, or by the affirmative vote
of a majority in interest of the stockholders, at the annual meeting or at a
special meeting called for that purpose, and by like vote the additional
directors may be chosen at that meeting to hold office until the next annual
election and until their successors are elected and qualify.
3.6 POWERS.
The board of directors shall exercise all of the powers of the
corporation except such powers as are by law, or by the corporation's
certificate of incorporation or by these by-laws, conferred upon or reserved to
the stockholders.
3.7 COMMITTEES.
(a) The board of directors may, by resolution or resolutions passed by
a majority of the whole board, designate one or more committees, each committee
to consist of one or more of the directors of the corporation. The board 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 any member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of the absent or
disqualified member or members.
(b) Any committee, to the extent provided in the resolution of the
board of directors, or in these by-laws, 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 that may require it; but no committee shall have the
power or authority in reference to amending the corporation's certificate of
incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
bylaws of the corporation; and, unless the resolution, these by-laws or the
corporation's certificate of incorporation expressly so provide, no
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committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
3.8 MEETINGS.
(a) The directors elected upon any annual meeting of the stockholders
may hold their first meeting for the purpose of organization and the transaction
of business, if a quorum be present, immediately after the annual meeting of the
stockholders; or the time and place of that meeting may be fixed by consent in
writing of all the directors.
(b) Regular meetings of the directors may be held without notice at
such places and times as shall be determined from time to time by resolution of
the directors.
(c) Special meetings of the board may be called by the chairman or vice
chairman of the board of directors, chief executive officer or the president on
the written request of majority of the directors on at least two days' notice to
each director and shall be held at such place or places as may be determined by
the directors, or as shall be stated in the call of the meeting.
(d) Unless otherwise restricted by the corporation's 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 any 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 that participation in a meeting shall
constitute presence in person at the meeting.
3.9 QUORUM.
A majority of the directors shall constitute a quorum for the
transaction of business. If at any meeting of the board there shall be less than
a quorum present, a majority of those present may adjourn the meeting from time
to time until a quorum is obtained, and no further notice thereof need be given
other than by announcement at the meeting that is so adjourned.
3.10 COMPENSATION.
Directors shall not receive any stated salary for their services as
directors or as members of committees, but by resolution of the board a fixed
fee and expenses of attendance may be allowed for attendance at each meeting.
Nothing in these by-laws shall be construed to preclude any director from
serving the corporation in any other capacity as an officer, agent or otherwise,
and receiving compensation therefor.
3.11 ACTION WITHOUT MEETING.
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 a written consent thereto is signed by all members of the board or committee,
as the case may be, and that written consent is filed with the minutes of
proceedings of the board or committee.
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ARTICLE IV
OFFICERS
4.1 OFFICERS.
(a) The officers of the corporation shall be a chairman of the board of
directors, a chief executive officer, a president, a treasurer, and a secretary,
all of whom shall be elected by the board of directors and who shall hold office
until their successors are elected and qualified. In addition, the board of
directors may elect a vice-chairman of the board of directors, a chief operating
officer, a chief financial officer, one or more vice-presidents and such
assistant secretaries and assistant treasurers as they may deem proper. None of
the officers of the corporation need be directors.
(b) Each of the foregoing officers shall have the power and authority
to sign instruments and stock certificates in accordance with section 103(a)(2)
of the Delaware General Corporation Law and to sign agreements on behalf of the
corporation. The officers shall be elected at the first meeting of the board of
directors after each annual meeting of the stockholders. Any two or more offices
may be held at the same time by the same person. Any officer may be removed,
with or without cause, by the board of directors. Any vacancy may be filled by
the board of directors.
4.2 OTHER OFFICERS AND AGENTS.
The board of directors may appoint such other officers and agents as it
may deem advisable, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the board of directors.
4.3 CHAIRMAN.
The chairman of the board of directors shall preside at all meetings of
the stockholders and at all meetings of the board of directors, and shall have
such other power and authority and perform such other duties as may be
prescribed by these by laws or as may be assigned from time to time by the board
of directors.
4.4 VICE-CHAIRMAN.
The vice-chairman of the board of directors, if one be elected, shall,
in the absence or disability of the chairman, preside at all meetings of the
stockholders and at all meetings of the board of directors, and shall have such
other power and authority and perform such other duties as may be prescribed by
these by-laws or as may be assigned from time to time by the board of directors
or the chairman.
4.5 CHIEF EXECUTIVE OFFICER.
(a) The chief executive officer shall, in the absence or disability of
the chairman and vice-chairman of the board of directors, preside at all
meetings of the stockholders and at all meetings of the board of directors, and
shall have general supervision, direction and control of
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the business and affairs of the corporation subject to the authorization and
control of the board of directors, and shall have such other power and authority
and perform such other duties as may be prescribed by these by-laws or as may be
assigned from time to time by the board of directors.
(b) In the absence or disability of the chief executive officer, the
president, if available, and if the president is not available the chief
operating officer, if available, shall have the authority, and shall perform the
duties, of the chief executive officer.
4.6 PRESIDENT.
(a) The president shall, in the absence or disability of the chairman
and vice-chairman of the board of directors and chief executive officer, preside
at all meetings of the stockholders and at all meetings of the board of
directors, and shall have such other power and authority and perform such other
duties as may be prescribed by these by-laws or as may be assigned from time to
time by the board of directors or the chief executive officer.
(b) In the absence or disability of the chief executive officer, the
president, if available, shall have the authority, and shall perform the duties,
of the chief executive officer.
4.7 CHIEF OPERATING OFFICER.
(a) The chief operating officer, if one be elected, shall have such
power and authority and perform such duties as may be prescribed by these
by-laws or as may be assigned from time to time by the board of directors.
(b) In the absence or disability of the president, the chief operating
officer, if available, shall have the authority, and shall perform the duties,
of the president. In addition, in the absence or disability of the chief
executive officer and the president, the chief operating officer, if available,
shall have the authority and perform the duties of the chief executive officer.
4.8 CHIEF FINANCIAL OFFICER.
The chief financial officer, if one be elected, shall have general
supervision, direction and control of the financial affairs of the corporation
subject to the authorization and control of the board of directors, and shall
have such other power and authority and perform such other duties as may be
prescribed by these by-laws or as may be assigned from time to time by the board
of directors.
4.9 VICE-PRESIDENT.
(a) Each vice-president shall have such power and authority and perform
such duties as may be prescribed by these by-laws or as may be assigned from
time to time by the board of directors or the chief executive officer.
(b) The board of directors may designate one or more vice-presidents,
in such order of priority as shall be specified by the board of directors, to
have the authority, and to perform the duties, of the chief executive officer in
the absence or disability of the chief executive officer, the president and the
chief operating officer; provided, however, that no
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vice-president shall have such authority or perform such duties unless
specifically designated for that purpose by the board of directors.
4.10 TREASURER.
(a) The treasurer shall have the custody of the corporate funds and
securities, shall keep full and accurate account of receipts and disbursements
in books belonging to the corporation and shall deposit all moneys and other
valuables in the name and to the credit of the corporation in such depositaries
as may be designated by the board of directors.
(b) The treasurer shall disburse the funds of the corporation as may be
ordered by the board of directors, or the chief executive officer, taking proper
vouchers for such disbursements. He shall render to the chief executive officer
and board of directors at the regular meetings of the board of directors, or
whenever they may request it, an account of all his transactions as treasurer
and of the financial condition of the corporation. If required by the board of
directors, he shall give the corporation a bond for the faithful discharge of
his duties in such amount and with such surety as the board of directors shall
prescribe.
4.11 SECRETARY.
(a) The secretary shall give, or cause to be given, notice of all
meetings of stockholders and directors, and all other notices required by law or
by these by-laws, and in case of his absence or refusal or neglect so to do, any
such notice may be given by any person thereunto directed by the chief executive
officer, the president, the chairman or the vice-chairman of the board of
directors, or by the board of directors or stockholders, upon whose requisition
the meeting is called as provided in these by-laws.
(b) The secretary shall record all the proceedings of the meetings of
the corporation and of the directors in a book to be kept for that purpose, and
shall perform such other duties as may be assigned to him by the chief executive
officer or the board of directors. He shall have custody of the seal of the
corporation and shall affix the same to all instruments requiring it, when
authorized by the chief executive officer or the board of directors, and attest
the same.
4.12 ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.
(a) Assistant treasurers, if any shall be elected, shall, in the
absence of the treasurer, have the authority, and perform the duties, of the
treasurer, and shall have such other power and authority and perform such other
duties as may be prescribed by these by-laws or as may be assigned from time to
time by the board of directors or the chief executive officer.
(b) Assistant secretaries, if any shall be elected, shall, in the
absence of the secretary, have the authority, and perform the duties, of the
secretary, and shall have such other power and authority and perform such other
duties as may be prescribed by these by-laws or as may be assigned from time to
time by the board of directors or the chief executive officer.
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ARTICLE V
MISCELLANEOUS
5.1 CERTIFICATES OF STOCK.
Certificates of stock, signed by the chairman or vice chairman of the
board of directors, if they be elected, president or vice president, and the
treasurer or an assistant treasurer, or secretary or an assistant secretary,
shall be issued to each stockholder certifying the number of shares owned by him
in the corporation.
Any or all the signatures may be facsimiles.
5.2 LOST CERTIFICATES.
A new certificate of stock may be issued in the place of any
certificate theretofore issued by the corporation, alleged to have been lost or
destroyed, and the directors may, in their discretion, require the owner of the
lost or destroyed certificate, or his legal representatives, to give the
corporation a bond, in such sum as they may direct, not exceeding double the
value of the stock, to indemnify the corporation against any claim that may be
made against it on account of the alleged loss of the certificate, or the
issuance of the new certificate.
5.3 TRANSFER OF SHARES.
The shares of stock of the corporation shall be transferable only upon
its books by the holders thereof in person or by their duly authorized attorneys
or legal representatives, and upon transfer the old certificates shall be
surrendered to the corporation by the delivery thereof to the person in charge
of the stock and transfer books and ledgers, or to such other person as the
directors may designate, by whom they shall be canceled, and new certificates
shall thereupon be issued. A record shall be made of each transfer and whenever
a transfer shall be made for collateral security, and not absolutely, it shall
be so expressed in the entry of the transfer.
5.4 STOCKHOLDERS 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
thereof, or to express consent to corporate action in writing without a meeting,
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, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of the
meeting, nor more than sixty (60) days before 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 the adjourned meeting.
5.5 DIVIDENDS.
Subject to the provisions of the corporation's certificate of
incorporation, the board of directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before
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declaring any dividend there may be set apart out of any funds of the
corporation available for dividends, such sum or sums as the directors from time
to time in their discretion deem proper for working capital or as a reserve fund
to meet contingencies or for equalizing dividends or for such other purposes as
the directors shall deem conducive to the interests of the corporation.
5.6 SEAL.
The corporate seal shall be circular in form and shall contain the name
of the corporation, the year of its creation and the words "CORPORATE SEAL
DELAWARE." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
5.7 FISCAL YEAR.
The fiscal year of the corporation shall be determined by resolution of
the board of directors.
5.8 CHECKS.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation shall be
signed by such officer or officers, agent or agents of the corporation, and in
such manner, as shall be determined from time to time by resolution of the board
of directors.
5.9 NOTICE AND WAIVER OF NOTICE.
(a) Whenever any notice is required by these by-laws to be given,
personal notice is not meant unless expressly so stated, and any notice so
required shall be deemed to be sufficient if given by depositing the same in the
United States mail, postage prepaid, addressed to the person entitled thereto at
his address as it appears on the records of the corporation, and that notice
shall be deemed to have been given on the day of the mailing. Stockholders not
entitled to vote shall not be entitled to receive notice of any meetings except
as otherwise provided by statute.
(b) Whenever any notice whatsoever is required to be given under the
provisions of any law, or under the provisions of the corporation's certificate
of incorporation or these by-laws, a waiver thereof in writing, signed by the
person or persons entitled to that notice, whether before or after the time
stated therein, shall be deemed equivalent to that notice.
ARTICLE VI
AMENDMENTS
These by-laws may be altered or repealed and by-laws may be
made at any annual meeting of the stockholders or at any special meeting thereof
if notice of the proposed alteration or repeal of the by-law or by-laws to be
made be contained in the notice of that special meeting, by the affirmative vote
of stockholders holding a majority of the stock issued and outstanding and
entitled to vote thereat, or by the affirmative vote of a majority of the board
of directors, at any regular meeting of the board of directors, or at any
special meeting of the board of directors,
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if notice of the proposed alteration or repeal, or of the by-law or by-laws to
be made, be contained in the notice of that special meeting.
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Exhibit 10.1
STANDARD FORM OF LOFT LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
Agreement of Lease, made this 10th day of August 1999, between
Samson Associates, LLC with principal offices at 40 West 14th Street, New York,
New York party of the first part, hereinafter referred to as OWNER, and Opus 360
Corporation, a Delaware corporation party of the second part, hereinafter
referred to as TENANT, excluding all elevator vestibules, stairwells, and
shaftways in the building known as 34-42 West 14th Street and 33-39 West 13th
Street in the Borough of Manhattan, City of New York, for the term often years
(or until such term shall sooner cease and expire as hereinafter provided) to
commence on the "Commencement Date" as defined in Article 41B, and to end on the
______ last day of one hundred and twentieth month after the Commencement Date
("Expiration Date") both dates inclusive, at an annual rental rate of (See
Article 42, below) which Tenant agrees to pay in lawful money of the United
States which shall be legal tender in payment of all debts and dues, public and
private, at the time of payment, in equal monthly installments in advance on the
first day of each month during said term, at the office of Owner of such other
place as Owner may designate, without any set off or deduction whatsoever,
except that Tenant shall pay the first monthly installment(s) on the execution
hereof (unless this lease be a renewal).
In the event that, at the commencement of the term of this
lease, or thereafter, Tenant shall be in default in the payment of rent to Owner
pursuant to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at hereunder and the same shall be payable to Owner as
additional rent.
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and assigns, hereby
covenant as follows:
1. OCCUPANCY: Tenant shall pay the rent as above and as hereinafter
provided.
2. USE: Tenant shall use and occupy demised premises for general,
administrative and executive offices provided such use is in accordance with the
Certificate of Occupancy for the building, if any, and for no other purpose.
3. ALTERATIONS: Tenant shall make no changes in or to the demised
premises of any nature without Owner's prior written consent. Subject to the
prior written consent of Owner, and to the provisions of this article, Tenant at
Tenant's expense, may make alterations, installations, additions or improvements
which are non-structural and which do not affect utility services or plumbing
and electrical lines, in or to the interior of the demised premises using
contractors or mechanics first approved by Owner. Tenant shall, at its expense,
before making any alterations, additions, installations or improvements obtain
all permits, approval and certificates required by any governmental or
quasi-governmental bodies and (upon completion) certificates of final approvals
thereof and shall deliver promptly duplicates of all such permits, approvals and
certificates to Owner. Tenant agrees to carry and will cause Tenant's
contractors and sub7contractors to carry such workman's compensation, general
liability, personal and property damage insurance as Owner may require. If any
mechanic's lien is filed against the
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demised premises, or the building of which the same forms as part, for work
claimed to have been done for, or materials furnished to, Tenant, whether or not
done pursuant to this article, the same shall be discharged by Tenant within
thirty days thereafter, at Tenant's expense, by filing the bond required by law
or otherwise. All fixtures and all paneling, partitions, railings and like
installations, installed in the premises at any time, either by Tenant or by
Owner on Tenant's behalf, shall, upon installation, become the property of Owner
and shall remain upon and be surrendered with the demised premises unless Owner,
by notice to Tenant no later than twenty days prior to the date fixed as the
termination of this lease, elects to relinquish Owner's right thereto and to
have them removed by Tenant, in which event the same shall be removed from the
demised premises by Tenant prior to the expiration of the lease, at Tenant's
expense. Nothing in this Article shall be construed to give Owner title to or to
prevent Tenant's removal of trade fixtures, moveable office furniture and
equipment, but upon removal of any such from the premises or upon removal of
other installations as may be required by Owner, Tenant shall immediately and at
its expense, repair and restore the premises to the condition existing prior to
installation and repair any damage to the demised premises or the building due
to such removal. All property permitted or required to be removed, by Tenant at
the end of the term remaining in the premises, or upon Tenant's vacating or
removal prior thereto after Tenant's removal shall be deemed abandoned and may,
at the election of Owner, either be retained as Owner's property or removed from
the premises by Owner, at Tenant's expense.
4. REPAIRS: Tenant shall, throughout the term of this lease, take good
care of the demised premises including the bathrooms and lavatory facilities (if
the demised premises encompass the entire floor of the building) and the windows
and window frames and, the fixtures and appurtenances therein and at Tenant's
sole cost and expense promptly make all repairs thereto and to the building,
whether structural or non-structural in nature, caused by or resulting from the
carelessness, omission, neglect or improper conduct of Tenant, Tenant's
servants, employees, invitees, or licensees, and whether or not arising from
such Tenant conduct or omission, when required by other provisions of this
lease, including Article 6. Tenant shall also repair all damage to the building
and the demised premises caused by the moving of Tenant's fixtures, furniture or
equipment. All the aforesaid repairs shall be of quality or class equal to the
original work or construction. If Tenant fails, after ten days notice, to
proceed with due diligence to make repairs required to be made by Tenant, the
same may be made by the Owner at the expense of Tenant, and the expenses thereof
incurred by Owner shall be collectible, as additional rent, after rendition of a
bill or statement therefor. If the demised premises be or become infested with
vermin, Tenant shall, at its expense, cause the same to be exterminated. Tenant
shall give Owner prompt notice of any defective condition in any plumbing,
heating system or electrical lines located in the demised premises and following
such notice, owner shall remedy the condition with due diligence, but at the
expense of Tenant, if repairs are necessitated by damage or injury attributable
to Tenant, Tenant'., servants, agents, employees, invitees or licensees as
aforesaid. Except as specifically provided in Article 9 or elsewhere in this
lease, there shall be no allowance to the Tenant for a diminution of rental
value and no liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from Owner, Tenant or others making or
failing to make any repairs, alterations, additions or improvements in or to any
portion of the building or the demised premises or in and to the fixtures,
appurtenances or equipment thereof. The provisions of this Article 4 with
respect to the making of repairs shall not apply in
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the case of fire or other casualty with regard to which Article 9 hereof shall
apply.
5. WINDOW CLEANING: Tenant will not clean nor require, permit, suffer
or allow any window in the demised premises to be cleaned from the outside in
violation of Section 202 of the New York State Labor Law or any other applicable
law or of the Rules of the Board of Standards and Appeals, or of any other Board
or body having or asserting jurisdiction.
6. REQUIREMENTS OF LAW, FIRE INSURANCE, FLOOR LOADS: Prior to the
commencement of the lease term, if Tenant is ten in possession, and at all times
thereafter, Tenant shall, at Tenant's sole cost and expense, promptly comply
with all present and future laws, orders and regulations of all state, federal,
municipal and local governments, departments, commissions and boards and any
direction of any public officer pursuant to law, and all orders, rules and
regulations of the New York Board of Fire Underwriters, or the Insurance
Services Office, or any similar body which shall impose any violation, order or
duty upon Owner or Tenant with respect to the demised premises, whether or not
arising out of Tenant's use or manner of use thereof, or, with respect to the
building, if arising out of Tenant's use or manner of use of the demised
premises or the building (including the use permitted under the lease). Except
as provided in Article 30 hereof, nothing herein shall require Tenant to make
structural repairs or alterations unless Tenant has, by its manner of use of the
demised premises or method of operation therein, violated any such laws,
ordinances, orders, rules, regulations or requirements with respect thereto.
Tenant shall not do or permit any act or thing to be done in or to the demised
premises which is contrary to law, or which will invalidated or be in conflict
with public liability; fire or other policies of insurance at any time carried
by or for the benefit of Owner. Tenant shall not keep anything in the demised
premises except as now or hereafter permitted by the Fire Department, Board of
Fire Underwriters, Fire Insurance Rating Organization and other authority having
jurisdiction, and then only in such manner and such quantity so as not to
incredible rate for fire insurance applicable to the building, nor use the
premises in a manner which will increase the insurance rate for the building or
any property located therein over that in effect prior to the commencement of
Tenant's occupancy. If by reason of failure to comply with the foregoing the
fire insurance rate shall, at the beginning of this lease or at any time
thereafter, be higher than it otherwise would be, then Tenant shall reimburse
Owner, as additional rent hereunder, for that portion of all fire insurance
premiums thereafter paid by Owner which shall have been charged because of such
failure by Tenant. In any action or proceeding wherein Owner and Tenant are
parties, a schedule or "make-up" or rate for the building or demised premises
issued by a body making fire insurance rates applicable to said premises shall
be conclusive evidence of the facts therein stated and of the several items and
charges in the fire insurance rates then applicable to said premises. Tenant
shall not place a load upon any floor of the demised premises exceeding the
floor load per square foot area which it was designed to carry and which is
allowed by law. Owner reserves the right to prescribe the weight and position of
all safes, business machines and mechanical equipment, such installations shall
be placed and maintained by, Tenant, at Tenant's expense, in settings
sufficient, in Owner's judgement, to absorb and prevent vibration, noise and
annoyance.
7. SUBORDINATION: This lease is subject and subordinate to all ground
or underlying leases and to all mortgages which may now or hereafter affect such
leases or the real
<PAGE>
property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgagee. This clause shall be self-operative and no
further instrument or subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall execute promptly any certificate that Owner may request.
8. PROPERTY LOSS, DAMAGE, REIMBURSEMENT, INDEMNITY: Owner or its agents
shall not be liable for any damage to property of Tenant or of others entrusted
to employees of the building, nor for loss of or damage to any property of
Tenant by theft or otherwise, not for any injury or damage to persons or
property resulting from any cause of whatsoever nature, unless caused by or due
to the negligence of Owner, its agents, servants or employees; Owner or; its
agents shall not be liable for any damage caused by other tenants or persons in,
upon or about said building or caused by operations in connection of any
private, public or quasi public work. If at any time any windows of the demised
premises are temporarily closed, darkened or bricked up for any reason
whatsoever including, but not limited to Owner's own acts, Owner shall not be
liable for any damage Tenant may sustain thereby and Tenant shall not be
entitled to any compensation therefor nor abatement or diminution of rent nor
shall the same release Tenant from its obligations hereunder nor constitute an
eviction. Tenant shall indemnify and save harmless Owner against and from all
liabilities, obligations, damages, penalties, claims, costs and expenses for
which Owner shall not be reimbursed by insurance, including reasonable
attorney's fees, paid, suffered or incurred as a result of any breach by Tenant,
Tenant's agent, contractors, employees, invitees, or licensees, of any covenant
or condition of this lease, or the carelessness, negligence or improper conduct
of the Tenant, Tenant's agents, contractors, employees, invitees or licensees.
Tenant's liability under this lease extends to the acts and omissions of any
sub-tenant, and any agent, contractor, employee, invitee or licensee of any
sub-tenant. In case any action or proceeding is brought against Owner by reason
of any such claim, Tenant, upon written notice from Owner, will, at Tenant's
expense, resist or defend such action or proceeding by counsel approved by Owner
in writing, such approval not to be unreasonably withheld.
9. DESTRUCTION, FIRE AND OTHER CASUALTY: (a) If the demised premises
or any part thereof shall be damaged by fire or other casualty, Tenant shall
give immediate notice thereof to Owner and this lease shall continue in full
force and effect except as hereinafter set forth. (b) If the demised premises
are partially damaged or rendered partially unusable by fire or other
casualty, the damages thereto shall be repaired by and at the expense of
Owner and the rent, until such repair shall be substantially completed, shall
be apportioned from the day following the casualty according to the part of
the premises which is usable. (c) If the demised premises are totally damaged
or rendered wholly unusable by fire or other casualty, then the rent shall be
proportionately paid up to the time of the casualty and thenceforth shall
cease until the date when the premises shall have been repaired and restored
by Owner, subject to Owner's right to elect not to restore the same as
hereinafter provided. (d) If the demised premises are rendered wholly
unusable or (whether or not the demised premises are damaged in whole or in
part) if the building shall be so damaged that Owner shall decide to demolish
it or to rebuild it, then, in any of such events, Owner shall decide to
demolish it or to rebuild it, then, in any of such events, Owner may elect to
terminate this lease by written notice to Tenant, given within 90 days after
<PAGE>
such fire or casualty, specifying a date for the expiration of the
lease, which date shall not be more than 60 days after the giving of such
notice, and upon the date specified in such notice the term of this lease shall
expire as fully and completely as if such date were the date set forth above for
the termination of this lease and Tenant shall forthwith quit, surrender and
vacate the premises without prejudice however, to Owner's rights and remedies
against tenant under the lease provisions in effect prior to such termination,
and any rent owing shall be paid up to such date and any payments of rent made
by Tenant which were on account of any period subsequent to such date shall be
returned to Tenant. Unless owner shall serve a termination notice as provided
for herein, Owner shall make the repairs and restorations under the conditions
of (b) and (c) hereof, with all reasonable expedition, subject to delays due to
adjustment of insurance claims, labor troubles and causes beyond Owner's
control. After any such casualty, Tenant shall cooperate with Owner's
restoration by removing from the premises as promptly as reasonably possible,
all of Tenant's salvageable inventory and movable equipment, furniture, and
other property. Tenant's liability for rent shall resume five (5) days after
written notice from Owner that the premises are substantially ready for Tenant's
occupancy. (e) Nothing contained hereinabove shall relieve Tenant from liability
that may exist as a result of damage from fire or other casualty.
Notwithstanding the foregoing, each party shall look first to any insurance in
its favor before making any claim against the other party for recovery for loss
or damage resulting from fire or other casualty, and to the extent that such
insurance is in force and collectible and to the extent permitted by law, Owner
and tenant each hereby releases and waives all right of recovery against the
other or any one claiming through or under each of them by way of subrogation or
otherwise. The foregoing release or waiver shall be in force only if both
releasors' insurance policies contain a clause providing that such a release or
waiver shall not invalidate the insurance. If, and to the extent, that such
waiver can be obtained only by the payment of additional premiums, then the
party benefiting from the waiver shall pay such premium within ten days after
written demand or shall be deemed to have agreed that the party obtaining
insurance coverage shall be free of any further obligation under the provisions
hereof with respect to waiver of subrogation. Tenant acknowledges that Owner
will not carry insurance on Tenant's furniture and or furnishings or any
fixtures or equipment, improvements, or appurtenances removable by Tenant and
agrees that Owner will not be obligated to repair any damage thereto or replace
the same. (f) Tenant hereby waives the provisions of Section 227 of the Real
Property Law and agrees that the provisions of this article shall govern and
control in lieu thereof.
10. EMINENT DOMAIN: If the whole or any part of the demised premises
shall be acquired or condemned by Eminent Domain for any public or quasi public
use or purpose, then and in that event, the term of this lease shall cease and
terminate from the date of title vesting in such proceeding and Tenant shall
have no claim for the value of any unexpired term of said lease.
11. ASSIGNMENT, MORTGAGE, ETC.: Tenant, for itself, its heirs,
distributees, executors, administrators, legal representatives, successors and
assigns, expressly covenants that it shall not assign, mortgage or encumber this
agreement, nor underlet, or suffer or permit the demised premises or any part
thereof to be used by others, without the prior written consent of Owner in each
instance. Transfer of the majority of the stock of a corporate Tenant shall be
<PAGE>
deemed an assignment. If this lease be assigned, or if the demised premises or
any part thereof be underlet or occupied by anybody other than Tenant, Owner
may, after default by Tenant, collect rent from the assignee, under-tenant or
occupant, and apply the net amount collected to the rent herein reserved, but no
such assignment, underletting, occupancy or collection shall be deemed a waiver
of this covenant, or the acceptance of the assignee, under-tenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in any wise be construed to relieve tenant
from obtaining the express consent in writing of Owner to any further assignment
or underletting.
12. ELECTRIC CURRENT: Rates and conditions in respect to submetering or
rent inclusion, as the case may be, to be added in RIDER attached hereto. Tenant
covenants and agrees that at all times its use of electric current shall not
exceed the capacity of existing leeders to the building or the risers or wiring
installation and Tenant may not use any electrical equipment which, in Owner's
opinion, reasonably exercised, will overload such installations or interfere
with the use thereof by other tenants of the building. The change at any time of
the character of electric service shall in no wise make Owner liable or
responsible to Tenant, for any loss, damages or expenses which tenant may
sustain.
13. ACCESS TO PREMISES: Owner or Owner's agents shall have the right
(but shall not be obligated) to enter the demised premises in any emergency at
any time, and, at other reasonable times, to examine the same and to make such
repairs, replacements and improvements as Owner may deem necessary and
reasonably desirable to any portion of the building or which Owner may elect to
perform in the premises after Tenant's failure to make repairs or perform any
work which Tenant is obligated to perform under this lease, or for the purpose
of complying with laws, regulations and other directors of governmental
authorities. Tenant shall permit owner to use and maintain and replace pipes and
conduits in and through the demised premises and to erect new pipes and conduits
therein provided, wherever possible, they are within walls or otherwise
concealed. Owner may, during the progress of any work in the demised premises,
take all necessary materials and equipment into said premises without the same
constituting an eviction nor shall the Tenant be entitled to any abatement of
rent while such work is in progress nor to any damages by reason or loss or
interruption of business or otherwise. Throughout the term hereof Owner shall
have the right to enter the demised premises at reasonable hours for the purpose
of showing the same to prospective purchasers or mortgagees of the building, and
during the last six months of the term for the purpose of showing the same to
prospective tenants and may, during said six months period, place upon the
premises the usual notices "To Let" and "For Sale" which notices Tenant shall
permit to remain thereon without molestation. If Tenant is not present to open
and permit an entry into the premises. Owner or Owner's agents may enter the
same whenever such entry may be necessary or permissible by master key or
forcibly and provided reasonable care is exercised to safeguard Tenant's
property, such entry shall not render Owner or its agents liable therefor, nor
in any event shall the obligations of Tenant hereunder be affected. If during
the last month of the term Tenant shall have removed all or substantially all of
Tenant's property therefrom. Owner may immediately enter, alter, renovate or
redecorate the demised premises without limitation or abatement or rent, or
incurring liability to Tenant for any compensation and such act shall have no
effect on this lease or Tenant's obligations hereunder.
<PAGE>
14. VAULT, VAULT SPACE, AREA: No Vaults, vault space or area, whether
or not enclosed or covered, not within the property line of the building is
leased hereunder, anything contained in or indicated on any sketch, blue print
or plan, or anything contained elsewhere in this lease to the contrary
notwithstanding. Owner makes no representation as to the location of the
property line of the building. All vaults and vault space and all such areas not
within the property line of the building, which Tenant may be permitted to use
and/or occupy, is to be used and/or occupied under a revocable license, and if
any such license be revoked, or if the amount of such space or area be
diminished or required by any federal, state or municipal authority or public
utility, Owner shall not be subject to any liability nor shall Tenant be
entitled to any compensation or diminution or abatement of rent, nor shall such
revocation, diminution or requisition be deemed constructive or actual eviction.
Any tax, fee or charge of municipal authorities for such vault or area shall be
paid by Tenant, if used by Tenant, whether or not specifically leased hereunder.
15. OCCUPANCY: Tenant will not at any time use or occupy the demised
premises in violation of the certificate of occupancy issued for the building of
which the demised premises are a part. Tenant has inspected the premises and
accepts them as is, subject to the riders annexed hereto with respect to Owner's
work, if any. In any event, Owner makes no representation as to the condition of
the premises and Tenant agrees to accept the same subject to violations, whether
or not of record. If any governmental license or permit shall be required for
the proper and lawful conduct of Tenant's business, Tenant shall be responsible
for and shall procure and maintain such license or permit.
16. BANKRUPTCY: (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Owner by sending of a written
notice to Tenant within a reasonable time after the happening of any one or more
of the following events: (1) the commencement of a case in bankruptcy or under
the laws of any state naming Tenant as the debtor; or (2) the making by Tenant
of an assignment or any other arrangement for the benefit of creditors under any
state statute. Neither Tenant nor any person claiming through or under Tenant,
or by reason of any statute or order of court, shall thereafter be entitled to
possession of the premises demised but shall forthwith quit and surrender the
premises. If this lease shall be assigned in accordance with its terms, the
provisions of this Article 16 shall be applicable only to the party then owning
Tenant's interest in this lease.
(b) It is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rental reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be relet by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent
<PAGE>
reserved upon such reletting shall be deemed to be the fair and reasonable
rental value for the part or the whole of the premises so re-let during the term
of the re-letting. Nothing herein contained shall limit or prejudice the right
of the Owner to prove for and obtain as liquidated damages by reason of such
termination, an amount equal to the maximum allowed by any statute or rule of
law in effect at the time when, and governing the proceedings in which, such
damages are to be proved, whether or not such amount be greater, equal to, or
less than the amount of the difference referred to above.
17. DEFAULT: (1) If Tenant defaults in fulfilling any of the covenants
of this lease including the covenants for the payment of rent or additional rent
(no notice under this Article need be served as a condition for the commencement
of a nonpayment summary proceeding); or if the demised premises becomes vacant
or deserted "or if this lease be rejected under ss.235 of Title 11 of the U.S.
Code (bankruptcy code)" (no prior notice of default need be served in the event
this lease is rejected) or if any execution or attachment shall be issued
against Tenant or any of Tenant's property whereupon the demised premises shall
be taken or occupied by someone other than Tenant; or if Tenant shall make
default with respect to any other lease between Owner and Tenant; or if Tenant
shall have failed, after Fifteen (15) days written notice, to redeposit with
Owner any portion of the security deposited hereunder which Owner has applied to
the payment of any rent and additional rent due and payable hereunder or failed
to move into or take possession of the premises within fifteen (15) days after
the commencement of the term of this lease, of which fact Owner shall be sole
judge; then in any one or more of such events, upon Owner serving a written
fifteen (15) days notice upon Tenant specifying the nature of said default and
upon the expiration of said fifteen (15) days if Tenant shall have failed to
comply with or remedy such default, or if the said default or omission
complained of shall be of a nature that the same cannot be completely cured or
remedied within said fifteen (15) day period, and if Tenant shall not have
diligently commenced during such default within such fifteen (15) day period,
and shall not thereafter with reasonable diligence and in good faith, proceed to
remedy or cure such default, then Owner may serve a written three (3) days'
notice of cancellation of this lease upon Tenant, and upon the expiration of
said three (3) days this lease and the term thereunder shall end and expire as
fully and completely as if the expiration of such three (3) day period were the
day herein definitely fixed for the end and expiration of this lease and the
term thereof and Tenant shall then quit and surrender the demised premises to
Owner but Tenant shall remain liable as hereinafter provided. (2) If the notice
provided for in (1) hereof shall have been given, and the term shall expire as
aforesaid: or if tenant shall make default in the payment of the rent reserved
herein or any item of additional rent herein mentioned or any part of either or
in making any other payment herein required: then and in any of such events
Owner may without notice, re-enter the demised premises either by force or
otherwise, and dispossess Tenant by summary proceedings or otherwise, and the
legal representative of Tenant or other occupant of demised premises and remove
their effects and hold the premises as if this lease had not been made, and
Tenant hereby waives the service of notice of intention to re-enter or to
institute legal proceedings to that end. If Tenant shall make default hereunder
prior to the date fixed as the commencement of any renewal or extension of this
lease, Owner may cancel and terminate such renewal or extension agreement by
written notice.
18. REMEDIES OF OWNER AND WAIVER OF REDEMPTION: In case of any such
<PAGE>
default beyond applicable re-entry, expiration and/or dispossess by summary
proceedings or otherwise, (a) the rent, and additional rent, shall become due
thereupon and be paid up to the time of such re-entry, dispossess and/or
expiration, (b) Owner may re-let the premises or any part or parts thereof,
either in the name of Owner or otherwise, for a term or terms, which may at
Owner's option be less than or exceed the period which would otherwise have
constituted the balance of the term of this lease and may grant concessions or
free rent or charge a higher rental than that in this lease, (c) Tenant or the
legal representatives of Tenant shall also pay Owner as liquidated damages for
the failure of Tenant to observe and perform said Tenant's covenants herein
contained, any deficiency between the rent hereby reserved and or covenanted to
be paid and the net amount, if any, of the rents collected on account of the
subsequent lease or leases of the demised premises for each month of the period
which would otherwise have constituted the balance of the term of this lease.
The failure of Owner to re-let the premises or any part or parts thereof shall
not release of affect Tenants liability for damages. In computing such
liquidated damages there shall be added to the said deficiency such expenses as
Owner may incur in connection with re-letting, such as legal expenses,
attorneys' fees, brokerage, advertising and for keeping the demised premises in
good order or for preparing the same for re-letting. Any such liquidated damages
shall be paid in monthly installments by Tenant on the rent day specified in
this lease and any suit brought to collect the amount of the deficiency for any
month shall not prejudice in any way the rights of Owner to collect the
deficiency for any subsequent month by a similar proceeding. Owner, in putting
the demised premises in good order or preparing the same for re-rental may, at
Owner's option, make such alterations, repairs, replacements, and/or decorations
in the demised premises as Owner, in Owner's sole judgment, considers advisable
and necessary for the purpose of re-letting the demised premises, and the making
of such alterations, repairs, replacements, and/or decorations shall not operate
or be construed to release Tenant from liability hereunder as aforesaid. Owner
shall in no event be liable in any way whatsoever for failure to re-let the
demised premises, or in the event that the demised premises are re-let, for
failure to collect the rent thereof under such re-letting, and in no event shall
Tenant be entitled to receive any excess, if any, of such net rents collected
over the sums payable by Tenant to Owner hereunder. In the event of a breach or
threatened breach by Tenant of any of the covenants or provisions hereof, Owner
shall have the right of injunction and the right to invoke any remedy allowed at
law or in equity as if re-entry, summary proceedings and other remedies were not
herein provided for. Mention in this lease of any particular remedy, shall not
preclude Owner from any other remedy, in law or in equity. Tenant hereby
expressly waive' any and all rights of redemption granted by or under any
present or future laws.
19. FEES AD EXPENSES: If Tenant shall default in the observance or
performance of any term or covenant on Tenant's part to be observed or performed
under or by virtue of any of the terms or provisions in any article of this
lease beyond applicable notice and cure dates, then, unless otherwise provided
elsewhere in this lease, Owner may immediately or at any time thereafter and
without notice perform the obligation of tenant thereunder. If Owner, in
connection with the foregoing or in connection with any default by Tenant in the
covenant to pay rent hereunder, makes any expenditures or incurs any obligations
for the payment of money, including but not limited to attorney's fees, in
instituting, prosecuting or defending any action or proceedings, then Tenant
will reimburse Owner for such sums so paid or obligations incurred with interest
and costs. The foregoing expense incurred by reason of Tenant's default shall be
<PAGE>
deemed to be additional rent hereunder and shall be paid by Tenant to Owner upon
demand. If Tenant's lease term shall have expired at the time of making of such
expenditures or incurring of such obligations, such sums shall be recoverable by
Owner as damages.
20. BUILDING ALTERATIONS AND MANAGEMENT: Owner shall have the right at
any time without the same constituting an eviction and without incurring
liability to Tenant therefor to change the arrangement and or location of public
entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets
or other public parts of the building and to change the name, number or
designation by which the building may be known. There shall be no allowance to
Tenant for diminution of rental value and no liability on the part of Owner by
reason of inconvenience, annoyance or injury to business arising from Owner or
other Tenant making any repairs in the building or any such alterations,
additions and improvements. Furthermore, Tenant shall not have any claim against
Owner by reason of Owner's imposition of any controls of the manner of access to
the building by Tenant's social or business visitors as the Owner may deem
necessary for the security of the building and its occupants.
21. NO REPRESENTATIONS BY OWNER: Neither Owner nor owner's agents have
made any representations or promises with respect to the physical condition for
the building, the land upon which it is erected or the demised premises, the
rents, leases, expenses of operation or any other matter or thing affecting or
related to the demised premises or the building except as herein expressly set
forth and no rights, easements or licenses are acquired by Tenant by implication
or otherwise except as expressly set forth in the provisions of this lease.
Tenant has inspected the building and the demised premises and is thoroughly
acquainted with their condition and agrees to take the same "as is" on the date
possession is tendered and acknowledges that the taking of possession of the
demised premises by Tenant shall be conclusive evidence that the said premises
and the building of which the same form a part were in good and satisfactory
condition at the time such possession was so taken, except as to latent defects.
All understandings and agreements heretofore made between the parties hereto are
merged in this contract, which alone fully and completely expresses the
agreement between Owner and Tenant and any executory agreement hereafter made
shall be ineffective to change, modify, discharge or effect an abandonment of it
in whole or in part, unless such executory agreement is in writing and signed by
the party against whom enforcement of the change, modification, discharge or
abandonment is sought.
22. END OF TERM: Upon the expiration or other termination of the
term of this lease, Tenant shall quit and surrender to Owner, the demised
premises, broom clean, in good order and condition, ordinary wear and damages
which Tenant is not required to repair as provided elsewhere in this lease
excepted, and Tenant shall remove all its property from the demised premises.
Tenant's obligation to observe or perform this covenant shall survive the
expiration or other termination of this lease. If the last day of the term of
this Lease or any renewal thereof, falls on Sunday, this lease shall expire
at noon on the preceding Saturday unless it be a legal holiday in which case
it shall expire at noon on the preceding business day.
23. QUIET ENJOYMENT: Owner covenants and agrees with Tenant that upon
Tenant paying the rent and additional rent and observing and performing all the
terms, covenants
<PAGE>
and conditions, on Tenant's part to be observed and performed, Tenant may
peaceably and quietly enjoy the premises hereby demised, subject, nevertheless,
to the terms and conditions of this lease including, but not limited to, Article
34 hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
24. FAILURE TO GIVE POSSESSION: If Owner is unable to give
possession of the demised premises on the date of the commencement of the
term hereof, because of the holding-over or retention of possession of any
tenant, undertenant or occupants or if the demised premises are located in a
building being constructed, because such building has not been sufficiently
completed to make the premises ready for occupancy or because of the fact
that a certificate of occupancy has not been procured or if Owner has not
competed any work required to be performed by Owner, or for any other reason,
Owner shall not be subject to any liability for failure to give possession on
said date and the validity of the lease shall not be impaired under such
circumstances, nor shall the same be construed in any wise to extend the term
of this lease, but the rent payable hereunder shall be abated (provided
Tenant is not responsible for Owner's inability to obtain possession or
complete any work required) until after Owner shall have given Tenant notice
that the premises are substantially ready for Tenant's occupancy. If
permission is given to Tenant to enter into the possession of the demised
premises or to occupy premises other than the demised premises prior to the
date specified as the commencement of the term of this lease. Tenant
covenants and agrees that such occupancy shall be deemed to be under all the
terms, covenants, conditions and provisions of this lease, except as to the
covenant to pay rent. The provisions of this article are intended to
constitute "an express provision to the contrary" within the meaning of
Section 223-a of the New York Real Property Law.
25. NO WAIVER: The failure of Owner to seek redress for violation
of, or to insist upon the strict performance of any covenant or condition of
this lease or of any of the Rules or Regulations, set forth or hereafter
adopted by Owner, shall not prevent a subsequent act which would have
originally constituted a violation from having all the force and effect of an
original violation. The receipt by Owner of rent with knowledge of the breach
of any covenant of this lease shall not be deemed a waiver of such breach and
no provision of this lease shall be deemed to have been waived by Owner
unless such waiver be in writing signed by Owner. No payment by Tenant or
receipt by Owner of a lesser amount than the monthly rent herein stipulated
shall be deemed to be other than on account of the earliest stipulated rent,
nor shall any endorsement or statement of any check or any letter
accompanying any check or payment as rent be deemed an accord and
satisfaction, and Owner may accept such check or payment without prejudice to
Owner's right to recover the balance of such rent or pursue any other remedy
in this lease provided. All checks tendered to Owner as and for the rent of
the demised premises shall be deemed payments for the account of Tenant.
Acceptance by Owner of rent from anyone other than Tenant shall not be deemed
to operate as an attornment to Owner by the payor of such rent or as a
consent by Owner to an assignment or subletting by Tenant of the demised
premises to such payor, or as a modification of the provisions of this lease.
No act or thing done by Owner or Owner's agent during the term hereby demised
shall be deemed an acceptance of a surrender of said premises and no
agreement to accept such surrender shall be valid unless in writing signed by
Owner. No employee of Owner or Owner's agents shall have any power to accept
the keys of said premises prior to the termination of the lease and the
delivery of keys to any such agent or
<PAGE>
employee shall not operate as a termination of the lease or a surrender of the
premises.
26. WAIVER OF TRIAL BY JURY: It is mutually agreed by and between Owner
and Tenant that the respective parities hereto shall and they hereby do waive
trial by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal injury or property damage)
on any matters whatsoever arising out of or in any way connected with this
lease, the relationship of Owner and Tenant, Tenant's use of or occupancy of
said premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Owner commences any summary proceeding
for possession of the premises, Tenant will not interpose any counterclaim of
whatever nature or description in any such proceeding.
27. INABILITY TO PERFORM: This Lease and the obligation of Tenant to
pay rent hereunder and perform all of the other covenants and agreements
hereunder on part of Tenant to be performed shall in no wise be affected,
impaired or excused because Owner is unable to fulfill any of its obligations
under this lease or to supply or is delayed in supplying any service expressly
or impliedly to be supplied or is unable to make, or is delayed in making any
repair, additions, alterations or decorations or is unable to supply or is
delayed in supplying any equipment or fixtures if Owner is prevented or delayed
from so doing by reason of strike or labor troubles or any cause whatsoever
beyond Owner's sole control including, but not limited to, government preemption
in connection with a National Emergency or by reason of any rule, order or
regulation of any department or subdivision thereof of any government agency or
by reason of the conditions of supply and demand which have been or are affected
by war or other emergency
28. BILLS AND NOTICES: Except as otherwise in this lease provided a
bill, statement, notice or communication which Owner may desire or be
required to give a Tenant, shall be deemed sufficiently given or rendered it,
in writing, delivered to Tenant personally or sent by registered or certified
mail addressed to Tenant at the building of which the demised premises form a
part or at the last known residence address or business address of Tenant or
left at any of the aforesaid premises addressed to Tenant, and the time of
the rendition of such bill or statement and of the giving of such notice or
communication shall be deemed to be the time when the same is delivered to
Tenant, mailed, or left at the premises as herein provided. Any notice by
Tenant to Owner must be served by registered or certified mail addressed to
Owner at the address first hereinabove given or at such other address as
Owner shall designate by written notice. SEE ARTICLE 84 BELOW.
29. WATER CHARGES : Tenant shall install a water meter and thereby
measure Tenant's water consumption for all purposes. Tenant shall pay for the
cost of the meter and the cost of the installation, thereof and throughout the
duration of Tenant's occupancy. Tenant shall keep said meter and installation
equipment in good working order and repair at Tenant's own cost and expense in
default of which Owner may cause such meter and equipment to be replaced or
repaired and collect the cost thereof from Tenant, as additional rent. Tenant
agrees to pay for water consumed, as shown on said meter as and when bills are
rendered, and on default in making such payment Owner may pay such charges and
collect the same from Tenant, as additional rent. Tenant covenants and agrees to
pay, as additional rent, the sewer rent, charge or
<PAGE>
any other tax, rent, levy or charge which now is hereafter is assessed, imposed
or a lien upon the demised premises or the realty of which they are part
pursuant to law, order or regulation made or issued in connection with the use,
consumption, maintenance or supply of water, water system or sewage or sewage
connection to system. If the building or the demised premises or any part
thereof is supplied with water through a meter through which water is also
supplied to other premises Tenant shall pay to Owner, as additional rent, on the
first day of each month, 20% ($ ) of the total meter, if Tenant has not
installed a separate meter, charges as Tenant's portion. Independently of and in
addition to any of the remedies reserved to Owner hereinabove or elsewhere in
this lease, Owner may sue for and collect any monies to be paid by Tenant or,
paid by Ownero for any of the reasons or purposes hereinabove set forth.
30. SPRINKLERS: Anything elsewhere in this lease to the contrary
notwithstanding, if the New York Board of Fire Underwriters or the New York Fire
Insurance Exchange or any bureau, department or official of the federal, state
or city government recommend or require the installation of a sprinkler system
or that any changes, modifications, alterations, or additional sprinkler heads
or other equipment be made or supplied in an existing sprinkler system by reason
of Tenant's business, or the location of partitions, trade fixtures, or other
contents of the demised premises, or for any other reason, or if any such
sprinkler system installations, modifications, alterations, additional sprinkler
heads or other such equipment, become necessary to prevent the imposition of a
penalty or charge against the full allowance for a sprinkler system in the fire
insurance rate set by any said Exchange or by any fire insurance company, Tenant
shall, at Tenant's expense, promptly make such sprinkler system installations,
changes, modifications, alterations, and supply additional sprinkler heads or
other equipment as required whether the work involved shall be structural or
non-structural in nature. Tenant shall pay to Owner as additional rent the sum
of $350.00, on the first day of each month during the term of this lease, as
Tenant's portion of the contract price for sprinkler supervisory service.
31. ELEVATORS, HEAT, CLEANING: Tenant shall, at Tenant's expense, keep
the demised premises, including the windows, clean and in order, to the
satisfaction of Owner, and for that purpose shall employ the person or persons,
or corporation approved by Owner. Under such circumstances, however, the removal
of such refuse and rubbish by others shall be subject to such rules and
regulations as, in the judgment of Owner, are necessary for the proper operation
of the building. Owner reserves the right to stop service of the heating,
elevator, plumbing and electric systems, when necessary, by reason of accident,
or emergency, or for repairs, alterations, replacements or improvements, in the
judgment of Owner desirable or necessary to be made, until said repairs,
alterations, replacements or improvements shall have been completed. If the
building of which the demised premises are a part supplies manually operated
elevator service, Owner may proceed with alterations necessary to substitute
automatic control elevator service upon ten (10) day written notice to Tenant
without in any way affecting the obligations of Tenant hereunder, provided that
the same shall be done with the minimum amount of inconvenience to Tenant and
Owner pursues with due diligence the completion of the alterations. Tenant shall
have access to the Demised Premise 24 hours a day, seven (7) days a week from 39
West 13th Street side of Building. Landlord shall not charge Tenant any fee for
use of the elevator during initial move-in or during initial construction of
Demised Premises, except as provided below in Article 41.
32. SECURITY: See Article 43 below.
33. CAPTIONS: The Captions are inserted only as a matter of convenience
and for reference and in no way define, limit or describe the scope of this
lease nor the intent of any provision thereof.
34. DEFINITIONS: The term "Owner" as used in this lease means only the
owner of the fee or of the leasehold of the building, or the mortgagee in
possession, for the time being of the land and building (or the owner of a lease
of the building or of the land and building) of which the demised premises form
a part, so that in the event of any sale or sales of said land and building or
of said lease, or in the event of a lease of said building, or of the land and
building, the said Owner shall be and hereby is entirely freed and relieved of
all covenants and obligations of Owner hereunder, and it shall be deemed and
construed without further agreement between the parties or their successors in
interest, or between the parties and the purchaser, at any such sale, or the
said lessee of the building, or of the land and building, that the purchaser or
the lessee of the building has assumed and agreed to carry out any and all
covenants and obligations of Owner hereunder. The words "re-enter" and
"re-entry" as used in this lease are not restricted to their technical legal
meaning. The term "rent" includes the annual rental rate whether so-expressed or
expressed in monthly installments, and "additional rent." "Additional rent"
means all sums which shall be due to new Owner from Tenant under this lease, in
addition to the annual rental rate. The term "business days" as used in this
lease, shall exclude Saturdays (except such portion thereof as is covered by
specific hours in Article 31 hereof), Sundays and all days observed by the State
or Federal Government as legal holidays and those designated as holidays by the
applicable building service union employees service contract or by the
applicable Operating Engineers contract with respect to HVAC service.
35. ADJACENT EXCAVATION: If an excavation shall be made upon land
adjacent to the demised premises, or shall be authorized to be made, Tenant
shall afford to the person causing or authorized to cause such excavation
license to enter upon the demised premises for the purpose of doing such work as
said person shall deem necessary to preserve the wall or the building of which
demised premises form a part from injury or damage and to support the same by
proper foundations without any claim for damages or indemnity against Owner, or
diminution or abatement of rent.
36. RULES AND REGULATIONS: Tenant and Tenant's servants, employees
,agents, visitors, and licensees shall observe faithfully, and comply
strictly with, the Rules and Regulations annexed hereto and such other and
further reasonable Rules and Regulations as Owner or Owner's agents may from
time to time adopt. Notice of any additional rules or regulations shall be
given in such manner as Owner may elect. In case Tenant disputes the
reasonableness of any additional Rule or Regulation hereafter made or adopted
by Owner or Owner's agents, the parties hereto agree to submit the question
of the reasonableness of such Rule or Regulation for decision to the New York
office of the American Arbitration Association, whose determination shall be
final and conclusive upon the parties hereto. The fight to dispute the
reasonableness of any additional Rule or Regulation upon Tenant's part shall
be deemed waived unless the same shall be asserted by service of a notice, in
writing upon Owner within ten (10) days after the giving of notice thereof.
Nothing in this lease contained shall be construed to impose upon Owner any
duty or obligation to enforce the Rules and Regulations or terms, covenants
or conditions in any other lease, as against any other tenant and Owner shall
not be liable to Tenant for violation of the same by any other tenant, its
servants, employees, agents, visitors or licensees. 6. GLASS: Owner shall
replace, at the expense of the Tenant, any and all plate and other glass
damaged or broken from any cause whatsoever in and about the demised
premises. Owner may insure, and keep insured, at Tenant's expense, all plate
and other glass in the demised premises for and in the name of Owner. Bills
for the premiums therefor shall be rendered by Owner to Tenant at such times
as Owner may elect, and shall be due from, and payable by, Tenant when
rendered, and the amount thereof shall be deemed to be, and be paid, as
additional rent.
37. ESTOPPEL CERTIFICATE: Tenant, at any time, and from time to time,
upon at least 10 days' prior notice by Owner, shall execute, acknowledge and
deliver to Owner, and/or to any other person ,firm or corporation specified by
Owner, a statement certifying that this Lease is unmodified in full force and
effect (or, if there have been modifications, that the same is in full force and
effect as modified and stating the modifications), stating the dates to which
the rent and additional rent have been paid, and stating whether or not there
exists any. default by Owner* under this Lease, and, if so, specifying each such
default.
38. DIRECTORY BOARD LISTING: If, at the request of and as accommodation
to Tenant, Owner shall place upon the directory board in the lobby of the
building, one or more names of persons other than Tenant*, such directory board
listing shall not be construed as the consent by Owner to an assignment or
subletting by Tenant to such person or persons.
39. SUCCESSORS AND ASSIGNS: The covenants, conditions and agreements
contained in this lease shall bind and inure to the benefit of Owner and Tenant
and their respective heirs, distributees, executors, administrators, successors,
and except as otherwise provided in this lease, their assigns.
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* Not to exceed fifteen (15) names.
** Not to exceed fifteen (15) names.
<PAGE>
RIDER ARTICLES 40 TO 85 ARE ANNEXED HERETO AND INCORPORATED
HEREIN.
IN WITNESS WHEREOF, Owner and Tenant have respectively signed
and sealed this lease as of the day and year first above written.
Witness for Owner SAMSON ASSOCIATES, LLC, LANDLORD (Seal)
Landlord (seal)
____________________________________
By:_______________________________[L.S.]
Witness for Owner OPUS 360 CORPORATION, TENANT (Seal)
____________________________________
By:_______________________________[L.S.]
<PAGE>
ACKNOWLEDGEMENTS
CORPORATE TENANT INDIVIDUAL TENANT
STATE OF NEW YORK, ss: STATE OF NEW YORK, ss:
County of County of
On this day of , 19, before me On this day of , 19,
personally ca to me known, who being by before me personally came to me
me duly sworn, did depose and say that he known and known to me to be the
resides in that he is the of the individual escribed in and who,
orporation described in and which executed as TENANT, executed, executed
the foregoing instrument, as TENANT: that the foregoing instrument and
he knows the seal of said corporation; acknowledged to me that he
that the seal affixed by order of the executed the same.
Board of Directors of said corporation
and that he signed his name thereto by
like order.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
demised premises and for delivery of merchandise and equipment in prompt and
efficient manner using elevators and passageways designated for such delivery by
Owner. There shall not be used in any space, or in the public hall of the
building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and sideguards. If said premises are situated on the ground floor of the
building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk
and curb in front of said premises clean and free from ice, snow, dirt and
rubbish.
2. The water and wash closets and plumbing fixtures shall not be used
for any purposes other than those for which they were designed or constructed
and no sweepings, rubbish, rags, acids or other substances shall be deposited
therein, and the expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks, agents
employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building; and no Tenant shall sweep or throw or permit to be swept
or thrown from the demised premises any dirt or other substances into any of the
corridors or halls, elevators, or out of the doors or windows or stairways of
the building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the buildings by reason of noise,
odors, and or vibrations, or interfere in any way, with other Tenants or those
having business therein, nor shall any animals or birds be kept in or about the
building. Smoking or carrying lighted cigars or
<PAGE>
cigarettes in the elevators of the building is prohibited.
<PAGE>
4. No awnings or other projections shall be attached to the outside
walls of the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by any Tenant on any part of the
outside of the demised premises or the building or on the inside of the demised
premises if the same is visible from the outside of the premises without the
prior written consent of Owner, except that the name of Tenant may appear on the
entrance door of the premises. In the event of the violation of the foregoing by
any Tenant, Owner may remove same without any liability and may charge the
expense incurred by such removal to Tenant or Tenants violating this rule.
Interior signs on doors and directory tablet shall be inscribed, painted or
affixed for each Tenant by Owner at the expense of such Tenant, and shall be of
a size, color and style acceptable to Owner.
6. No Tenant shall mark, pain, drill into, or in any way deface any
part of the demised premises or the building of which they form a part. No
boring, cutting or stringing of wires shall be permitted, except with the prior
written consent of Owner, and as Owner may direct. No Tenant shall lay linoleum,
or other similar floor covering, so that the same shall come in direct contact
with the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by paste or other material, soluble in water, the
use of cement or other similar adhesive material being expressly prohibited.
7.
8.
9. No Tenant shall obtain for use upon the demised premises ice,
drinking water, towel and other similar services, or accept barbering or
bootblacking services in the demised premises, except from persons authorized by
Owner, and at hours and under regulations fixed by Owner. Canvassing, soliciting
and peddling in the building is prohibited and each Tenant shall cooperate to
prevent the same.
10. Owner reserves the right to exclude from the building between the
hours of 6 p.m. and 8 a.m. on business days, after 1 p.m. on Saturdays, and at
all hours on Sundays and legal holidays all persons who do not present a pass to
the building signed by Owner. Owner will furnish passes to persons for whom any
Tenant requests same in writing. Each Tenant shall be responsible for all
persons for whom he requests such pass and shall be liable to Owner for all acts
of such persons. Notwithstanding the foregoing, Owner shall not be required to
allow Tenant or any person to enter or remain in the building, except on
business days from 8:00 a.m to 6:00 p.m. and on Saturdays from 8:00 a.m. to 1:00
p.m.
11. Owner shall have the right to prohibit any advertising by any
Tenant which in Owner's opinion, tends to impair the reputation of the building
or its desirability as a loft building, and upon written notice from Owner,
Tenant shall refrain from or discontinue such
<PAGE>
advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible or explosive fluid, material,
chemical or substance, or cause or permit any odors of cooking or other
processes, or any unusual or other objectionable odors to permeate in or emanate
from the demised premises.
13. Tenant shall not use the demised premises in a manner which
disturbs or interferes with other Tenants in the beneficial use of their
premises.
<PAGE>
RIDER TO AGREEMENT DATED THE 10th DAY OF AUGUST, 1999
BETWEEN SAMSON ASSOCIATES LLC, AS LANDLORD,
AND OPUS 360 CORPORATION, AS TENANT
40. WORK LETTER
A. Landlord agrees to perform the following work at Landlord's sole cost
and expense using building standard materials ("Landlord's Work"):
1. Make available 600 amps, three (3) phase, of electrical
service to the Demised Premises for Tenant's use;
2. Install new hardwood floor;
3. Replace all missing bricks in the interior walls of the
Demised Premises and replace all loose mortar.
B. Upon substantial completion of Landlord's Work, Landlord will give
written notice of same to Tenant and the date that Landlord delivers such notice
to the office of the Leonard Horowitz, attorney for the Tenant, at 733 Third
Avenue, 17th Floor, New York, N.Y. or sends same by electronic mail to
[email protected] shall be deemed the Substantial Completion Notice Date of
this Lease ("Substantial Completion Notice Date"). The Commencement Date of this
Lease shall be the later to occur of the Substantial Completion Notice Date or
the date that is fourteen (14) days after the issuance of the non-disturbance
agreements from Current Paramount Interests, as defined in Subparagraph 68(E),
below, and the delivery to Tenant of such non-disturbance agreements
("Commencement Date").
C. Provided that this Lease is in full force and effect and has not been
canceled by Tenant under Subparagraph 68(E) of the Lease, then after the
issuance and delivery of the non-disturbance agreements from Current Paramount
Interests, as defined in Subparagraph 68(E), below, the Tenant agrees to
commence the following work and to thereafter perform said work to completion
("Tenant's Work"):
1. Install one men's and one women's bathroom on the 13th Street
side of Building each in compliance with applicable laws
regarding handicapped accessibility;
2. Polyurethane new hardwood floor installed by Landlord; and
3. Renovate 13th Street lobby and entrance to Building adjoining
existing west freight Elevator on the 13th Street side of the
Building.
D. Provided Tenant is not in default of the terms covenants and conditions
of this Lease beyond applicable notice and cure dates, then upon completion by
Tenant of the Tenant's Work and after Tenant delivers to Landlord paid, signed
and itemized bills and canceled checks for payment of Tenant's Work with lien
waivers signed by all contractors performing Tenant's Work Tenant shall be
entitled to a credit against base rent of $8333.33 per month for six
<PAGE>
consecutive months commencing on the first day of the next successive month
after the completion of Tenant's Work but commencing no earlier than after the
one hundred and eightieth day after the Commencement Date.
41. OPERATION AND USE OF ELEVATORS
A. Provided that this Lease is in full force and effect and has not been
canceled by Tenant under Article 68E, below, then as soon as practicable after
the issuance of the non-disturbance agreements from Current Paramount Interests,
but in no event later than thirty (30) days after the Commencement Date,
Landlord shall commence to renovate and convert the existing west freight
Elevator on the 13th Street side of the Building ("Elevator") to a self service
elevator substantially in accordance with Exhibit A to this Lease ("Elevator
Work"), Landlord will perform the Elevator Work with reasonable diligence and
complete the Elevator Work within a reasonable time after the commencement of
the Elevator Work. Landlord will keep Tenant advised of its progress in
performing the Elevator Work and will advise Tenant of any difficulties or
delays, which it encounters or anticipates.
B. Landlord shall be responsible for keeping the Elevator in good repair
and working order, at Tenant's cost and expense. After the completion of the
Elevator Work Tenant shall be permitted the non-exclusive use of the Elevator
during its normal business hours and at all other times twenty four hours per
day, seven (7) days per week. Tenant understand and agrees that Tops Appliance
City or any successor or assign of Tops Appliance City or any future tenant of
the space now occupied by Tops Appliance City may use the Elevator from 6:30
a.m. to 9 a.m. during their business days. Tenant shall pay for all electricity
consumed by the elevator, which electricity shall be meter directly to Tenant's
electric meter for the Premises or Tenant shall open an account in its own name
with the public utility with respect to the meter for the Elevator. Landlord
shall enter into an Elevator maintenance contract to service the Elevator, which
contract shall include the other elevators servicing the Building, and Tenant
shall pay the cost of same, to the extent it relates to the Elevator, as
additional rent. Tenant shall have the option of entering into its own Elevator
maintenance contract to service the Elevator on thirty (30) days written notice
to Landlord.
C. Supplementing Article 31, above, during the initial construction in the
Demised Premises and during the conversion of the Elevator as described above,
Tenant and its contractors and subcontractors must use the east freight elevator
on the 13th Street side of the Building during the hours of 8 a.m. to 4:00 p.m.
business days Monday through Friday. If Tenant or its contractors require the
use of that elevator during any other hours, then it shall pay Landlord's actual
out of pocket costs for the operation of said elevator, which shall be
collectible as additional rent. During the period of time the Elevator is
undergoing conversion Tenant requires passenger elevator access to the Premises
prior to 8:00 a.m. and after 4:00 p.m. or if the east freight elevator on the
13th Street side of the Building is inoperable, then Tenant shall be permitted
to non exclusively use the elevator on the 14th Street side of the Building.
Further supplementing Article 31, above, the person or persons or corporation
employed by Tenant to clean the demised premises shall be selected by Tenant and
approved by Owner, which consent shall not be unreasonably withheld,
conditioned, or delayed.
-2-
<PAGE>
D. Subject to the provisions of Article 62, below, Tenant shall have the
right to install an elevator security key card system in the Elevator and in the
lobby entrance so long as such installation is coordinated with Landlord's work
in converting the Elevator and renovating the lobby and does not materially
delay or prevent the completion of Landlord's work.
42. BASE RENT
A. Tenant shall pay to the Landlord base rent for the Demised Premises in
accordance with the provisions of the printed form of this Lease in monthly
installments on the first day of each calendar month during the term of this
lease (in the event that the Commencement Date is not the first day of a
calendar month, the rent payable for any portion of a calendar month included in
the term shall be prorated in the ratio that the number of days in such portion
bears to the actual number of days in such month) as follows:
(a) For the period commencing on the Commencement Date through and
including the last day of the twelfth month after the Commencement Date at
an annual rental rate of $587,500.00 payable in equal monthly installments
of $48,958.33;
(b) For the period commencing on the First Anniversary of the
Commencement Date through and including the last day of the twenty fourth
month after the Commencement Date at an annual rental rate of $608,062.50
payable in equal monthly installments of $50,722.66;
(c) For the period commencing on the Second Anniversary of the
Commencement Date through and including the last day of the thirty-sixth
month after the Commencement Date at an annual rental rate of $629,344.69
payable in equal monthly installments of $52,453.78;
(d) For the period commencing on the Third Anniversary of the
Commencement Date through and including the last day of the forty-eighth
month after the Commencement Date at an annual rental rate of $651,371.75
payable in equal monthly installments of $54,280.98;
(e) For the period commencing on the Fourth Anniversary of the
Commencement Date through and including the last day of the sixtieth month
after the Commencement Date at an annual rental rate of $674,169.76
payable in equal monthly installments of $56,180.81;
(f) For the period commencing on the Fifth Anniversary of the
Commencement Date through and including the last day of the seventy-second
month at an annual rental rate of $747,765.70 payable in equal monthly
installments of $62,313.81;
(g) For the period commencing on the Sixth Anniversary of the
Commencement Date through and including the last day of the eighty-fourth
month after the Commencement Date at an annual rental rate of $773,937.50
payable in equal monthly installments of $64,494.79;
-3-
<PAGE>
(h) For the period commencing on the Seventh Anniversary of the
Commencement Date through and including the last day of the ninety-sixth
month after the Commencement Date at an annual rental rate of $801,025.31
payable in equal monthly installments of $66,752.11;
(i) For the period commencing on the Eighth Anniversary of the
Commencement Date through and including the last day of the one hundred
and eighth month after the Commencement Date at an annual rental rate of
$829,061.20 payable in equal monthly installments of $69,088.43; and
(j) For the period commencing on the Ninth Anniversary of the
Commencement Date through and including the last day of the one hundred
and twentieth month after the Commencement Date ("Expiration Date") at an
annual rental rate of $858,078.34 payable in equal monthly installments of
$71,506.53.
B. Provided Tenant is not otherwise in default of the terms, covenants,
conditions and obligations of this Lease beyond applicable notice and cure
dates, then for the period commencing on the Commencement Date through and
including the one hundred and eightieth day after the Commencement Date the
named Tenant on the first page of this Lease 1) shall be obligated to pay only
fifty (50%) percent of the base rent due in subparagraph A, above, and 2) the
base rent for the thirty-sixth and thirty-seventh month after the Commencement
Date shall be reduced by the sum of $24,479.17 for each month. If the named
Tenant has completed Tenant's Work and installed in the Demised Premises an HVAC
in accordance with Paragraph 52E, below, and adequate lighting throughout, any
assignee of the named Tenant shall be entitled to the abatement provided
hereunder. For the purposes of this clause the term "named Tenant" shall include
under Article 78H, below, a permissible assignee and the surviving entity in a
merger or consolidation and the transferee of substantially all of the assets of
Tenant.
43. SECURITY DEPOSIT
A. As a security deposit under Article 32, above, Tenant shall deliver to
Landlord and, shall, except as otherwise provided herein, maintain in effect at
all times during the term hereof, an irrevocable standby letter of credit issued
by Silicon Valley Bank in form annexed hereto as Exhibit B, or issued by a
national bank that is a member of the New York Clearinghouse Association and
having its principal place of business or a duly licensed branch or agency in
the County of New York, State of New York where such letter of credit may be
presented in a form and substance reasonably acceptable to Landlord, in the
amount of six hundred and fifty thousand ($650,000.00) dollars. The Letter of
Credit shall entitle the Landlord to demand payment unconditionally in the event
of any uncured default beyond any applicable notice and cure periods under this
Lease by presenting the Letter of Credit, a Draft for the amount to be drawn
down, and a written statement of the Landlord, or a duly authorized agent
thereof, stating that the Tenant is in default under this Lease beyond any
applicable notice and cure periods. Such letter of credit shall have an
expiration date no earlier than the first anniversary after the date of issuance
thereof and shall be automatically renewed from year to year until one month
after the Expiration Date of the Lease unless terminated by the issuer thereof
by notice to Landlord given not less than 45 days prior to the expiration
thereof. Except as otherwise provided herein, in the event of the termination of
any such letter of credit Tenant
-4-
<PAGE>
shall throughout the term of this Lease deliver to Landlord replacement letters
of credit in lieu thereof (each such letter of credit and such extensions or
replacements thereof, as the case may be, is hereinafter referred to as a
"Security Letter") no later than 30 days prior to the expiration date of the
preceding Security Letter. The term of each such Security Letter shall be no
less than one year and shall be automatically renewable from year to year as
aforesaid. If Tenant shall fail to obtain any replacement of a Security Letter
within the time limits set forth in this subparagraph A, Landlord may draw down
the full amount of the existing Security Letter and retain the same as security
hereunder.
B. In the event Tenant defaults beyond any applicable notice and cure
periods in respect to any of the terms, provisions, covenants and conditions of
this lease, including, but not limited to, the payment of rent and additional
rent, Landlord may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any rent and additional rent
or any other sum as to which Tenant is in default beyond any applicable notice
and cure periods or for any sum which Landlord may expend or may be required to
expend by reason of Tenant's default beyond any applicable notice and cure
periods in respect of any of the terms, provisions, covenants, and conditions of
this lease, including, but not limited to, any damages or deficiency accrued
before or after summary proceedings or other re-entry by Landlord. To insure
that Landlord may utilize the security represented by the Security Letter in the
manner, for the purpose, and to the extent provided in this Article, each
Security Letter shall provide that the full amount or any part thereof may be
drawn down by Landlord upon the presentation to the issuing bank of Landlord's
draft drawn on the issuing bank.
C. In the event that Tenant defaults beyond any applicable notice and cure
periods in respect of any of the terms, provisions, covenants and conditions of
the lease and Landlord utilizes all or any part of the security represented by
the Security Letter, Landlord may, in addition to exercising its rights as
provided in subparagraph B, above, retain the unapplied and unused balance of
the principal amount of the Security Letter as security for the faithful
performance and observance by Tenant thereafter of the terms, provisions and
conditions of this lease, and may use, apply or retain the whole or any part of
said balance to the extent required for payment of rent, additional rent or any
other sum as to which Tenant is in default beyond any applicable notice and cure
periods or for any sum which Landlord may expend or be required to expend by
reason of Tenant's default beyond any applicable notice and cure periods in
respect of any of the terms, covenants and conditions of this lease. In the
event Landlord applies or retains any portion or all of the security delivered
hereunder, Tenant shall forthwith restore the amount so applied or retained so
that at all times the amount deposited shall be not less than the security
required by this Article. In the event the Landlord has received payment of the
proceeds of the Security Letter and either (a) Tenant, in fact, had not been in
default beyond any applicable notice and cure periods or (b) Tenant cured the
default within the time provided elsewhere in this Lease, then Landlord agrees
that the Tenant shall have the right to reconvert the cash security to a
Security Letter subject to the terms and provisions of this Lease and Landlord
shall indemnify and save Tenant harmless against all costs, including, without
limitation, reasonable attorney's fees, claims, loss and liability resulting
from Landlord receiving payment of the proceeds of the Security Letter.
D. In the event that Tenant shall fully and faithfully comply will all of
the terms, provisions, covenants and conditions of this Lease, the Security
Letter shall be returned to
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Tenant after the date fixed as the end of the lease (or the earlier termination
of this Lease not arising from any default by Tenant) and after delivery of
entire possession of the Demised Premises to Landlord. In the event of a sale of
the building, Landlord shall have the right to transfer any interest it may have
in the Security Letter to the purchaser of the building and Tenant agrees to
look solely to the new landlord for the return of said Security Letter, provided
such purchaser assumes all responsibilities of Landlord with respect to such
Security Letter. Tenant further covenants that it will not assign or encumber or
attempt to assign or encumber the monies deposited herein as security and that
neither Landlord nor its successors or assigns shall be bound by any such
assignment, encumbrance, attempted assignment or attempted encumbrance.
E. In the event Landlord sells or leases or intends to sell or lease the
building of which the Demised Premises is a part and, in connection therewith,
Landlord requests Tenant to change the name of the beneficiary of the Security
Letter, and Tenant fails to comply with such request within fifteen (15) days of
the making of such request, Tenant shall be deemed to be in default under this
Lease and Landlord shall be entitled to demand payment unconditionally of the
Security Letter then in its hands.
44. PAYMENT OF RENT AND ADDITIONAL RENT
A. (1) The payment of all rent and additional rent under this lease shall
constitute a substantial obligation of this tenancy entitling the Landlord to
exercise all its rights and remedies under Article 17 of this Lease.
(2) If Landlord commences a nonpayment summary proceeding under New
York Property Actions and Proceedings Law ("R.P.A.P.L.") ss.711 (2), Tenant
shall be entitled to be served with any and all notices required to be given
thereunder, and Tenant's tenancy will not be terminated in such proceeding by
the issuance of a warrant of eviction from a court unless at least fifteen (15)
days have elapsed from the making or service of a formal demand for rent as
required by law and the issuance of the warrant of eviction, and until a warrant
of eviction issues in a proceeding commenced under R.P.A.P.L. ss.711(2). Tenant
shall have a right to redeem its tenancy within such fifteen (15) day period by
satisfying and curing the amount of rent then in default. In the event of
commencement of a proceeding under R.P.A.P.L. ss.711(2) Tenant shall not be
deemed "in default beyond any notice and cure period under this Lease" until at
least fifteen (15) days after (a) Tenant has failed to pay the amount of rent
then due and (b) Landlord has commenced such nonpayment summary proceeding by
service of a written demand for rent on Tenant.
(3) Modifying paragraph (2) of Article 17, Tenant shall be entitled
to no less than fifteen (15) days notice specifying the nature of the default
and shall have failed to remedy the default as provided in Article 17(1), above,
prior to any reentry or commencement of a proceeding other than under R.P.A.P.L.
ss.ss.711(2), and in the event of a nonpayment summary proceeding under
R.P.A.P.L. ss.711(2) no less than fifteen days shall have elapsed as provided in
subparagraph (2), above, and Tenant shall have failed to remedy the default
before a warrant of eviction may issue or this Lease may be terminated.
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B. It shall not constitute a bar, preclusion or election of remedies
against the enforcement of a landlord's rights and remedies under Article 17 of
this Lease for non-payment of rent or additional rent if the Landlord has
already commenced a proceeding or action to recover the rent or additional rent.
C. Tenant covenants and agrees that the monthly installments of
annual rental shall be paid by Tenant to Landlord on or before the fifth day of
each month without notice or demand by Landlord. In the event that an
installment of annual rental is not paid by the first day of each month or any
item of additional rent is not paid within the applicable time period following
written demand therefor, the Tenant shall pay to the Landlord, as additional
rent, a late charge of $300.00 for bookkeeping and administrative expenses of
Landlord.
D. If Landlord receives from Tenant any payment less than the sum of
the annual rent, additional rent and other charges ("Partial Payment"),
Landlord, in its sole discretion, may allocate such Partial Payment in whole or
in part to any other charges or to any combination thereof.
E. If Tenant is in arrears in payment of rent, additional rent, or
other charges, Tenant waives Tenant's rights, if any, to designate the items
against which any payments made by Tenant are to be credited, and Tenant agrees
that Landlord may apply any payments made by Tenant to any items Landlord see
fit, irrespective of and notwithstanding any designation or request by Tenant as
to the items against which any such payments shall be credited.
F. Landlord, at Landlord's option, shall have the right, if Tenant
has defaulted in the payment of rent and/or additional rent after dishonor of a
check three times during the term of the Lease, to demand payment of all current
and future installments of rent or additional rent by certified, bank or
teller's check or by postal money order.
G. Unless Owner shall otherwise expressly agree in writing,
acceptance of rental payments or additional rent from anyone other than Tenant
shall not relieve Tenant of its obligations under this Lease, including the
obligation to pay rent or additional rent hereunder, except to the extent of
payments received. Furthermore, such acceptance of rent or additional rent shall
not be deemed to constitute Owner's consent to an assignment of this lease or a
subletting or other occupancy of the Demised Premises by any one other than
Tenant, nor a waiver of any of the Owner's rights or Tenant's obligations under
this lease.
H. All payments, other than the annual rental as adjusted from time
to time, to be made by Tenant pursuant to this lease shall be deemed additional
rent, whether or not specifically so called, and, in the event of any
non-payment thereof, Landlord shall have all rights and remedies provided for
herein or by law for non-payment of rent.
I. Should Tenant default in the timely performance of any covenant,
term or condition herein contained on Tenant's part to be performed beyond any
applicable notice and cure periods, Landlord, at its option and without thereby
waiving such a default, may perform the same for and on account of, and at the
expense of the Tenant after fifteen (15) days written notice (except in the
event of an emergency, i.e., threat of personal injury and/or damage or
destruction of property, when no notice shall be required). Tenant shall pay as
an item of
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additional rent all costs and expenses which Landlord may incur in curing any of
Tenant's defaults within fifteen (15) days following delivery of a written
demand therefor which costs and expenses shall include, but not be limited to,
materials, fees paid to architects, engineers, attorneys, contractors, and
subcontractors, fines and penalties.
J. In the event of a rejection of the Lease under any bankruptcy
statute or code, e.g. 11 U.S.C. ss.365 or any successor statute, Landlord shall
have the option of making a claim for damages under Paragraph 16Co) or Article
18, above, and if Landlord re-rents the Demised Premises it shall be deemed for
the benefit of Tenant and not constitute a termination of Tenant's liability
hereunder unless the Landlord expressly elects in writing to the Tenant to the
contrary. In the event of an assignment of this Lease by Order of the any State
or Federal Court or governmental agency, then the assignee immediately upon the
effective date of the assignment 1) the assignee shall deposit with the Landlord
an additional security deposit equal to six month's base rent and pay to
Landlord all outstanding rent and additional rent, including any attorney's fees
incurred by Landlord, then due and owing, and 2) the base rent under Article 42,
above, shall be increased by twenty five percent for each payment period.
45. CONDITION OF PREMISES
Tenant acknowledges that it has inspected the Demised Premises and is
familiar with the physical condition of the same and Tenant agrees to accept the
Demised Premises in their "AS IS" physical condition, except for latent defects.
Except as provided in Articles 40 and 41, above Landlord shall not be obligated
to make any repairs, improvements, or alterations to the Demised Premises
(nonstructural) or any fixtures contained therein whatsoever or to furnish,
render or supply any work, labor, services, materials, furniture, equipment or
decoration in order to make the Demised Premises ready or suitable for Tenant's
occupancy. The Landlord shall also not be obligated to make any repairs,
improvements, or alterations to any plumbing lines or pipes after the water
meter for the Demised Premises, or heating or electrical lines servicing,
located in or passing through any fixtures or improvements located in the
Demised Premises including, but not limited to, the repair or replacement of any
windows, window panes, or plate glass, except that Landlord shall deliver
Premises in a clean condition free of all business and personal property.
46. USE
A. It is expressly understood that Tenant may not perform any cooking or
food preparation on the premises, nor install or use any grills, stoves, ovens,
microwave ovens, hot plates or the like except for ovens, hot plates, two
refrigerators and sinks for the use by Tenant's employees to reheat meals.
B. Tenant shall use and occupy the Demised Premises for its own use,
except as otherwise provided in this Lease.
C. Tenant shall use and occupy the Demised Premises solely for the use
specified in Article 2 of the printed form of this Lease and this Article and
for no other purposes. Tenant specifically covenants and agrees that Tenant
shall not use the Demised Premises or any part thereof, nor permit the Demised
Premises or any part thereof, to be used for 1) sleeping or
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residential purposes or for overnight accommodations of patients, 2) as a
traditional employment agency, 3) as offices related to consultation of
servicing medical, dental, surgical, homeopathic, chiropractic, or other health
related needs, or 4) any labor or political organization or activities, or 5) an
"adult physical cultural establishment," as defined in the Zoning Resolution of
the City of New York (a/k/a "massage parlor"), except that other office
applications in conjunction with a computer software and network services
company, including, without limitation, the installation, maintenance, and
operation of computers, printers, scanners, routers, telecommunications and data
equipment and machines, photocopying and facsimile equipment and machines, and
other office, mechanical, electronic, optical and other similar equipment and
machines shall be permitted. To the best of Landlord knowledge the annexed
document is the current certificate of occupancy for the Building, a copy of
which is attached hereto as Exhibit C.
D. In addition, Tenant shall not suffer nor permit the Demised Premises or
any part thereof to be used in any manner, or anything to be done therein, or
suffer or permit anything to be brought into or kept therein, which would in any
way (i) violate any of the provisions of any mortgage for which Tenant has
received an executed non-disturbance agreement from the mortgagee or
requirements of public authorities, and the provisions of which Tenant has
received reasonable advance written notice, (ii) make void or voidable any fire
or liability insurance policy then in force with respect to the building, (iii)
make unobtainable to obtain from reputable insurance companies authorized to do
business in New York State fire insurance with extended coverage, or liability,
elevator, boiler or any other insurance maintained by Landlord, (iv) cause
physical damage to the building or any part thereof, without repairing same (v)
constitute a public or private nuisance, (vi) impair, in the sole reasonable
opinion of Landlord, the appearance, character or reputation of the building,
(vii) discharge objectionable fumes, vapors or odors, (viii) impair or interfere
with any of the building services or the proper and economic heating, cleaning,
air conditioning or other servicing of the building or impair or interfere with
or tend to impair or interfere with the use of any of the other areas of the
building by, or occasion discomfort, annoyance or inconvenience to, Landlord or
any of the other tenants or occupants of the building, (ix) violate any of the
terms, covenants or conditions contained in this lease, or (x) be illegal or
unlawful.
E. Landlord makes no representations, guarantees, or acknowledgments that
the use designated in the lease by the Tenant is permitted under any statute,
ordinance, rule, regulation, certificate of occupancy or other present or future
law promulgated by any state, federal, municipal, or local government or agency
or authority thereof. Landlord further makes no representations that there
exists any certificate of occupancy for the building. Landlord shall be
responsible for all violations of record prior to the Commencement Date.
F. Tenant agrees not to make or allow to be made any vibration or noise
that might interfere with the safety, comfort and well being of the other
tenants in the building or interfere with the use and occupancy of such other
tenant's premises.
G. If any governmental license, permit or certificate of occupancy shall
be required for the proper and lawful conduct of Tenant's business, Tenant, at
Tenant's sole cost and expense, shall duly procure and thereafter maintain such
license, permit or certificate of occupancy and submit the same to inspection by
Landlord. Tenant, at Tenant's sole cost and expense, shall at all
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times comply with the terms and conditions of each such license, permit or
certificate of occupancy.
H. Tenant shall not permit any sign, insignia, advertising, object, notice
or other lettering to be exhibited, inscribed, painted or fixed on any part of
the outside premises, including, without limitation, any exterior windows
thereof, without the prior written consent of the Landlord, which consent shall
not be unreasonably withheld. In addition to the other remedies herein contained
by reason of the default under this covenant, Landlord shall have the right to
remove any of the foregoing without any liability and may charge the expense
incurred for such removal to the Tenant as additional rent. After the completion
of the renovation of the lobby Tenant shall be permitted to install signage,
insignia, logos, and other corporate identification in the ground floor lobby
entrance and on the exterior of the Building below the second floor in and
around the entrance door to the new lobby on the 13th Street side of the
Building solely subject to Landlord's approval, which approval shall not be
unreasonably withheld, conditioned or delayed.
47. BROKERAGE
The parties warrant and represent to each other that they had no dealings
with any broker or agent in connection with this Lease other than Julien J.
Studley, Inc., Helmsley-Spear, Inc., and Michael Ring. Landlord agrees to pay
such brokers in connection with the consummation of this Lease a commission in
accordance with the terms of separate brokerage agreements between Landlord and
such brokers. The parties covenant and agree to hold each other harmless and
indemnify each other from and against any and all costs, expenses or liability
for any compensation, commissions, fees and charges claimed with respect to this
Lease or the negotiation by any person or entity other than brokers. The
obligation of Landlord and Tenant contained in this Article shall survive the
expiration or earlier termination of this Lease.
48. RUBBISH REMOVAL AND CLEANING
A. Tenant covenants and agrees to maintain the Demised Premises and
adjacent public and/or common areas in a condition of proper cleanliness,
orderliness and state of attractive appearance at all times. Tenant shall be
responsible and shall contract for the removal of all rubbish from the Demised
Premises and for the cleaning of the Demised Premises all at its sole cost and
expense and in accordance with any and all applicable municipal codes and
regulations, and Tenant shall provide a designated area within the Demised
Premises for the accumulation of rubbish and garbage prior to its removal by a
licensed carter. If Tenant fails or refuses to remove any rubbish from, in or
around the Demised Premises the Landlord may contract to and/or remove same upon
demand by Landlord. Tenant shall pay for the costs of said removal as additional
rent.
B. The Tenant shall use and occupy the Demised Premises in such manner so
as to avoid and not create any obnoxious or offensive smells or odors of any
kind or otherwise interfere with the comfort and quiet enjoyment of the other
occupants of the building. There shall not be any discharge of odors into any
portion of the building or its courtyards and Tenant shall, at its sole cost and
expense and in accordance with the provisions of Article 62 hereof,
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install such vents in the Demised Premises as may be necessary in order to
prevent such discharge.
C. Tenant covenants and agrees, at its own cost and expense, to use all
reasonable diligence in accordance with reasonable commercial methods for the
prevention and extermination of all vermin, insects, rats, and mice in the
Demised Premises. Tenant agrees to maintain the Demised Premises in a sanitary
condition and free of vermin, insect rat and/or mouse infection.
49. INSURANCE
A. Tenant shall obtain or procure their own fire, rental, liability, or
other casualty insurance as may be required under the terms of this lease.
Supplementing Article 8 of this Lease, each party shall look first to any
insurance in its favor (including any insurance required hereunder) before
making any claim against the other party for recovery of loss or damage
resulting from fire or any other casualty.
B. (1) Tenant shall, at its sole cost and expense, procure and maintain
throughout the term of this lease a comprehensive commercial general liability
policy of insurance insuring Tenant and Landlord against any and all risks
and/or liability customarily insured against for property damage and bodily
injury to or death of a person or persons in, on or about the Demised Premises,
occasioned by or arising out of or in connection with the use or occupancy of
the Demised Premises, and a fire insurance policy (including extended coverage,
vandalism and malicious mischief) covering the Demised Premises and Tenant's
property. Such policies must be obtained from an insurance company rated "A" or
better and a financial rating of 10 or better by A.M. Best Company Inc. in a
combined single limit of not less than $4,000,000.00 in the aggregate with
respect to the bodily injuries or to death to more than one person, and/or per
occurrence and $400,000.00 per occurrence for property damage, and shall name
Landlord as an additional insured. Tenant will deliver a certificate of
insurance and all original renewal certificates of said policy to Landlord.
(2) Tenant shall, at all times during this lease is in effect,
maintain for its own benefit and for the benefit of the Landlord, plate and
other glass insurance. Tenant will deliver the certificates of said policy and
all renewal certificates of said policy to Landlord.
(3) Tenant shall, at all times during this lease is in effect,
maintain for its own benefit, fire and casualty insurance for all the contents,
fixtures, personal property, inventory and other moveable or non-moveable
property of Tenant. Tenant shall also maintain for its own benefit, business
interruption and/or loss insurance with respect to any and all fire or other
casualties that may occur at the Demised Premises.
C. Tenant agrees to pay all premiums and charges for the insurance
required to be maintained by Tenant pursuant to the terms of this lease. If
Tenant fails to make any such payments when due, or in the event of its failure
to deliver and/or pay the premium thereon, then Landlord may, upon fifteen (15)
days written notice, pay said premium or charge (but in no event shall be
obligated to do so), and upon fifteen (15) days written notice to Tenant,
Landlord may collect said payment as additional rent, or deem Tenant to be in
default of a substantial
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obligation of its tenancy. The failure to maintain and/or renew the above
policies of insurance beyond applicable notice and cure dates shall constitute a
breach of a substantial obligation of this tenancy.
D. Intentionally Omitted.
E. Notwithstanding anything contained elsewhere in this Lease to the
contrary, in the event Landlord's cost of obtaining and/or maintaining any of
the forms of insurance which Landlord may have in force with respect to the
lands and/or building of which the Demised Premises form a part shall be
increased as a result of Tenant's use or manner of use of the Demised Premises
and/or the building (other than the use permitted under this Lease), Tenant
shall pay to Landlord as an item of additional rent the increased cost of such
insurance within ten (10) days following Landlord's written demand therefor.
F. All insurance required to be carried by Tenant pursuant to the terms of
this Lease shall be effected under valid and enforceable policies issued by
reputable and independent insurers permitted to do business in the State of New
York, and rated in Best's Insurance Guide, or any successor thereto (or if there
be none, an organization having a national reputation) as having a general
policyholder rating of "A" and a financial rating of at least "10".
G. On or prior to the Commencement Date of the Lease, Tenant shall deliver
to Landlord the certificates for policies of insurance, including evidence of
waivers of subrogation required pursuant to Paragraph 9 required to be carried
by Tenant pursuant to this Lease. Evidence of each renewal or replacement of a
policy shall be delivered by Tenant to Landlord at least twenty (20) days prior
to the expiration of such policy.
H. Neither Landlord nor Tenant shall be liable to the other or to any
insurance company (by way of subrogation or otherwise) insuring any of the other
parties, and each hereby waive their entire right of recovery against the other,
for any loss or damage arising out of or incident to the perils insured under
fire, extended coverage, all risk and other insurance even though such loss or
damage might have been occasioned by the negligence of Landlord or Tenant. Each
of Landlord and Tenant (i) shall give notice to their respective insurers that
the foregoing mutual waiver of subrogation and recovery is contained in this
Lease and, if required by any such insurer, shall obtain such insurer's prior
consent to the foregoing waiver of its and its insured's right of subrogation
and recovery, and (ii) shall endeavor to obtain from their respective insurers
an appropriate clause in, or an endorsement upon, each such insurance policy
pursuant to which each such insurer shall agree that the foregoing waiver shall
not affect the validity or enforceability of its insured's coverage. If such a
clause or endorsement is obtainable only upon payment of an additional premium,
each party shall pay such additional premium. The provisions of this paragraph
shall be applicable to any new or renewal insurance policies which Tenant or
Landlord may obtain during the term hereof.
50. ADDITIONAL RENT
A. All payments, other than the annual rental as adjusted from time to
time, to be made by Tenant pursuant to this Lease shall be deemed additional
rent, whether or not
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specifically so called, and, in the event of any non-payment thereof, Landlord
shall have all rights and remedies provided for herein or by law for non-payment
of rent.
B. Landlord's failure during the term of this lease to prepare and deliver
any statements or bills required to be delivered to Tenant pursuant to the
provisions of this lease, or Landlord's failure to make a demand for the payment
of any item of additional rent, shall not in any way be deemed to be a waiver
of, or cause Landlord to forfeit or surrender its rights to collect such
additional rent during the terms of this lease. Tenant's liability for the
payment of any item of additional rent shall survive the expiration or sooner
termination of this lease.
51. NO WAIVER BY LANDLORD
The receipt of any rent, or any portion thereof, whether specifically
reserved or payable under any of the covenants herein contained, after a default
on the part of the Tenant (whether such rent is due before or after such
default) shall not be deemed to operate as a waiver of any default, except to
the extent of such receipt, or of any current default or of the right of
Landlord to enforce the payment of any rent herein reserved or to declare a
forfeiture to this lease and to recover the possession of the Demised Premises
as provided in this lease. Nor shall the failure to enforce any covenant after
its breach or any provision after default be construed as a waiver on the part
of Landlord of any rights under this lease.
52. UTILITIES
A. The use of electricity and gas required by Tenant at the Demised
Premises ("Utilities") is not included in the rent. Tenant shall obtain
Utilities directly from the public utility company serving the building through
meters, if any, installed for such purpose. Tenant covenants and agrees to pay
all bills for Utilities consumed in the Demised Premises directly to the public
utility company supplying the same. Tenant shall, at is sole cost and expense,
install, maintain and/or repair such equipment or systems, including feeders,
risers and/or wiring installations, as Tenant may require in order to obtain
Utilities and such meters as may be necessary to measure Tenant's consumption of
Utilities at the Demised Premises. In addition, Tenant shall pay all charges
including, but not limited to, deposits, imposed by the public utility company
serving the building in connection with obtaining Utilities. Landlord shall
cause to provide such necessary access to such equipment and systems, including
feeders, risers and/or wiring installations as are contained in the common areas
of the Building and reasonable access to tenanted spaces, subject to the
provisions of such tenants' applicable leases (and any costs incurred by
Landlord arising from such access shall be reimbursed by Tenant as additional
rent), for the Tenant to provide Utilities to the Demised Premises.
B. Unless caused by the willful or negligent acts of Landlord, Tenant
shall not be released or excused from the performance of any of its obligations
under this Lease for any change in the quantity or quality of service, failure
or interruption or curtailment or cessation of Utilities service for any reason
whatsoever, and no such change, failure, interruption or curtailment or
cessation shall constitute a constructive or partial eviction or entitle Tenant
to an abatement of, offset against, or deduction from rent or additional rent or
impose any liability upon Landlord.
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C. If Tenant shall make any connections to any Utilities line servicing
the Building common areas only without the permission or prior written consent
of the Landlord and without paying for the electric charges for same, then the
Landlord may without notice disconnect or discontinue this use. In such an
event, if Tenant cannot prove the amount of actual electric used and the amount
due Landlord for same, then the Tenant shall be liable to pay to the Landlord as
additional rent an amount equal to the entire utility bill for the building in
which the Demised Premises form a part rendered by the utility company servicing
the building for four (4) months prior to the date Landlord obtains knowledge of
said unauthorized use of the applicable utility line upon five (5) days written
demand.
D. If Tenant shall require or request to use or make any connection to any
lines, feeders, cables, end boxes, distribution boxes or other electrical,
plumbing or heating equipment servicing the building, then Landlord makes no
warranty as to fitness for use (except as otherwise provided in this Lease) or
other warranties concerning the physical condition of the lines, feeders,
cables, end boxes, distribution boxes, or other electrical, plumbing or heating
equipment servicing the building. If any repairs are required to be made to said
electrical, plumbing or heating equipment in order that electrical current,
plumbing or heating be supplied to the Demised Premises, except that which are
the responsibility of the Landlord to maintain, then said repair shall be done
at Tenant's sole cost and expense. Any additional risers, feeders, or other
equipment proper or necessary to supply Tenant's electrical requirements, will
be installed by Tenant, at the sole cost and expense of Tenant, provided such
installation will not cause or create a dangerous or hazardous condition nor
reduce or interfere with any other tenant's use and enjoyment of their spaces or
access to their spaces in breach of the provisions of such tenant's applicable
leases. If any work, replacement or repair is required to be performed by
Landlord, then said work shall be performed by Landlord in as reasonably
expeditious a manner as is practicable and Tenant shall not be entitled to any
set-off allowance or claim for diminution of rental value and Landlord shall
have no liability to Tenant for any inconvenience, annoyance, or injury to
Tenant is said work is not performed timely.
E. Landlord shall not be obligated to provide heat, hot water, air
conditioning, or ventilation, to the Demised Premises. If Tenant shall require
said services, it shall be at its sole costs and expense. Tenant shall install a
heat ventilation and air conditioning system ("HVAC) sufficient to adequately
cool and to heat the Demised Premises in accordance with applicable law.
53. ESTOPPEL CERTIFICATE
A. Upon Landlord's written request, but no more frequently than four (4)
times in any twelve (12) month period, and upon such forms as Landlord's
supplies and are customarily used for such purpose, Tenant shall confirm the
existence of this lease and any modifications hereto as evidenced by a written
agreement, and/or specific terms hereof (said form shall hereinafter be referred
to as an "Estoppel Certificate"). Tenant shall within fifteen (15) days from
receipt of an Estoppel Certificate, execute the same in the presence of a notary
public who shall thereafter complete the acknowledgment and Tenant shall return
said Estoppel Certificate to Landlord and/or Landlord's designee by the means
specified. All parties to whom said Estoppel Certificate is addressed shall be
absolutely entitled to rely upon the statements of Tenant therein contained.
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B. If, in connection with obtaining financing, a bank, insurance company,
or other lending institution shall request reasonable modifications in this
lease as a condition to such financing, Tenant will not unreasonably withhold,
delay, or defer its consent thereto, provided that such modifications do not
increase the obligations of Tenant hereunder or adversely affect the leasehold
interest hereby created.
54. NO LIABILITY ON LANDLORD
A. To the maximum extent permitted pursuant to Section 5-321 of the
General Obligations Law of the State of New York or law of like import now or
hereafter in force and effect, Landlord shall not be liable to Tenant for any
damage to Tenant's property or injuries to the person of Tenant, its agents,
servants, employees, invitees and/or visitors and Tenant hereby releases
Landlord from all liability for damage caused by or resulting from fire,
explosion, falling plaster, steam, gas, electricity, water, rain or snow leaking
into the building, bursting of pipes or other conduits, damages and injuries
caused by anyone other than the Landlord, its agents, servants or employees
and/or any other cause of any nature whatsoever.
B. If at any time any windows in the Demised Premises are temporarily
closed, darkened or bricked-up for any reason whatsoever including, but not
limited to, Landlord's own acts, Landlord shall not be liable to Tenant for any
damages that Tenant may sustain thereby, and Tenant shall not be entitled to any
compensation therefor nor abatement or rent, additional rent, or other charges,
nor shall the same release Tenant from its obligations hereunder or constitute
an actual or constructive eviction of the Tenant.
C. Tenant shall indemnify and save Landlord harmless from and against (i)
any and all claims against Landlord of whatever nature arising from any act,
omission or negligence of Tenant, its contractors, licensees, agents, servants,
employees, invitees and/or visitors, including any claims arising from any act,
omission or negligence of Tenant, (ii) all claims against Landlord arising from
any accident, injury or damage occurring outside of the Demised Premises, but
within or about the lands and buildings where accident, injury or damage result
or is claimed to have resulted from an act or omission of Tenant, its
contractors, licensees, agents, servants, employees, invitees and/or visitors,
including any claim arising from any act, omission or negligence of Tenant, and
(iii) any breach, violation or nonperformance of any of the terms, covenants,
and conditions contained in this lease on the part of Tenant to be fulfilled,
kept, observed and performed. This indemnity and hold harmless covenant shall
include indemnity from and against any and all liability, fines, suits, demands,
costs and expenses (including attorneys' fees and disbursements) of any kind or
nature incurred in connection with any such claim or proceeding brought thereon,
and the defense thereof by the Landlord. If any claim, suit or demand is brought
or made against Landlord for a matter covered by this indemnity, Landlord shall
give Tenant prompt notice thereof and Tenant, upon receipt of such notice from
Landlord, shall have the right to defend such claim, suit or demand with counsel
reasonably satisfactory to Landlord. This indemnity and hold harmless covenant
shall survive the expiration or the earlier termination of the term of this
lease and for any period of time prior to the commencement of the term of this
lease during which Tenant was given access to the Demised Premises.
D. Tenant shall reimburse Landlord, as an item of additional rent within
fifteen (15) days following written demand therefor, for all expenditures
incurred by or damages or fines
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sustained or incurred by Landlord due to Tenant's default of the provisions of
this Article. In any action or proceeding brought by Tenant against Landlord
based on the allegations that Landlord has acted in an arbitrary and capricious
manner and contrary to its contractual obligations not to act unreasonably in
denying permission or refusing to approve any act that Tenant may desire to
perform, Tenant may seek damages against Landlord in addition to an injunction
or a declaratory judgment.
E. Notwithstanding anything provided in this lease or provided at law or
in equity to the contrary, in the event that Tenant shall obtain a monetary
judgment against Landlord in any action or proceeding, Tenant shall seek
satisfaction of such a judgment only from Landlord's estate and interest in the
lands and buildings of which the Demised Premises form a part (or the proceeds
from the sale thereof) and no other property or other assets belonging to
Landlord or its directors, officers, partners, principals (disclosed or
undisclosed) or employees shall be subject to lien, levy, execution or other
enforcement procedure for the satisfaction of any such judgment arising from the
relationship of Landlord and Tenant hereunder, Tenant's use and occupancy of the
Demised Premises or this lease. If Tenant shall acquire a lien on such other
property or assets by judgment or otherwise, Tenant shall promptly release such
lien by executing and delivering to Landlord an instrument to the effect
prepared by Landlord. Tenant's covenants as contained in this Article shall
survive the expiration or the earlier termination of the term of this lease.
55. MECHANIC'S LIEN
In no event shall any material or equipment be incorporated into the
Demised Premises in connection with any alterations, installations, additions,
improvements, repairs or replacements made by Tenant including, but not limited
to, Tenant's changes, which is subject to any lien, encumbrance, chattel
mortgage, security interest or charge of any kind whatsoever, or is subject to
any conditional sale or other similar or dissimilar title retention agreement
without the express written consent of Landlord. Any mechanic's or materialman's
lien filed against the lands and/or the building or Landlord's interest therein,
for work claimed to have been done, or for materials claimed to have been
furnished to Tenant, shall be discharged by Tenant within thirty (30) days
thereafter, at Tenant's sole cost and expense, by filing a bond as provided by
law or otherwise. If Tenant shall fail to have discharged any lien or
encumbrance described in this Article, Landlord may, but shall not be required
to, cause such lien or encumbrance to be discharged by bonding or otherwise, and
Tenant shall reimburse Landlord, as an item of additional rent, for all costs
and expenses which Landlord may incur, including attorneys' fees and
disbursements, within fifteen (15) days following written demand.
56. GOVERNMENTAL REGULATIONS
A. In the event the Tenant makes any alterations, decorations,
installations, etc., including, but not limited to, Tenant's changes, if any,
that do not comply with applicable building regulations, administrative agency,
governmental or quasi-governmental agency regulations, or that may result in the
imposition of any fines, penalties (civil or criminal) or any monetary awards,
costs or fees against Landlord, Tenant shall be liable for any and all costs
associated therewith including, but not limited to, attorneys' fees, architects'
fees, engineering fees, penalties, fines, renovation costs, construction costs,
consultation and any and all other
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costs, which shall be deemed additional rent and due fifteen (15) days after the
rendition of Landlord's statement to Tenant.
B. Notwithstanding anything contained elsewhere in this Article to the
contrary, if, at any time during the term of this Lease, Landlord expends any
sums for the installation of a sprinkler system or any similar or dissimilar
fire protection or detection device in the Demised Premises or that any changes,
modifications, alterations, or additional sprinkler heads, or other equipment be
made or supplied in an existing sprinkler system pursuant to any law, order,
ordinance, or regulation of any governmental entity, department, commission or
any direction of any public officer pursuant to law or of the New York Board of
Fire Underwriters or any similar body or if any such installation shall be made
to prevent the imposition of a penalty or charge against the full allowance for
a sprinkler system in the fire insurance rate set by any said Board or by any
fire insurance company, Tenant shall pay to Landlord, as an item of additional
rent, the cost of such installation within the Demised Premises or as it affects
the Demised Premises directly within fifteen (15) days following demand
therefor.
C. Supplementing the provisions of Article 6 hereof, Tenant shall, subject
to the provisions of Article 46, paragraph E, above, promptly comply with and
give prompt notice to Landlord of any notice it receives of the violation of any
present or future law, order, ordinance, or regulation of any governmental
entity, department, commission, or any direction of any public officer pursuant
to law or of the New York Board of Fire Underwriters or the use or occupation
thereof, and Tenant shall effect such compliance at its sole cost and expense.
57. TENANT'S PROPORTIONATE SHARE
For the purposes of this lease and rider "Tenant's Proportionate Share"
shall be deemed to be twenty (20%) percent.
58. TAXES
A. "Base Year" - Fiscal Year commencing July 1, 1999 and expiring June 30,
2000.
B. "Comparative Year"-Fiscal Year commencing July 1 of any year after the
Base Year during which the Lease is in effect and ending June 30th of the
subsequent year.
C. Tenant agrees to pay as additional rent Tenant's Proportionate Share of
an amount equal to the difference of the Real Estate Taxes imposed on Block 577,
Lot 19 in the Borough of Manhattan, City of New York, being the tax lot that
encompasses the Demised Premises, for Comparative Year over that imposed for the
Base Year (hereinafter referred to as the "Tax Payment"). Said additional rent
shall be paid within fifteen (15) days after the rendition to Tenant of a
statement from Landlord. For any partial fiscal year during the term of this
lease, Tenant shall be obligated to pay only a pro rata share of Tenant's
Proportionate Share. Photostatic copies of tax bills rendered by the City of New
York to Landlord or its Mortgagee or Agent shall accompany any statement
rendered to Tenant for a Tax Payment and shall be conclusive evidence' of the
amount of Real Estate Taxes fixed and of any increase in Real Estate Taxes,
unless Tenant proves same is incorrect.
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D. The term "Real Estate Taxes" shall mean the aggregate of the real
estate taxes, assessments and other governmental charges and levies, general and
special, ordinary and extraordinary, foreseen and unforeseen, of any kind or
nature whatsoever (including without limitation assessments for public
improvements or benefits and interest on unpaid installments thereof) which may
be levied, assessed or imposed or become liens upon or arise out of the use,
occupancy or possession of the building and/or lands in which the Demised
Premises are a part, from time to time, as the same are finally determined. If,
due to any certiorari or other proceeding now or hereafter brought by or on
behalf of Landlord, the Real Estate Taxes for the Base Year shall be reduced
after Tenant shall have paid Tenant's Proportionate Share of any increase
therein, then the Tax Payment payable by Tenant for all Comparative Years shall
be recomputed on the basis of such reduction and Tenant shall pay to Landlord,
as additional rent, within fifteen (15) days after the rendition to Tenant of
any statement thereof, Tenant's Proportionate Share attributable to such
reduction. Real Estate Taxes shall also include any increase resulting from any
additions, improvements or alterations whether or not they benefit the Demised
Premises. The term Real Estate Taxes shall not, however, include inheritance,
estate, succession, transfer, gift, franchise or profit tax imposed upon
Landlord provided, however, that if any time during the terms of this lease the
methods of taxation prevailing at the commencement of the terms of this lease
shall be altered so that in addition to, in lieu of, or as a substitute for the
whole or any part of the taxes now levied, assessed or imposed on real estate as
such there shall be levied, assessed or imposed (i) a tax on the rents received
from the building; (ii) a license fee measured by the rents received by the
Landlord from the building or (iii) a tax or license imposed on the Landlord
which is otherwise measured by or based in whole or in part upon the building or
any portion thereof, then such tax or the fee shall be included in the
computation of taxes, computed if the building were the only property of
Landlord subject thereto. If Landlord shall incur any expenses including, but
not limited to, attorneys' fees and disbursements in connection with the
Landlord's endeavor to reduce or prevent any increase in the assessed valuation,
Tenant shall be obligated to pay, as additional rent, Tenant's Proportionate
Share of such expense within fifteen (15) days after rendition of a statement by
Landlord to Tenant.
E. Tenant's and Landlord's obligation pursuant to this Article shall
survive the expiration of the termination of this lease.
F. Notwithstanding the foregoing, Tenant shall pay to Landlord as
additional rent Tenant's Proportionate Share of the Real Estate Taxes solely
attributable to the 14th Street Business Improvement District. Subparagraphs (A)
and (B), above, shall be inapplicable to computation of the additional rent
under the subparagraph.
G. Notwithstanding anything herein to the contrary, Tenant shall not be
obligated to pay additional rent for Real Estate Taxes at any time sooner than
Landlord becomes obligated without penalty or interest to remit Real Estate
Taxes payment to the City of New York.
H. If the Landlord obtains a refund in Real Estate Taxes for any
Comparative Year for which Tenant has paid its additional rent for Real Estate
Taxes to Landlord, then after any credit or offset Landlord shall adjust the
Real Estate Taxes for the Comparative Year for which the refund was received and
credit to Tenant the amount of any overpayment resulting therefrom, except after
the expiration of the Lease when Landlord shall promptly pay to Tenant the
amount
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of any overpayment resulting therefrom. Any credit due to Tenant shall be offset
against any amounts due by Tenant when paid to Landlord.
59. LIMITATIONS ON RENT
If, at the commencement of, or at any time during the term of this Lease,
the rent reserved in this Lease is not fully collectible by reason of any
federal, state, county or city law, proclamation, order or regulation, or
direction of a public officer or body pursuant to law, Tenant agrees to take
such steps as Landlord may request to permit Landlord to collect the maximum
rents which may be legally permissible from time to time during the continuance
of such legal rent restriction (but not in excess of the amounts reserved
therefore under this Lease). Upon the termination of such legal rent
restriction, Tenant shall pay to Landlord, to the extent permitted by law, an
amount equal to (a) the rents which would have been paid pursuant to this Lease
for such legal rent restriction less (b) the rents paid by Tenant to Landlord
during the period such legal rent restriction was in effect.
60. INTENTIONALLY OMITTED.
61. LEASE NOT BINDING UNLESS EXECUTED AND DELIVERED
It is specifically understood and agreed that this lease is offered to
Tenant for signature subject to Landlord's acceptance and approval and that
Tenant has hereunto affixed its signature with the understanding that this lease
shall not in any way bind Landlord or Tenant until such time as the same has
been approved and executed by Landlord and delivered to Tenant.
62. TENANT ALTERATIONS
A. Anything in Article 3, above, notwithstanding, the parties hereto agree
that Tenant shall be permitted, at its sole cost and expense, to make
alterations, repairs, installations, additions or improvements (collectively,
"Alterations"), which are non-structural and do not affect Building systems,
provided that Tenant furnishes Landlord with copies of detailed plans and with
completed, finished, detailed architectural drawings and specifications for
Tenant's installation work and with detailed mechanical plans and
specifications, where necessary (and which shall be prepared by an engineer
selected by Tenant reasonably satisfactory to Landlord) for air conditioning
system and ductwork, heating, electrical, plumbing and other mechanical plans
therefor ("Plans and Specifications"), which Plans and Specifications shall be
suitable for filing with the appropriate governmental agencies and shall be
subject to the prior written approval of Landlord, which approval shall not be
unreasonably withheld, conditioned or delayed; provided that Landlord shall
respond to requests for approval as soon as practicable, but in no event later
than fifteen business days after Landlord receives the Plans and Specifications;
and provided further that after the completion of Tenant's Work and Tenant's
initial alteration and improvement to the Demised Premises Landlord's approval
shall not be required for decorating or painting of the Demised Premises or for
non-structural alterations costing less than $50,000 ("Minor Alterations") if
Landlord has received written notice from Tenant that it is performing said
work. If Landlord shall disapprove any submission by Tenant, Landlord shall set
forth in reasonable detail the reasons for its disapproval. As a condition for
Landlord's approval Tenant shall pay all costs and expenses incurred by Landlord
to have Tenant's plans and
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specifications reviewed by its architect, engineers or other necessary
professionals, and Landlord shall use its reasonable efforts to keep such costs
and expenses to a minimum. After its approval of the Plans and Specifications,
Landlord shall sign any necessary building department permit applications and
otherwise cooperate with Tenant in obtaining any necessary governmental
approvals. Tenant covenants and agrees that no Alterations (whether structural
or non-structural) will be made except in compliance with, and Tenant hereby
covenants that it will comply with, each of the following provisions:
(i) all Alterations except Minor Alterations shall be made and
completed in accordance with the plans and specifications and
contract documents theretofore submitted and approved by Landlord
(subject to unavoidable delays); provided, however, that no such
approval of Plans and Specifications by Landlord shall relieve
Tenant of its obligations with respect to governmental authorities
as set forth in subparagraph (ii) below;
(ii) before any Alterations are begun, Tenant shall procure,
at its sole cost and expense, all necessary licenses, permits,
approvals and authorizations from all governmental authorities and
shall, deliver photocopies thereof to Landlord, together with all
insurance, including comprehensive liability, builder's risk and
workmen's compensation in amounts and with companies reasonably
satisfactory to Landlord;
(iii) all Alterations shall be made in a first class manner in
compliance and conformity with all applicable laws and ordinances
(including, but not limited to, all building and zoning laws and
ordinances) and with all applicable licenses, permits,
authorizations and approvals, and with all applicable rules,
regulations, orders and requirements of all governmental
authorities, as well as those of the national and local Boards of
Fire Underwriters, or any other body or bodies exercising similar
functions;
(iv) any and all Alterations, including HVAC, electrical and
plumbing work, as specified in the plans and specifications, must be
performed only by contractors or mechanics selected by Tenant
(Landlord may recommend and propose acceptable contractors) and
approved by Landlord, which approval shall not be unreasonably
withheld, conditioned or delayed, (but employed and compensated by
Tenant) for the performance of such work and any and all work
performed to Building systems that does not solely affect the
Demised Premises or in and to the common areas shall be performed by
Contractors and mechanics selected by Tenant (Landlord may recommend
and propose acceptable contractors) and approved by Landlord, which
approval shall not be unreasonably withheld, conditioned or delayed,
at Tenant's cost and expense;
(v) in making any such Alterations, Tenant shall not violate
the terms or conditions of any mortgage encumbering the Building or
of any insurance policy affecting or relating to the Building, the
applicable terms of which Landlord has advised Tenant;
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(vi) promptly after the completion of all or part of any
Alteration, Tenant shall deliver to Landlord an itemized statement,
showing the total actual cost of such alteration incurred to the
date of such completion, classified by building trades, together
with the cost of professional services (architectural and
engineering) and governmental permits incurred in connection
therewith, and shall procure, at Tenant's own expense (to be shown,
if any, on said itemized statement), all such approvals by
governmental authorities, if any, of the completed Alterations as
may be required by any applicable law or ordinance or any applicable
rule or regulation of governmental authorities, and all such
insurance organizations' approvals, if any, as may be required or
customary in connection therewith, and shall, within ten (10) days
after receipt, deliver photocopies thereof to Landlord;
(vii) Tenant shall pay all costs, expenses and liabilities
arising out of or in connection with or by reason of any
Alterations, and shall keep the Demised Premises and the Building
flee and clear of all liens, claims and encumbrances in any way
arising out of or in connection with or by reason of any such
Alterations and shall obtain and deliver to Landlord appropriate
lien waivers executed by all contractors, mechanics and other such
workers;
(viii) prior to the commencement of its work in the Demised
Premises and as a condition for Landlord's approval of Tenant's work
in the Demised Premises, Tenant shall obtain and deliver a written
letter of authorization, in the form reasonably satisfactory to
Landlord's counsel, signed by architects, engineers and designers,
employed or retained by the Tenant to perform any Tenant alteration
or work, which shall confirm that on request of Landlord said
architect, engineer or designer issue such necessary sign-offs with
the appropriate governmental agencies so that any application
therein filed may be completed in order to avoid any violation,
penalty or order to be issued from the appropriate governmental
agencies; and
B. Tenant must at its own cost and expense to connect its fire alarm
system to the fire alarm system in the Building using only contractors approved
by Landlord and with sufficient connections as is necessary to accommodate
Tenant's layout. If Tenant makes or maintains such connection it shall pay to
Landlord as additional rent twenty-five (25%) percent of the cost for the fire
alarm maintenance and service contract for the Building that Landlord has or
continues to maintain, as additional rent. Tenant shall be fully responsible for
the maintenance and repair of the fire alarm system within the demised premises.
Said payment shall be due from Tenant fifteen (15) days after rendition by
Landlord to Tenant of a statement therefor.
C. Tenant shall be permitted to install its HVAC equipment on the roof of
the building of which the demised premises are a part at such location as
designated by Landlord and to install any necessary venting and ductwork in the
161/2" by 161/2" (dimensions are approximate) shaft-way near the east freight
elevator on the 13th Street side of the Building, subject to the rights of
existing Tenants of the Building under their leases. Landlord will make
available to Tenant access to the roof for the construction, installation,
maintenance, repair, and
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operation of the HVAC equipment, and Tenant shall at all times protect the roof
so as not to perforate the roof membrane.
D. Tenant shall not be required to remove any fixtures, paneling,
partitions, railings or other installations, including, without limitation, its
HVAC equipment, constituting a part of the initial fitting up of the demised
premises or subsequently installed by Tenant and reasonably usable for an
ordinary office tenancy.
63. SEVERABILITY
This lease shall be construed without regard to any presumption or other
rule requiring construction against the party causing this lease or any part
thereof to be drafted. If any provision of this lease shall be determined to be
void or unenforceable by any court of competent jurisdiction, then such
determination shall not affect any other provisions of this lease, all of which
other provisions shall remain in full force and effect; and it is the intention
of the parties hereto that if any provision of this lease is capable of two
constructions, one of which would render the provision valid, then the provision
shall have the meaning which renders it valid.
64. NO COUNTERCLAIMS
Tenant shall and hereby does waive its right and agrees not to interpose
any counterclaim or set off, of whatever nature or description, in any
proceeding or action that may be instituted by Landlord against Tenant to
recover rent, additional rent, other charges, possession, or for damages, or in
connection with any matters or claims whatsoever arising out of or in any way
connected with this lease, or any renewal, extension, holdover, or modification
thereof, or the relationship of Landlord and Tenant, or Tenant's use or
occupancy of said premises, unless failure to interpose such counterclaim would
preclude Tenant from asserting in a separate action the claim which is the
subject of such counterclaim. This clause, as well as the "waiver of jury trial"
provision of this lease, shall survive the expiration, early termination, or
cancellation of this lease or the term thereof. Nothing herein contained,
however, shall be construed as a waiver of Tenant's right to commence a separate
action on a bona fide claim against Landlord.
65. EARLY OCCUPANCY
If Tenant shall commence occupancy of the Demised Premises prior to the
commencement date of this Lease, then occupancy shall be on all of the same
terms, covenants, and conditions as are contained in this lease except for the
covenant to pay annual rental, and Tenant shall comply with such reasonable
rules, regulations, or requests of Landlord in connection with Tenant's
occupancy of the Demised Premises. Landlord shall not be liable, and Tenant
hereby releases Landlord from any liability, for any injury or damage to
Tenant's person or property incurred in connection with Tenant's occupancy of
the Demised Premises prior to the commencement of the term of this lease.
66. LANDLORD'S CONSENT
If Tenant shall request Landlord's approval or consent and Landlord shall
fail or refuse to give such approval or consent, Tenant shall not be entitled to
any damages for any withholding
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or delay of such approval or consent by Landlord, it being intended that
Tenant's sole remedy shall be an action for injunction or specific performance
(the rights to money damages or other remedies being hereby specifically
waived), and that such remedy shall be available only in those cases where
Landlord shall have expressly agreed in writing not to unreasonably withhold its
consent or approval or where, as a matter of law, Landlord may not unreasonably
withhold its consent or approval. If the Landlord shall be successful in any
such action concerning Landlord's failure or refusal to give its consent, then
Landlord shall be entitled to the reasonable attorney's fees, costs and expenses
that it incurred with respect to said action or in the consideration of the
Tenant's request. If Tenant shall be successful in any action concerning
Landlord's unreasonable failure or refusal to give its consent where Landlord
shall have expressly agreed in writing not to unreasonably withhold its consent
or approval or where, as a matter of law, Landlord may not unreasonably withhold
its consent or approval, then Tenant shall be entitled to the reasonable
attorney's fees, costs and expenses that it has incurred with respect to said
action.
67. NO OTHER APPURTENANT RIGHTS
Landlord represents and Tenant acknowledges that there are no other
appurtenant rights, easements, covenants to use or other incorporeal
hereditaments with respect to any other portions of the building in which the
Demised Premises form a part other than those specifically described in this
lease.
68. SUBORDINATION AND ATTORNMENT
A. This lease and all rights of Tenant hereunder are and shall be subject
and subordinate in all respects to all ground leases, overriding leases, and
underlying leases of the land and/or the building now or hereafter existing and
to all mortgages and building loan agreements, including without limitation
leasehold mortgages, which may now or hereafter affect the land and/or the
building and/or any of such leases, whether or not such mortgages shall also
cover other lands and/or buildings, to each and every advance made or hereafter
to be made under such mortgages and/or building loan agreements, and to all
renewals, modifications, replacements, assignments, and extensions of such
leases, building loan agreements, mortgages and spreaders and consolidations of
such mortgages.
This Article shall be self-operative and no further instrument of
subordination shall be required. In confirmation of such subordination, Tenant
shall promptly, at its sole cost and expense, execute and deliver any instrument
in recordable form that Landlord, the lessor of any such lease or the holder of
any such mortgage or any of their respective assigns or successors-in-interest
may reasonably request and repair to evidence such subordination. The leases to
which this lease is, at the time referred to, subject and subordinate pursuant
to this Article are hereinafter sometimes called "superior leases" and the
mortgages to which this lease is, at the time referred to, subject and
subordinate are hereinafter sometimes called "superior mortgages" and the lessor
of a superior lease or its successor-in-interest, at the time referred to, is
sometimes hereinafter called a "lessor" and the holder of a superior mortgage or
its successor-in-interest at the time referred to is sometimes hereinafter
called a "holder".
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B. In the event of any act or omission of Landlord which would give Tenant
the right, immediately or after lapse of a period of time, to cancel or
terminate this lease, or to claim a partial or total eviction, Tenant shall not
exercise such right (i) until it has given written notice of such act or
omission to the holder of each superior mortgage and the lessor of each superior
lease, and (ii) unless such act or omission shall be one which is not capable of
being remedied by Landlord or such holder or lessor within a reasonable period
of time, until a reasonable period of time for remedying such act or omission
shall have elapsed following the giving of such notice and following the time
when such holder or lessor shall have become entitled under such superior
mortgage or superior lease, as the case may be, to remedy the same (which
reasonable period shall in no event be less than the period to which Landlord
would be entitled under this lease otherwise, after similar notice, to effect
such remedy,) provided such holder or lessor shall with due diligence give
Tenant written notice of its intention to and commence and continue to, remedy
such act or omission.
C. If the fee owner of the lands and/or building of which the Demised
Premises form a part, the lessor of a superior lease or the holder of a superior
mortgage shall succeed to the rights of Landlord under this lease, whether
through possession or foreclosure action or through termination for any reason
of the leasehold estate covering the lands and/or building or by delivery of a
new lease or deed, then at the request of such party so succeeding to Landlord's
rights (herein sometimes called "successor landlord,") and upon such successor
Landlord's written agreement to accept Tenant's attornment, Tenant shall attorn
to and recognize such successor Landlord as Tenant's Landlord under this lease.
The foregoing provisions shall inure to the benefit of any such successor
landlord, and shall be self-operative upon any demand, without requiring any
further instrument to give effect to said provisions. Tenant, however, upon
demand of any such successor landlord, agrees to execute, from time to time, an
instrument in confirmation of such attornment which is reasonably satisfactory
to such successor landlord. Upon such attornment this lease shall continue in
full force and effect for the remainder of the term originally demised under
this lease as, or as if it were, a direct lease between successor landlord and
Tenant upon all of the terms, covenants, conditions, agreements and provisions
as are set forth in this lease.
D. If, in connection with the procurement, continuation, or renewal of any
financing for which the land and/or the building or the interest of the lessee
under a superior lease represents collateral in whole or in part, any
institutional lender shall request reasonable modifications of this lease as a
condition of such financing, Tenant will not withhold its consent thereto
provided that such modifications do not materially increase the obligations of
Tenant under this lease or materially and adversely affect any rights of Tenant
under this lease.
E. Landlord agrees promptly to submit to any current or future holders of
superior mortgagees and lessors of superior leases and thereafter to use
reasonable efforts to obtain from any current or future holders of superior
mortgagees and lessors of superior leases, and deliver to Tenant a
non-disturbance agreement in a form acceptable to and then being customarily
used by to such current or future holders of superior mortgagees and lessors of
superior leases providing at a minimum, in effect, that so long as no default
exists by Tenant under this Lease that would entitle Landlord to terminate this
Lease, this Lease shall not be terminated, Tenant's use, possession, or
enjoyment of the Demised Premises will not be interfered with, and Tenant will
not be named or joined in any action or proceeding to foreclose a superior
mortgage or terminate
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a superior lease and any such action shall not result in the termination or
cancellation of this Lease, and Tenant shall agree to attorn to such holders of
superior mortgages and lessors of superior leases upon the then executory terms
and conditions of this Lease provided (a non-disturbance agreement substantially
in the form attached hereto as Exhibit D shall be deemed to comply with the
foregoing provisions): a) no request shall be required to be made to any future
holders of superior mortgagees and lessors of superior leases prior to the
issuance of a superior mortgage or superior lease, provided that Landlord shall
promptly thereafter make such request; b) Tenant shall promptly furnish such
information as such current or future holders of superior mortgagees and lessors
of superior leases reasonably request; c) Tenant shall not be in default under
this Lease beyond the applicable notice and cure date; d) no event described in
Article 16(a) shall have occurred during the term of this Lease; and e) Tenant
shall bear and hold Landlord harmless and/or reimburse Landlord for any and all
costs and expenses for the negotiation and issuance of said agreement as
requested by such current or future holders of superior mortgagees and lessors
of superior leases, and Landlord shall use its reasonable efforts to keep such
costs and expenses to a minimum. In the event that Landlord shall fail to obtain
from the now existing holders of superior mortgages and lessors of superior
leases or from the holders of superior mortgages or lessors of superior leases
who become such within the period of thirty (30) days after the execution and
delivery of this Lease by Landlord and Tenant ("Current Paramount Interests")
and deliver to Tenant such a non-disturbance agreement within thirty (30) days
after the execution and delivery of this Lease by Landlord and Tenant, Tenant
shall have ten (10) days from the date of receipt of written notice thereof from
Landlord to terminate this Lease and Landlord shall promptly return to Tenant
the Security Letter only and any money paid to Landlord by Tenant. Landlord
represents and warrants to Tenant that as of the date of this Lease the only
holders of superior mortgages and lessors of superior leases are Bank of New
York and the only holders of superior mortgages or lessors of superior leases
that Landlord intends to have within the period of thirty (30) days after the
execution and delivery of this Lease by Landlord and Tenant are Independence
Community Bank.
69. OCCUPANCY TAX
To the extent that Tenant is liable to pay same pursuant to law, Tenant
shall pay any occupancy tax or rent tax now in effect or hereafter enacted
directly to the taxing authority responsible for the collection of the same. In
the event such occupancy tax or rent tax is payable by Landlord in the first
instance or hereafter required to be paid by Landlord pursuant to law, such tax
shall be paid to Landlord as additional rent within fifteen (15) days following
Landlord's written demand therefor. Nothing contained herein shall be deemed to
require Tenant to pay municipal, state, federal income, inheritance, estate,
succession, transferor gift or any corporate franchise tax imposed upon
Landlord.
70. DEFINITION OF LANDLORD
For the purposes of this lease, the terms "Landlord" and "Owner" are used
interchangeably and shall at all times refer to Samson Associates LLC, its
agents, successors, assigns, representatives, executors, administrators,
trustees of Owner or Landlord.
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71. REPAIRS AND MAINTENANCE
A. Tenant shall, at its sole cost and expense, take good care of and make
all interior repairs and replacements to the Demised Premises and the fixtures
and appurtenances therein, non-structural, foreseen and/or unforeseen, and
ordinary and/or extraordinary during the Term of this lease, which shall
include, without limitation, all non-structural repairs and replacements of the
Demised Premises' plumbing, electrical, heating, ventilating and
air-conditioning systems, floors, walls, ceiling, plate glass, doors, pipes,
conduits, columns, foundation and load bearing or common walls, concrete floors,
sidewalks and canopies appurtenant to the Demised Premises as and when needed so
as to preserve, maintain and/or keep the Demised Premises in good working order,
conditions and/or repair and in tenantable condition, reasonable wear and tear,
obsolescence and damage from the elements, fire or other casualty, excepted.
Owner shall maintain and repair the exterior of, structural portions of,
plumbing and sewer lines before the branch to the Demised Premises and the
public portions of the building of which the demised premises are a part so long
as said repair is not necessitated by the negligent or willful acts of Tenant,
Tenant's employees, contractors or invitees.
B. The quality of workmanship and materials used with respect to the
repairs, replacements, maintenance and other work required to be done under this
Article and/or Article 4 hereof shall be at least equal in quality and class to
the original materials and workmanship.
72. DESTRUCTION BY FIRE OR OTHER CAUSE
If, pursuant to the terms and conditions contained in this Article or
Article 9 hereof, Landlord is required to repair the Demised Premises after a
destruction by fire or other casualty, then, notwithstanding anything to the
contrary contained in Article 9, hereof, Landlord shall be required to restore
only the basic "shell" of the Demised Premises and only after it has received
the proceeds of all fire insurance policies affecting the Building. Landlord
shall not be required to expend any sums that may exceed such insurance
policies. Landlord shall have no obligation to repair any damage to, or to
replace any alterations on, Tenant's property.
73. CONFLICT AND CONSTRUCTION
If there is any conflict between the terms contained in the printed form
lease and the terms contained in this Rider, the provisions of this Rider shall
govern. This Lease shall be construed without regard to any presumption or rule
of construction, as to drafting, against the party who caused the drafting of
this Lease, or any part thereof.
74. WATER AND SEWER CHARGES
Supplementing Article 29 hereof, but anything contained therein to the
contrary notwithstanding:
A. Landlord will install, at Tenant's cost, meters for the purpose of
measuring the Tenant's consumption of cold water in the event that such meters
have not heretofore been installed. Such meters shall be maintained and read
(which cost of reading, calculating and preparing such water and sewer bills
shall be collectible as additional rent by Landlord) at
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Tenant's sole cost and expense. If meters are presently installed, Tenant shall
maintain existing meters at its sole cost and expense.
B. Commencing on the execution date hereof, the Tenant shall pay for all
water consumed in its entire operation. The charges for such consumption shall
be measured by the cold water meter, at the New York City cold water tap rate,
which rate shall be the rate currently in effect at the time of Tenant's
consumption of said cold water (including applicable sewer charges);
C. Bills rendered by Landlord for water consumption shall be payable by
Tenant as additional rent within fifteen (15) days of rendition. A failure to
remit full payment within said fifteen (15) day period shall be deemed a breach
of a substantial obligation of the tenancy and a default in fulfilling a
material covenant and condition of this Lease. All bills tendered by Landlord
shall be final, conclusive and binding upon the Tenant unless Tenant within
sixty (60) days of the receipt of such bill send to Landlord a written itemized
statement specifying the amount in dispute and the nature of said dispute.
75. ASBESTOS
A. Landlord makes no representation as to whether or not there is any
asbestos or asbestos containing material in the Demised Premises (hereinafter
collectively referred to as "Asbestos") in the Demised Premises. In the event at
any time during the term of this lease, asbestos is discovered in the Demised
Premises, then, unless the same has been introduced into the Demised Premises by
Tenant or its agents, contractors or employees, Landlord shall remove or
encapsulate same as required by applicable law at Landlord's sole cost and
expense and Tenant shall give Landlord such necessary access to the Demised
Premises to remove the Asbestos without the same constituting an eviction.
B. On or before the Commencement Date hereunder, Landlord, at Landlord's
sole cost and expense, shall deliver to Tenant an ACP-5 certificate with respect
to the Demised Premises.
76. LIGHTING FIXTURES
All existing lighting and plumbing fixtures or heat, ventilation and air
conditioning system now contained or thereafter installed in the Demised
Premises are or shall be deemed the property of the Landlord and shall be
maintained and repaired and/or replaced by Tenant as and when necessary. At the
end of the term, Tenant shall not remove any such fixtures, whether original or
replaced by Tenant or installed by Tenant in the Demised Premises.
77. GAS, ELECTRIC AND WATER METERS
Supplementing the provisions of Articles 29, 52, and 74 hereof, Tenant
acknowledges and agrees that if gas, water and electric service is provided to
the Demised Premises, Tenant shall be responsible at its own cost and expense
for installing its own meters in order to provide service to the Demised
Premises. If the collective cost for the installation of all of such meters
exceeds $5,000.00, then Landlord agrees to reimburse to Tenant the amount of
such cost that is in excess of $5,000.00.
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78. ASSIGNMENT AND SUBLETTING
A. Supplementing Article 11 of this Lease, Tenant shall be permitted to
assign its lease, or sublet a) not more than 10,000 square feet of useable space
during the first five years of this Lease for a term to expire before the
expiration of the fifth year of the Lease, b) after the expiration of the fifth
year of this Lease no more than 15,000 square feet of useable space during the
balance of the term of this Lease or c) sublet the entire demised premises for
substantially the remaining term of the Lease, only with Landlord's prior
written consent in each instance, which consent shall not be unreasonably
withheld, conditioned or delayed, provided that Tenant is not otherwise in
default of the terms, covenants, and conditions of this Lease, beyond any
applicable notice and cure periods. Landlord shall respond to Tenant's request
for consent to assign its lease or sublet all or a portion of the Demised
Premises as soon as practicable, but in no event later than thirty (30) days
after receiving Tenant's request.
B. On condition Tenant is not in default of any of the obligations,
covenants or agreements in this Lease, beyond any applicable notice and cure
periods, including, but not limited to, the obligation to pay rent and
additional rent, if Tenant shall, at any time or times during the term of this
Lease, desire to assign this Lease or sublet the Demised Premises as provided in
subparagraph A, above, Tenant shall give notice thereof to Landlord, which
notice shall be accompanied by: (i) a duplicate original of the proposed
assignment or sublease, the effective or commencement date of which shall be not
less than thirty (30) days after the giving of such notice; (ii) a statement
setting forth, in reasonable detail, the identity of the proposed assignee or
subtenant, the nature of its business and its proposed use of the Demised
Premises; and (iii) current financial information in a form reasonably
acceptable to Landlord with respect to the proposed assignee or sublessee,
including a financial statement as compiled by such proposed sublessee's or
assignee's certified public accountant and, if available, reviewed in accordance
with generally accepted accounting principles, and the previous two years'
federal income tax returns (including any extensions if no return has yet been
filed).
C. Each subletting pursuant to this Article shall be subject to all of the
covenants, agreements, terms, provisions and conditions contained in this lease.
Notwithstanding any such subletting and/or acceptance of rent or additional rent
by Landlord from any subtenant, Tenant shall and will remain fully liable for
the payment of the Base Rent and Additional Rent due, and to become due,
hereunder, for the performance of all of the covenants, agreements, terms,
provisions and conditions contained in this Lease on the part of Tenant to be
performed and for all acts and omissions of any licensee, subtenant, or any
other person claiming under or through any subtenant that shall be in violation
of any of the obligations of this lease, and any such violation shall be deemed
to be a violation by Tenant. Tenant further agrees that, notwithstanding any
such subletting, no other and further subletting of the Demised Premises by
Tenant, or any person claiming through or under Tenant shall, or will be, made,
except upon compliance with, and subject to, the provisions of this Article. If
Landlord shall decline to give its consent to any proposed assignment or
sublease, Tenant shall indemnify, defend and hold Landlord harmless from and
against any and all losses, liabilities, damages, costs and expenses (including
reasonable counsel fees) resulting from any claims that may be made against
Landlord by the proposed assignee or subtenant or by any brokers or other,
persons claiming a commission or similar compensation in connection with the
proposed assignment or sublease.
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D. With respect to each and every proposed sublease or assignment, as the
case may be, it is further agreed that:
(a) no subletting shall be for a term ending later than one day
prior to the Expiration Date of this lease;
(b) no sublease shall be valid, and no subtenant shall take
possession of the Demised Premises or any part thereof, until an executed
counterpart of such sublease has been delivered to Landlord;
(c) each sublease shall provide that it is subject and subordinate
to the Lease and to the matters to which this lease is or shall be
subordinate, and that, in the event of termination, re-entry, or
dispossess by Landlord under this lease, Landlord may, at its option, take
over all of the right, title and interest of Tenant as sublandlord under
such sublease, and such subtenant shall, at Landlord's option, attorn to
Landlord pursuant to the then executory provisions of such sublease,
except that Landlord shall not (i) be liable for any previous act or
omission of Tenant under such sublease, (ii) be subject to any offset, not
expressly provided in such sublease, that theretofore accrued to such
subtenant against Tenant or (iii) be bound by any previous modification of
such sublease or by any previous prepayment of more than one month's fixed
rent or any additional rent then due; and
(d) the proposed assignee or sublessee is not then an occupant of
any part of the Building, unless Landlord is unable to provide suitable
space required by such occupant, or a party who dealt with Landlord or
Landlord's agent (directly or through a broker) and had submitted an offer
letter with respect to space in the Building during the 12 months
immediately preceding Tenant's request for Landlord consent;
(e) there shall be no more than one assignment during the term of
this lease;
(f) any options to extend or renew this Lease shall not be
exercisable by any assignor nor transferred with any assignment, but shall
be personal only to the signatory Tenant;
(g) the advertised base rent collectible under the sublease shall
not be less than the market rent that Landlord is advertising for leasing
other space in the Building (but Tenant shall not be prohibited from
subletting for less than such market rent so long as the sublease rent is
kept confidential);
(h) the proposed use for the subtenant or assignee shall conform to
the requirements of this Lease; and
(i) there shall be due from the Tenant, assignee or sublessee (and
collectible as additional rent) the costs incurred by Landlord with
respect to approving the proposed sublease or assignment, including all
professional and/or attorneys fees incurred to prepare any required
documents; Landlord shall use its reasonable efforts to keep such costs to
a minimum.
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E. Any sublease, assignment, or transfer, whether made with Landlord's
consent or otherwise shall be made only if, and shall not be effective until,
the sublessee or assignee shall execute, acknowledge and deliver to Landlord an
agreement, in form and substance reasonably satisfactory to Landlord, whereby
the sublessee or assignee shall assume all of the obligations of this Lease with
respect to the space sublet or assigned thereafter on the part of Tenant to be
performed or observed, except that the obligation to pay rent or additional rent
shall be as set forth in the sublease, assignment or transfer document.
Notwithstanding such sublessee, assignment or transfer the provisions of this
Article and Article 11 shall continue to be binding in respect of all future
assignments, sublettings and other transfers. The original named Tenant
covenants that, notwithstanding any assignment, subletting or transfer, whether
or not in violation of the provisions of this lease, and notwithstanding the
acceptance of fixed rent and/or additional rent by Landlord from an assignee,
sublessee, transferee, or any other party, the original named Tenant shall
remain fully liable for the payment of the Base Rent and Additional Rent (less
any fixed rent and/or additional rent actually received by Landlord) and for the
other obligations of this Lease on the part of Tenant to be performed or
observed.
F. Within thirty (30) days after Tenant sends to Landlord its request to
sublet the entire Demised Premises or assign in accordance with this Article,
above, Landlord shall have the option of recapturing the entire Demised Premises
as of the effective or commencement date of the proposed assignment or sublease.
If Landlord exercises this option it shall be in writing to Tenant and this
Lease shall terminate and expire as if said day were the day originally fixed
herein for the end and expiration of the term of this Lease, and Tenant shall be
relieved of all further obligations under this Lease.
G. The parties agree that in the event of an assignment of the Lease or
sublease of the space, Tenant shall not receive any consideration for the
assignment, whether as a direct payment, brokerage fee, finder's fee or for
fixtures, improvements or other consideration in any way related to the
assignment or assignment transaction or sublease or sublease transaction either
directly or indirectly without notifying Landlord at the time of giving Landlord
notice of the intended assignment or sublease. The failure to give Landlord
notice of such consideration shall constitute a substantial default under this
Lease. With respect to the foregoing in the event of such assignment, Landlord
shall be entitled to fifty (50%) percent of the net consideration received by
Tenant for the assignment (i.e. after deducting Tenant's cost relating to such
assignment for brokerage commissions, advertising, reasonable attorney's fees
and disbursements, costs and expenses paid to Landlord hereunder, free rent,
reasonable improvement costs to the demised premises and other reasonable cost
incurred with respect to such assignment), payable to Landlord within fifteen
(15) days after such consideration is received by Tenant. In the case of a
sublet only any consideration received by Tenant from any subtenant in excess of
the rent and additional rent payable by Tenant ("Excess Rent") shall be paid to
Landlord within fifteen days after such consideration is received by Tenant. The
Excess Rent shall be calculated as follows:
(i) Definitions:
(a) Tenant's Annual Rent-all rent and additional rent
payable by Tenant for the twelve months next succeeding in
which any consideration is to be paid by Subtenant to Tenant
following the
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commencement date of the sublease and for each sublease year
thereafter. For any amounts of additional rent that as of the
date of the calculation are unknown, then current additional
rental payments are to be used on an annualized basis and
adjustments to those amounts shall be made when the amounts
are known retroactively to the date of the first calculation.
(b) Subtenant's Rent-any and all rent, additional rent
and other consideration received or to be received by Tenant
its affiliates, subsidiaries, officers, directors or
shareholders, directly or indirectly related to the Sublease
from the Subtenant following the commencement date of the
sublease and each Sublease year thereafter.
(c) Area - actual carpetable floor area.
(d) Tenant's Costs In Subletting - Any and all costs and
expenses incurred by Tenant for brokerage commissions,
advertising, reasonable legal fees, costs and expenses paid to
Landlord hereunder, free rent, and unreimbursed construction
costs incurred by Tenant to construct the subtenant's premises
during the Lease Year the cost or expense was incurred, and
other reasonable costs incurred by Tenant with respect to such
subletting.
(e) Subtenant's Area Percentage - Area occupied by the
Subtenant divided by the Area of the Demised Premises.
(ii) Excess Rent - The Excess Rent shall be A) if the sublet
is not more than 10,000 square feet of useable space during the
first five years of this Lease for a term to expire before the
expiration of the fifth year of the Lease twenty five (25%) percent
of the amount calculated by subtracting from the Subtenant's Rent
the product of the Subtenant's Area Percentage and the Tenant's
Annual Rent, or B) if after the expiration of the fifth year of this
Lease the sublease is no more than 15,000 square feet of useable
space during the balance of the term of this Lease, then fifty (50%)
percent of the amount calculated by subtracting from the Subtenant's
Rent the product of the Subtenant's Area Percentage and the Tenant's
Annual Rent, or C) if the sublease is of the entire Demised
Premises, then fifty (50%) percent of the amount calculated by
subtracting from the Subtenant's Rent (x) the product of the
Subtenant's Area Percentage and the Tenant's Annual Rent and (y) the
Tenant's Cost in Subletting, but not less than twenty five (25%) of
the amount calculated by subtracting from the Subtenant's Rent the
product of the Subtenant's Area Percentage and the Tenant's Annual
Rent.
(iii) Tenant shall furnish Landlord with copies of all
statements of any consideration received by Tenant within fifteen
(15) days after demand by Landlord. Any reasonable costs and
expenses incurred by Landlord, including but not limited to
reasonable attorney's fees, in compelling disclosure of any
information of consideration in excess of that disclosed by Tenant
after due demand herein, shall be collectible as additional rent
from Tenant.
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H. The provisions of this Article, except subparagraph E, above, and
Article 11, above, shall not apply if the Tenant is merged, consolidated or all
or substantially all of the assets of Tenant are transferred and a) the
successor to Tenant has a net worth computed in accordance with generally
accepted accounting principles at least equal to the greater of (1) the net
worth of Tenant immediately prior to such merger, consolidation or transfer, or
(2) the net worth of Tenant herein named on the date of this Lease and b) proof
reasonably satisfactory to Landlord of such net worth shall have been delivered
to Landlord at least ten (10) days prior to the effective date of any such
transaction.
I. (1) Notwithstanding anything to the contrary contained in this lease,
Tenant shall have the right, upon prior written notice to Landlord and upon
compliance with subparagraph E, above, to sublease all or part of the Demised
Premises or to assign Tenant's interest in this Lease to a corporation,
partnership, limited liability company or other entity which is an "Affiliate of
Tenant" (as hereinafter defined), provided that: (a) Tenant shall remain duly
liable during the unexpired term of this lease; (b) any such assignment shall be
subject to all of the terms, covenants, conditions, provisions and agreements of
this lease, and such assignee shall execute, acknowledge and deliver to
Landlord, prior to the proposed effective date of such assignment, an agreement
in form and substance reasonably satisfactory to Landlord, whereby such assignee
shall agree to be bound by and upon and shall expressly assume all of the terms,
covenants, conditions, provisions and agreements set forth in this lease on the
part of Tenant to be performed; (c) a complete and accurate copy of all
instruments in connection therewith shall be promptly delivered to Landlord
together with documentation which corroborates that the assignee or subtenant is
such a corporation, partnership or other entity as defined herein, and such
other information concerning the proposed assignee as Landlord shall reasonably
require; (d) the assignee will use the demised premises for the uses permitted
hereunder as set forth in Article 2 of this lease; (e) Tenant shall not be in
default of any of the terms, covenants, conditions, provisions and agreements of
this lease (including, without limitation, the payment of rent and additional
rent), beyond any applicable notice and cure periods, at the time of any notice
to Landlord or at the effective date of such assignment; and (f) Tenant shall
indemnify and hold Landlord harmless from and against any and all transfer taxes
in connection with such assignment, including, but not limited to, the New York
City Real Property Transfer Tax, the New York State Rear Property Transfer Tax,
and the New York State Real Property Transfer Gains Tax. Anything contained in
Article 11 to the contrary notwithstanding, the transfer of the majority of the
stock of Tenant shall not be deemed an assignment as long as such transfer is
made in conjunction with a bona fide capitalization, recapitalization, or other
financing of the Tenant or a bona fide sale of shares not solely designed to
effect an assignment of this Lease without the Landlord's consent or a transfer
of shares between or among shareholders of Tenant not solely designed to effect
an assignment of this Lease without Landlord's consent.
(2) For the purposes of this paragraph (1), "Affiliate of Tenant"
shall be deemed to be Tenant's parent organization, a corporation or other
entity which Tenant or the shareholders of Tenant directly or indirectly
control, is controlled by, or is under common control with Tenant, Tenant's
parent organization, or a subsidiary of Tenant by owning at least fifty one
(51%) percent of shares or other interest (beneficial or legal) of the
Affiliate.
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79. HOLDOVER RENTAL
If Tenant shall hold over after the expiration of the Term (including but
not limited to an earlier termination under Article 42, above, or by virtue of
any other clause of this lease), the parties hereby agree that Tenant's
occupancy of the Demised Premises after the expiration of the Term shall be upon
all of the terms set forth in this Lease except Tenant shall pay use and
occupancy for the holdover period in an amount equal to the higher of an amount
to one and a half times the sum of (1) the base rent payable by Tenant for the
last year of the Term; plus (2) all monthly installments of additional rent
payable by Tenant pursuant to the terms of this Lease that would have been
billable monthly by Landlord had the term of this Lease not expired, pro rated
for the period of any such holdover. This clause shall not be construed as an
authorization to Tenant to remain in possession of the Demised Premises after
the expiration or sooner termination of the tenancy or as a waiver by Landlord
to exercise any remedy permitted by law to regain possession of the Demised
Premises. Tenant agrees to indemnify and save Landlord harmless against all
cost, claims, loss or liability resulting from delay by Tenant in surrendering
the premises at the expiration of the Lease term or upon a sooner termination,
including without limitation any claims made by a succeeding tenant founded on
such delay.
80. FIBER OPTIC CABLE
Subject to Landlord's approval, which shall not be unreasonably withheld,
conditioned or delayed, provided (a) there is no cost to Landlord, (b) Tenant's
work does not unreasonably affect any other tenant in the Building or any space
occupied by any other tenant in the Building and no entry is made into any other
tenanted space except in accordance with the terms of the lease of the tenanted
space, and (c) all such work performed by Tenant is performed in accordance with
all applicable laws, rules and regulations and the provisions of this Lease,
Tenant shall be permitted to bring fiber optic or equivalent telecommunication,
Internet, and data cabling into the Building and Landlord shall provide access
from the street adjacent to the basement of the Building for purposes thereof.
Tenant shall also be granted the use of and access to any available riser space
for purposes of the foregoing as reasonably designated by Landlord. Tenant shall
be permitted to install its communications antenna and satellite dish, together
with related equipment (collectively, the "Antenna") on the roof of the building
of which the demised premises are a part at a location designated by Landlord.
Landlord will make available to Tenant access to the roof for the construction,
installation, maintenance, repair, and operation of the Antenna, as well as
space in the Building to run electrical and telecommunications conduits from the
Antenna to the Demised Premises so long as Tenant's work does not unreasonably
affect any other tenant in the Building or any space occupied by any other
tenant in the Building and no entry is made into any other tenanted space except
in accordance with the terms of the lease of the tenanted space.
81. ADDENDUM TO ARTICLE 13
Supplementing the provisions of Article 13, above, Landlord's right to
enter the demised premises and its access thereto to make repairs and
alterations and to erect and maintain pipes and conduits therein and for the
other purposes set forth in Article 13 (except in the event of any emergency),
shall be subject to the following conditions:
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A. Landlord shall give Tenant reasonable advance notice of proposed entry
or access and Landlord shall comply with Tenant's reasonable security
requirements; and
B. Landlord shall use its reasonable efforts to effect all such repairs
and alterations and erect and maintain all such pipes and conduits so as to
minimize interference with Tenant's normal business operations, but no provision
hereof shall obligate Landlord to perform such work other than during normal
business hours.
82. ADDENDUM TO ARTICLE 19
Supplementing Article 19, except in the event of an emergency, Landlord
shall not perform any obligation of Tenant under this Lease nor incur any
expenditure for such purpose until after the expiration of any applicable grace
period or after giving Tenant at least fifteen (15) days written notice,
whichever is later. Any payments due to Landlord from Tenant shall be paid
within fifteen (15) days after the rendition to Tenant of a statement therefor,
or upon issuance of an award by a judicial or dispute resolution body. Nothing
herein shall require that Landlord send any demand or statement as a condition
to maintain a claim for attorney's fees, whether as additional rent or
otherwise, in any action or proceeding.
83. ADDENDUM TO ARTICLE 20
Modifying Article 20, Landlord shall retain the right to change the
arrangement or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets or other public parts of the building,
provided any such change does not unreasonably deprive Tenant of access to the
building or reduce the useable area of the demised premises, and such work shall
be performed at Landlord's sole cost and expense.
84. ADDENDUM TO ARTICLE 28
Modifying Article 28, any statement or notice or other communication from
Landlord to Tenant shall be in writing and shall be deemed duly given if in
writing and addressed to Tenant at, Attention: Chief Executive Officer, at 733
Third Avenue, 17th Floor, New York, New York 10017, prior to Tenant's occupancy
of the demised premises for its normal business operations, and at the demised
premises thereafter, and if: mailed by registered or certified mail, postage
prepaid and 1) delivered by a national overnight delivery service, or 2)
personally delivered to the demised premises. Such statement or notice or other
communication shall be deemed given upon depositing with the United States
Postal Service and delivery by a national overnight delivery service, or upon
personal delivery as provided above. Copies of the records of the national
overnight delivery service concerning delivery of said notice or other
communication shall constitute prima facie proof of delivery.
85. ADDENDUM TO THE RULES AND REGULATIONS
Supplementing and modifying Article 36, Rule 3 of the annexed Rules and
Regulations is modified to provide that Tenant may keep no more than three dogs
in the demised premises at any one time and only so long as a) Landlord has
received no complaints in writing about the dogs from any other tenant in the
Building and b) the dogs are brought in only through the 13th
-34-
<PAGE>
Street side of the Building whether or not the elevators on that side of the
Building are operational. Tenant shall be responsible for removing all dog waste
from the Demised Premises, stairwells to the Demised Premises, elevators,
lobbies, and the sidewalk on the 13th Street side of the Building. Dogs shall be
leashed at all times while in or around the Building. If Tenant is in violation
of this clause with respect to the number of dogs and they are not removed after
Landlord has given Tenant five (5) days written notice to remove the dogs, then
Tenant will be in substantial default of this Lease and Landlord may exercise
its remedies under Article 17, above.
The first two sentences of Rule 6 of the annexed Rules and Regulations
shall be deleted and Landlord shall enforce the Rules and Regulations referred
to in Article 36 in an equitable and non-discriminatory manner.
SAMSON ASSOCIATES LLC, Landlord
By:____________________________________
OPUS 360 CORPORATION, Tenant
By:____________________________________
-35-
<PAGE>
EXHIBIT A
<PAGE>
WE PROPOSE to furnish the necessary labor and material at the above
building in accordance with the following specifications:
VARIABLE FREQUENCY ELEVATOR CONTROL SYSTEM
Furnish and install one (1) new Variable Frequency Control board Panel
In combining proven reliability and quality with world class Variable
Frequency, Variable Frequency Technology will transform your current Single
Speed elevator into a modem variable speed elevator without the need of
replacing your existing machine.
This system provides smooth acceleration and deceleration of the car. Most
of all the Variable Frequency Control System delivers level floor stops, which
will reduce the tripping hazard. The variable Frequency Control System also
provides Zero-speed brake stops, which will greatly reduce the wear on the
elevator machine and brake. The Variable Frequency Control System is quickly
installed and adjusted, easily maintained and 100% factory tested. This makes
the Variable Frequency Elevator Control System the most cost effective way of
modernizing your elevator to meet today standards. The new system will contain
all Fire Recall Features required by code.
LEVELLING CONTROL SYSTEM
Furnish and install a complete new Landing Control System. This system
employs highly reliable electronic sensors in lieu of magnetic switches and
solid steel tape mounted from pit to overhead in lieu of individual vanes. Close
coupled nylon guides keep the sensors in exit proximity with the steel tape at
all times. Two roller bearings permit the sensor assembly to move laterally or
float as the car travels through the hoistway. The controls for the system are
on solid state PC boards, for reliability and ease of servicing.
<PAGE>
33 WEST 13TH STREET - PROPOSAL #9916
SUBMITTED TO: S. CHIRA & SONS INC.
DATED: OCTOBER 23, 1997
HOIST MOTOR
Furnish and install one new hoist motor.
The motor shall be of the alternating current, reversible type designed
for elevator service with high starting torque and low starting current.
The motor shall be rated in accordance with the standards of the AIEE for
50 degrees C temperature rise. The motor shall have capacity to operate the
elevator with rated contract load at rated contract speed without overheating,
The speed of the motor when operated with the controller shall not vary more
than ten (10%) percent of rated speed under all loads in the capacity range.
MAIN MACHINE
The present worm and gear machine will be retained. We will remove the
worm shaft and thrust unit to our machine shop. Renew the worm shaft and head
bearings. Remove worm main machine babbitt bearings from machine housings. We
will take a slight cut off the outside of the worm, undercut the worm to
sufficiently provide proper gear mesh. Return the worm to jobsite, reassemble
machine. Rebabbitt the head bearings with high grade babbitt. Wash out gear
case, refill with fresh lubricant. Repack the stuffing box on the worm shaft.
Make all necessary adjustments in order for machine to run smoothly.
WIRE ROPE CABLES
New wire rope cable will be installed. The new cables will be of
sufficient site and numbers to insure long life of cables and drive sheave. The
cables will be identified with a metal tag showing the type, strength, number of
strands and date of cable installation.
GOVERNOR CABLE
A new governor cable will be installed. The size of the cable will be
selected to function properly with the governor and safety devices. This cable
will be identified with a metal tag showing type, strength, number of strands
and ate of Cable installation.
BUFFERS
Retain and reuse existing buffers.
GOVERNOR
Overhaul existing overhead safety governor.
<PAGE>
33 WEST 13TH STREET - PROPOSAL #9916
SUBMITTED TO: S. CHIRA & SONS INC.
DATED: OCTOBER 23, 1997
CAR FRAME
Retain and reuse existing.
SAFETY
Overhaul the existing safety assembly.
AUTOMATIC CAR & HALL, DOOR OPERATOR
We will furnish and install two (2) D.C. operated master door operators
(front & side) for automatic operation of the car and ball doors. Operator is
equipped with a heavy duty motor, V-Belt drive, override clutch, terminal limit
switches. Motion is transmitted by means of a progressive cam to obtain slow
down and stop at either end of travel. Operator does not require an oil check,
since slow down is obtained resistors for adjusting its strength to the
individual job.
FIREMEN SERVICE
Elevators shall be equipped with Firemen Service, Phase I Emergency Recall
Operation and Phase II Emergency In-Call-Operation.
CAR PUSH BUTTON STATION
Flush type car push station will be installed in the car. New Station will
include:
Acknowledgement lights, braille markings, door open and close buttons,
emergency stop switch, Firemen Service key switch, fan/light key switch, alarm
push button, emergency call push button, sounding push button, call cancel push
button, built in emergency lighting fixture. New buttons to be tamper proof.
HALL, BUTTONS STATIONS (TAMPER PROOF)
New double button stations of modem design will be installed at each of
the elevator entrances. Button to be of tamper proof, illuminating type. A
single button station will be installed at the terminal landing.
INDICATORS
An electric position indicator will be installed in the elevator cab and
at the main floor landing. Indicators shall consist of numbers corresponding
with the floors served by the elevator which light up to indicate position of
car.
<PAGE>
33 WEST 13TH STREET - PROPOSAL #9916
SUBMITTED TO: S. CHIRA & SONS INC.
DATED: OCTOBER 23, 1997
HATCHWAY LIMITS
We will furnish and install new, enclosed type hatchway limit switches,
completed with necessary wiring, bracket etc. Cam devises will be properly
mounted on car to operate the limit switches.
CAR PLATFORM
Retain and reuse the existing platform.
SHAFTWAY ENTRANCES
Furnish and install five (5) new 1 1/2 hour "B" labeled type hoistway
entrances having a clear opening of 36 inches. The new doors shall be installed
with direction it is now. Entrances to have a baked enamel finish of color to be
chosen by the owner and include extruded aluminum sills.
Remove the existing entrances and mason in entrances, patch walls,
bases and floor. Not responsible for painting, decorating, etc. or corridor
walls.
INTERLOCKS
Each shaftway door shall be equipped with underwriter's approved
electromechanical interlock. This interlock will be designed so that the car
cannot be operated unless the shaft doors are closed and locked.
CAR ENCLOSURE
Furnish and install a new formica passenger cab. Car enclosure to be
complete with legal emergency exit, car light fixture, support angle, sill
apron, new robber tile, flooring, solid hollow metal doors, and extruded
aluminum saddles. The car platform will be provided with a substantial vertical
apron, flush with outer edge of the platform extending a sufficient distance
below the car floor so that there shall be no horizontal opening into the
hoistway while the car is within the landing zone sad hoistway door is fully or
partially open. A certificate frame with transparent cover for city inspector's
car will be installed in the car. Ceiling to have ventilating grille and fan.
CAR TRAVELLING LANTERN
Car travelling lantern with audio visual signals will be installed at each
entrance.
<PAGE>
33 WEST 13TH STREET PROPOSAL #9916
SUBMITTED TO: S. CHIRA & SONS
DATED: OCTOBER 23, 1997
ACKNOWLEDGE LIGHT FEATURE
Car and hall push button stations to incorporate an acknowledge light
feature. Buttons will be made of durable plastic. When a button is pressed, it
will become illuminated and remain so until the call has been answered.
HANDICAP REQUIREMENTS (LOCAL LAW NO. 58-AL17.1 STANDARDS)
Locate door reopening devices at 5 and 29 inches above the finished floor
when applicable.
Locate the alarm button and emergency stop switch at 35 inches and top
floor push button at a maximum of 54 inches above the floor on center.
Provide engraved markings adjacent to the floor and control buttons on a
contrasting recessed color background to the left of the buttons. Letters and
numbers shall be a minimum of 5/8" and raised .03". The centerline of the hall
push button stations shall be 42" above the floor subject to replacement of
mounting boxes. (Existing back boxes shall be reused where possible).
HANDICAP REQUIREMENTS (LOCAL LAW NO. 58-AL17.1 STANDARDS (CONTINUATION)
Car lanterns shall sound once for the up direction and twice for the down
direction.
Provide floor designations at each entrance on both sides if jambs is at a
height of 60" above the floor. Designations shall be cut from stainless steel,
shall be 2" high and mounted to the jambs with concealed fasteners.
Provide an audible signal to tell passenger that the car is stopping or
passing a floor served by the elevator. Audible signal shall be activated by a
button in car operating panel.
All requirements in accordance with the referenced law and standard to the
extent of the work performed.
WIRING
All necessary wiring for the proper operation of the equipment including
elevator signals, auxiliary equipment and door operator, beginning at the power
and lighting outlets furnished by others as herein described, shall be supplied
and installed by us.
Insulated wiring shall have a flame retardant and moisture outer cover and
shall be run in metal conduit, metallic tubing or wire ducts. Existing conduit
which is suitable and can remain undisturbed, may be retained.
<PAGE>
33 WEST 13TH STREET - PROPOSAL #9916
SUBMITTED TO: S. CHIRA & SONS INC.
DATED: OCTOBER 23, 1997
DOOR JAMBS
We will furnish and install on each shaftway entrance, jamb plates in
accordance with handicap code.
EMERGENCY LIGHTING
Provide an emergency light system operate from a battery pack, all in
conformance with the ANSI code automatic compensation.
CAR TOP INSPECTION STATION
A top of car operating station will be provided, equipped with run-stop
switch, inspection switch up, down and safety buttons. This inspection station
is activated by the inspector switch on the main controller. The car may then be
operated at reduced speed for inspection purposes.
APPROVAL CERTIFICATES
We will file necessary applications with all municipal authorities having
jurisdiction conduct tests and secure certificates of approval.
INSURANCE
All work performed under this contract is covered by public liability and
workmen's compensation insurance provided by us.
GUARANTEE
All material and workmanship furnished under this contract are guaranteed
against defects for a period of one (1) year from date of completion, provided
such defects are not due to any ordinary wear and tear or through improper use
of care.
MAINTENANCE
B P Elevator will provide three (3) months free maintenance after the
completion of the upgrading.
OVERHEAD DOOR AND LADDER
Furnish and install approved 1 1/2 hour, self closing self looking
fire-rated motor room door with access ladder.
Furnish and install one (1) fire extinguisher in motor room class ABC.
<PAGE>
33 WEST 13TH STREET - PROPOSAL #9916
SUBMITTED TO: S. CHIRA & SONS INC.
DATED: OCTOBER 23, 1997
WORK DONE BY OTHERS
MACHINE ROOM:
Box pipes and non elevator wires in motor room. Paint and patch walls,
floor and ceiling.
ELECTRIC FEEDERS:
Building must supply 3 Phase A/C current to an approved disconnect switch
located in motor room for the operation of the new equipment.
Furnish and install prop lighting with outlet and receptacles.
HOISTWAY:
Legally protect windows in shaft with sheet metal or drywall.
Patch all holes in hoistway, pit and machine room.
Furnish and install an approved lift-up door at street level after the
elevator entrance is installed.
Furnish and install lighting receptacle and outlet in the pit.
NOTE: ALL WORK OUTLINED IN THIS PROPOSAL IS PENDING APPROVAL OF THE DEPARTMENT
OF BUILDINGS REGARDING THE EXISTING WATER TOWER, STEEL MEMBERS IN MOTOR
ROOM AND NON RELATED ELEVATOR PIPING IN MOTOR ROOM AND SHAFTWAY.
<PAGE>
FIRST MODIFICATION OF LEASE AGREEMENT
Agreement made on this 16th day of September, 1999 between Samson
Associates LLC, having an office at 40 West 14th Street, New York, New York
10011 (hereinafter referred to as "Landlord") and Opus 360 Corporation, a
Delaware corporation, having an office at 733 Third Avenue, 17th Floor, New
York, New York 10017 (hereinafter referred to as "Tenant").
WHEREAS, Landlord and Tenant entered into a Lease dated August 10, 1999
("Lease") with respect to the entire 3rd floor excluding all elevators,
vestibules, stairways and shaft ways, in the building known as 34-42 West 14th
Street and 33-39 West 13th Street in the Borough of Manhattan, City of New York
("Premises");
WHEREAS, pursuant to Articles 40(B) and 68(E) of the Lease, Landlord
delivered to the Tenant a Subordination and Non-Disturbance Agreement as well as
the Substantial Completion Notice; and
WHEREAS, the parties are entering into this Agreement in order to
confirm the Commencement Date and Expiration Date of the Lease
NOW, THEREFORE, in consideration of the mutual promises made herein it
is hereby agreed by and between the parties as follows:
1. The Commencement Date, as defined in Article 40(B) of the Lease,
shall hereinafter be deemed to be September 13, 1999.
2. The Expiration Date, as defined in the first page of the Lease,
shall hereinafter be deemed to be September 30, 2009.
<PAGE>
3. Except as modified herein the terms, covenants and conditions of the
Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day, month and year first above written.
SAMSON ASSOCIATES LLC, Landlord
By:
----------------------------------------
Joseph Chira, Managing Member
OPUS 360 CORPORATION, Tenant
By:
----------------------------------------
Richard McCann, SRVP, CFO
-2-
<PAGE>
Exhibit 10.2
MODIFICATION AND EXTENSION OF LEASE
AGREEMENT made as of the 6th day of August, 1999, by and between
ROYAL REALTY CORP., Agent for 733 Properties, Inc., a New York corporation, with
principal offices at 1155 Avenue of the Americas, New York, New York 10036 (the
"LANDLORD" or the "OWNER") and OPUS 360 CORPORATION, a Delaware Corporation,
having an office at 733 Third Avenue, New York, New York 10017 (the "TENANT").
STATEMENT OF FACTS
Pursuant to that certain Agreement of Lease (the "INTEGRATED
Lease"), dated December 27, 1983, The Durst Building Corporation, as landlord,
leased to Integrated Resources, Inc. ("INTEGRATED"), as tenant, certain premises
in the building located at 733 Third Avenue, New York, New York (the
"BUILDING"). 733 Properties, Inc. is now the owner of the Building.
By sublease dated as of November 1989 (the "GO AMERICA SUBLEASE")
between Integrated, as sublandlord, and Go America Tours, Inc. ("GO America"),
as subtenant, a portion of the Premises leased to Integrated, consisting of a
portion of the 7th floor and identified as rooms 711-715, was subleased to Go
America.
Pursuant to certain agreements dated November 19, 1989 and January
22, 1990, Landlord and Go America agreed to be bound by the terms of the Go
America Sublease with the same effect as if Landlord were the Sublandlord
thereunder.
By agreement dated November 16, 1990, as amended by letter dated
December 3, 1990, between Van Dorn Realty Corporation, as agent for Landlord,
and Go America, the subleased premises were expanded to include additional space
on the 7th floor (collectively with the original subleased space, the "ORIGINAL
PREMISES").
<PAGE>
Pursuant to that certain Sublease dated as of October 31, 1996 by
and between Go America, as sublessor, and New Paradigm Software Corporation
("NEW PARADIGM"), as sublessee ("NEW PARADIGM SUBLEASE"), the Original Premises
was subleased to New Paradigm. New Paradigm subsequently assigned the New
Paradigm Sublease (as so assigned, the "LEASE") to Gray Peak Technologies, Inc.
(now known as USWeb Network Solutions Corporation, "USWeb"), pursuant to an
Assignment and Assumption of Sublease effective as of August 15, 1997.
By Surrender and Termination of Lease made as of February 20, 1998
the Go America Sublease was terminated. By Recognition and Amendment of Sublease
Agreement (the "RECOGNITION AGREEMENT") made as of February 20, 1998, Landlord
recognized USWeb's rights under the Lease and USWeb agreed to be bound to
Landlord under the Lease with the same effect as if Landlord were the sublessor
under the Lease (except as set forth in the Recognition Agreement).
By Modification of Lease dated as of August 10, 1998, Landlord and
USWeb added Room 1700-15 of the Building (the "PREMISES") to the Original
Premises (the Lease, as so modified, the "MODIFIED LEASE"). As of March 31,
1999, USWeb, with Landlord's consent, assigned the Modified Lease to USWeb
Corporation, d/b/a USWeb/CKS ("USWEB/CKS") and, commencing April 1, 1999,
USWeb/CKS subleased the Premises to Tenant. The term of the Modified Lease
currently expires on August 29, 1999, but Landlord and Tenant wish to extend the
term of Tenant's occupancy of the Premises on the terms, covenants, conditions
and provisions hereinafter provided.
-2-
<PAGE>
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the receipt and adequacy of
which are hereby mutually acknowledged, Landlord and Tenant hereby agree as
follows:
1. NEW LEASE.
Effective from and after August 30, 1999 (the "Effective
Date") through and including November 30, 1999 (the "Term"), Landlord shall
lease to Tenant and Tenant shall lease from Landlord the Premises on all the
same terms and conditions as apply to the Premises under the Modified Lease,
except as set forth herein (the Modified Lease as modified by this Agreement,
the "New Lease"). Such terms include, without limitation, the payment of annual
fixed rent by Tenant in the amount of Three Hundred Thirteen Thousand Eight
Hundred Thirty-Seven and 44/100 Dollars ($313,837.44) per annum ($26,153.12 per
month). Tenant acknowledges that it has received and read the Modified Lease.
Notwithstanding the foregoing, the parties acknowledge that the Premises are
currently subject to the Modified Lease, which is between Landlord and USWeb/CKS
and agree that, if on the Effective Date USWeb/CKS continues to claim any right
to the Premises under the Modified Lease, Landlord shall have no liability to
Tenant for failure to deliver the Premises or otherwise arising from such claims
so long as Landlord is diligently pursuing its remedies against USWeb/CKS.
2. MODIFICATION OF LEASE TERMS.
(a) Notwithstanding anything contained in the Modified Lease
to the contrary, if the Premises are not surrendered at the end of the Term or
any sooner expiration of the New Lease, Tenant hereby indemnifies Landlord from
and against all loss, cost, liability, claim, damage and expense (including,
without limitation, reasonable attorneys' fees) resulting from delay by Tenant
in so surrendering the Premises and Tenant, at the option of Landlord,
-3-
<PAGE>
shall be deemed to be occupying the Premises as a tenant from month-to-month, at
a monthly rental equal to two times the Rent payable during the last month of
the term of the New Lease and subject to all of the other terms of the New Lease
insofar as the same are applicable to a month-to-month tenancy. Tenant's
obligations under this paragraph (a) shall survive the termination of the New
Lease.
(b) Notwithstanding anything contained in the Modified Lease
to the contrary, Landlord and its agents shall have the right from and after the
date hereof to enter the Premises, during business hours and upon reasonable
prior notice, for the purpose of showing the same to prospective tenants. So
long as Landlord or its agent has provided prior notice to Tenant, if Tenant is
not present to open and permit an entry into the Premises, Landlord or
Landlord's agents may enter the same by master key and, provided reasonable care
is exercised to safeguard Tenant's property, such entry shall not render
Landlord or its agents liable therefor, nor in any event shall the obligations
of Tenant hereunder be affected.
3. BROKER.
Tenant and Landlord covenant, warrant and represent to each
other that no conversations or negotiations were had with any broker or finder
other than Baseline Brokerage, Inc. (the "Broker") concerning this Agreement.
Tenant and Landlord agree to defend, save and hold the other harmless from and
against any claims for a brokerage commission, finder's fee or similar
compensation and against any liability (including reasonable attorneys' fees and
disbursements in connection with defending any action or proceeding and also in
connection with enforcing this indemnification provision against the other)
arising out of any conversation or negotiations had by Tenant and Landlord, as
the case may be, with any broker or finder other than the Broker concerning this
Agreement. In reliance on the foregoing representation,
-4-
<PAGE>
Landlord shall pay the brokerage commission, if any, to the Broker pursuant to
separate agreement.
4. AS-IS: PREPARATION OF THE PREMISES.
Notwithstanding anything contained herein or in the Modified
Lease or any other document to the contrary, Tenant acknowledges that it is
currently occupying the Premises, is fully familiar with the condition thereof,
and agrees to take possession thereof on the Effective Date in their present
"as-is" condition. Landlord shall not be required to perform any alterations or
decorations or furnish any materials in order to suit them for Tenant's
occupancy.
5. MISCELLANEOUS.
(a) Except as otherwise provided herein, all of the terms,
covenants, conditions and provisions of the Modified Lease shall remain and
continue unmodified, in full force and effect and binding upon the parties
hereto, their heirs, administrators, executors, respective legal
representatives, successors and permitted assigns.
(b) Notwithstanding any provision to the contrary, if on the
date of this agreement or the Effective Date there is a default under the
Modified Lease by reason of Tenant's action or inaction beyond any applicable
grace or cure period, then Landlord, at its sole option, may terminate this
Agreement within five (5) days after the Effective Date and, upon such
termination, this Agreement shall be of no force and effect.
(c) This Agreement may not be changed, modified, discharged,
cancelled or waived orally, or in any manner other than by an agreement in
writing signed by the parties hereto.
(d) Unless the text of this Agreement shall indicate
otherwise, the defined terms used herein shall have the meanings ascribed to
such terms in the Modified Lease.
-5-
<PAGE>
(e) This Agreement is submitted to Tenant on the understanding
that it shall not be considered an offer and shall not bind Landlord or Tenant
in any way until (i) Tenant has duly executed and delivered to Landlord
duplicate originals of this Agreement and (ii) Landlord has executed and
unconditionally delivered one of said originals to Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Agreement
as of the day and year first above written.
LANDLORD:
ROYAL REALTY CORP., Agent
By: ______________________________________
President
TENANT:
OPUS 360 CORPORATION
By: ______________________________________
Name: Ari Horowitz
Title: CEO
-6-
<PAGE>
ACKNOWLEDGMENTS
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On August 6, 1999, before me personally came Douglas Durst to me
known, who, being by me duly sworn, did depose and say that he resides in New
York, New York; that he is the President of ROYAL REALTY CORP. the corporation
described in and which executed the above instrument as Landlord; and that he
signed his name thereto by order of the Board of Directors of said corporation.
----------------------------------
NOTARY PUBLIC
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On July 23, 1999, before me personally came Ari Horowitz to me
known, who, being by me duly sworn, did depose and say that he resides at 333 E.
66th Street, New York, New York; that he or she is the CEO of OPUS 360
CORPORATION, the corporation described in and which executed the above
instrument as Tenant; and that he or she signed his or her name thereto by order
of the Board of Directors of said corporation.
----------------------------------
NOTARY PUBLIC
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
This Agreement (the "Agreement") is entered
into this -- day of April 1999, between Opus360
Corporation, a Delaware corporation (the "Company")
and Ari B. Horowitz ("Employee").
WHEREAS, Employee is the Chief Executive Officer of the Company; and
WHEREAS, it is the desire of the Company and Employee that Employee
continue to be employed as Chief Executive Officer of the Company.
NOW THEREFORE, in consideration of the foregoing and of the mutual
promises hereinafter set forth, the parties hereby agree as follows:
1. EMPLOYMENT.
The Company hereby employs Employee and Employee hereby accepts
employment by the Company, upon the terms and subject to the conditions
described in this Agreement.
2. TERM OF EMPLOYMENT.
The initial term of Employee's employment by the Company under this
Agreement shall begin on the date hereof (the "Effective Date") and shall end on
the third anniversary of the Effective Date (the "Term"), unless sooner
terminated pursuant to the provisions of this Agreement. The Term shall
automatically renew for an additional one year on each anniversary of the date
hereof unless notice of nonrenewal is delivered by either party.
3. SERVICES.
During the Term, Employee shall serve as and perform the duties of a
Chief Executive Officer of the Company. At all times, Employee shall be subject
to the direction and control of the board of directors of the Company (the
"Board"). Employee shall devote the majority of his business and professional
time, attention, and energy, and all of his loyalty and skill to the business of
the Company as may be reasonably necessary to carry on the business of the
Company and to perform his duties under the Agreement.
Employee shall have such authority to act on behalf of the Company:
(a) as may be provided in this Agreement;
(b) as may be provided in the Company's by-laws (the "By-laws");
(c) as may be delegated to time from time to time by the Board; and
(d) which is comparable to other Chief Executive Officers.
<PAGE>
4. COMPENSATION.
(a) SALARY. During the first year of the Term, Employee shall be paid a
base salary (the "Base Salary") of not less than One Hundred Fifty Thousand
Dollars ($150,000) per year, payable in arrears at the established pay period of
the Company. Thereafter the Base Salary payable to Employee shall be reviewed at
least annually by the Board, and reasonable increases shall be based on
Employee's performance as well as the Company's performance as determined in the
sole discretion of the Board, but in no event shall Employee's Base Salary per
year during the Term be less than Employee's Base Salary in the first year of
the Term.
(b) BONUS. In addition to any other compensation provided for in this
Agreement, during each year of the Term, Employee shall be eligible to receive
performance bonuses in accordance in the discretion of the Board.
(c) METHOD OF PAYMENT. All compensation payable under this Agreement to
Employee shall be paid via deposit to an account or accounts designated in
writing to the Company by Employee.
5. OPTIONS.
In addition to any other compensation provided for in this Agreement,
Employee shall be entitled to receive options pursuant to the Option Agreement,
dated the date hereof, between Employee and the Company (the "Option
Agreement").
6. OTHER EMPLOYEE BENEFITS.
(a) During the Term, Employee shall be eligible to participate in the
employee benefit plans and compensation programs maintained by the Company and
applicable to other senior executive officers of the Company, including (without
limitation) retirement plans, life, health, disability and other insurance
programs, paid vacations and similar plans and programs, subject in each case to
the generally applicable terms and conditions of the applicable plan or program
and to the determination of any committee administering such plan or program.
(b) Employee shall, at the Company's expense, be entitled to a one
class upgrade on all domestic and international flights for tickets purchased
for Employee's use.
7. REIMBURSEMENT OF EXPENSES.
Employee shall be entitled to reimbursement by the Company for all
reasonable direct out-of-pocket expenditures made by him on the Company's behalf
in the performance of his services under this Agreement, subject to any
reasonable recordkeeping, reporting and other reasonable requirements imposed
from time to time by the Company.
2
<PAGE>
8. TERMINATION OF AGREEMENT.
(a) In the event that the Employee's employment with the Company
terminates for any reason (including by reason of the death or incapacity of the
Employee), other than a resignation by the Employee without Good Reason (a
"Termination of Employment"), (i) Employee shall be entitled to certain Rights
(as such term is defined in clause (c) below), and (ii) the options granted to
Employee pursuant to the Option Agreement shall become immediately exercisable
and Employee shall have at least 180 days from the date Employee's employment
with the Company ended in which to exercise such options.
(b) "Good Reason" means (i) a termination by Employee within ninety
(90) days following the date Employee is given notice to relocate to an office
that is not located in New York County, New York, or (ii) a material diminution
in Employee's title, authority or duties from those of a Chief Executive
Officer.
(c) "Rights" means that (i) Employee (or, as the case may be,
Employee's estate) shall be entitled to receive the same salary (pursuant to
Section 4 hereof) and benefits (pursuant to Section 6 hereof) as he would be
entitled to receive had he been employed by the Company for the two (2) year
period following the earlier to occur of the date of the Termination of
Employment, and (ii) Employee shall be entitled to reimbursement (in accordance
with Section 7 hereof) for expenses incurred prior to the last day that Employee
provided services to the Company. The Company acknowledges and agrees that any
compensation, irrespective of the kind or nature of such compensation, earned by
Employee from any third party after employment is terminated, shall not in any
way reduce or eliminate the Company's obligations to Employee under this
Section 8.
9. CHANGE OF CONTROL.
In the event of a" Change of Control," (i) all options granted to
Employee under the Option Agreement for shares of Common Stock shall become
immediately exercisable in full. For purposes of this Agreement a "Change of
Control" means (i) any acquisition of the Company by means of a merger,
consolidation or other form of corporate reorganization in which the
shareholders of the Company do not own a majority of the outstanding shares of
the surviving corporation or (ii) a sale of all or substantially all of the
assets of the Company.
10. COVENANTS AGAINST COMPETITION.
In the event that Employee ceases to be an employee of the Company
during the Term for any reason, then for the period of six months thereafter,
Employee shall not in any manner, directly or indirectly, as an employee,
employer, consultant, agent, principal, partner, manager, stockholder, officer,
director, or in any other individual or representative capacity, engage in or
become interested in any business that is competitive with the business of the
Company carried on by the Company during the Term, in those places where the
Company is doing business during the Term. Notwithstanding the foregoing,
Employee may own less than one percent (1%) of the issued and outstanding
capital stock of any publicly trade company.
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11. REPRESENTATIONS AND WARRANTIES.
Employee represents and warrants that (i) employee is not under any
obligation to any third party which could interfere with Employee's performance
under this Agreement, and (ii) Employee's performance of his obligations to the
Company during the Term will not breach any agreement by which Employee is bound
not to disclose any proprietary information.
12. EXCISE TAXES.
To the extent that any of the payments and benefits provided for in
this Agreement or otherwise payable to Employee constitute "parachute payments"
within the meaning of Section 280G of the Code, as amended, and, but for this
Section 12, would be subject to the excise tax imposed by Section 4999 of the
Code, then Employee's benefits under this Agreement shall be payable either (i)
in full or (ii) to such lesser amount as would result in no portion of severance
payments being subject to excise tax under Section 4999 of the Code, which ever
of the foregoing amounts, taking into account the applicable federal, state and
local income taxes and excise tax imposed by Section 4999, results in the
receipt by Employee on an after tax basis of the greatest amount of severance
benefits provided pursuant to this Agreement, notwithstanding that all or some
portion of such severance benefits may be taxable under Section 4999 of the
Code. Unless the Company and Employee otherwise agree in writing, any
determination required under this Section shall be made in writing by an
independent public accounting firm reasonably acceptable to the Company other
than that used by the Company (the "Accountants"), whose determination shall be
conclusive and binding upon Employee and the Company for all purposes. For
purposes of making the calculations required by this Section 12, the Accountants
may made reasonable assumptions and approximations concerning applicable taxes
and may rely on reasonable, good faith interpretations concerning the
application of Section 280G and 4999 of the Code. The Company and Employee shall
furnish to the Accountants such information as the Accountants may reasonably
request in order to make a determination under this Section 12. The Company
shall bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section 12.
13. SEVERABILITY.
In the event any of the provisions of this Agreement shall be held by a
court or other tribunal or of competent jurisdiction to be unenforceable, the
other provisions of this Agreement remain in full force and effect.
14. SURVIVAL.
Sections 8 through 23 of this Agreement shall survive the termination
of this Agreement and Employee's employment hereunder.
15. ASSIGNMENT.
Employees shall not assign the rights or obligations hereunder without
the prior written consent of the Company. The Company may assign its rights
under this Agreement to an affiliate of or successor to the Company.
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16. GOVERNING LAW.
This Agreement shall be governed by, construed and enforced in
accordance with the internal laws of the State of New York without regard to
choice of law principals.
17. CAPTIONS.
The paragraph and section headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
18. ENTIRE AGREEMENT.
This Agreement sets froth the entire agreement and understanding of the
parties relating to the subject matter hereof, and supersedes all prior
agreements, arrangements and understandings, written or oral, relating to the
subject matter hereof.
19. AMENDMENT AND NON-WAIVER.
This agreement may be amended, modified, superseded or canceled, and
the terms and covenants hereof may be waived, only by a written instrument
executed by both of the parties hereto, or in the case of a waiver, by the party
waiving compliance. The failure of either party at any time or times to require
performance of any provision hereof shall in no manner affect the right at a
later time to enforce the same. No waiver by either party of the breach of any
term or covenant contained in this Agreement, whether by conduct or otherwise,
in any one or more instances, shall be deemed to be, or construed as, a further
or continuing waiver of any such breach, or waiver of the breach of any other
term or covenant contained in this Agreement.
20. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in New York, New York in
accordance with the rules of the American Arbitration Association then in
effect. The prevailing party shall be entitled to recover its attorney's fees.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction. Punitive damages SHALL NOT BE AWARDED.
21. EMPLOYMENT TAXES.
All payments made pursuant to this Agreement will be subject to
withholding of applicable income and employment TAXES.
22. COMPANY GUARANTEE.
The Company hereby guarantees the payment by the Company of all
monetary obligations payable to Employee pursuant to this Agreement.
23. COUNTERPARTS.
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This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together will constitute one and the same
instrument.
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
----------------------------------------
Ari B. Horowitz
OPUS360 CORPORATION
By:
------------------------------------
Name:
Title
7
<PAGE>
Exhibit 10.4
THIS EMPLOYMENT AGREEMENT (the "Agreement")
is entered into this 16th day of February 1999,
between ENTERSPECT CORPORATION, a Delaware
corporation (the "Company") and CARLOS B. CASHMAN
("Employee").
WHEREAS, Employee is the President of the Company; and
WHEREAS, it is the desire of the Company and Employee that Employee
continue to be employed as President of the Company
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises hereinafter set forth, the parties hereby agree as follows:
1. EMPLOYMENT. The Company hereby employees Employee and Employee
hereby accepts employment by the Company, upon the terms and subject to the
conditions described in this Agreement.
2. TERM OF EMPLOYMENT. The initial term of Employee's employment by the
Company under this Agreement shall begin on the date of this Agreement and shall
end on the third anniversary of the date hereof (the "Term"), unless sooner
terminated pursuant to the provisions of this Agreement.
3. SERVICES. During the Term, Employee shall serve as, and perform the
duties of President of the Company. At all times, Employee shall be subject to
the direction and control of the Chief Executive Officer and board of directors
of the Company (the "Board"). Employee's services hereunder shall be exclusive
and he shall devote all of his business and professional time, attention,
energy, loyalty and skill to the business of the Company as may be reasonably
necessary to carry on the business of the Company and to perform his duties
under the Agreement; PROVIDED, HOWEVER, that Employee may (i) engage in
activities in connection with charitable or civic activities, and (ii) serve as
an executor, trustee or in other similar fiduciary capacity. In addition,
Employee shall use his reasonable efforts to preserve for the Company the
goodwill of customers and others with whom Employee has previously established
business relationships, or with whom the Company or Employee establishes
business relationships during the Term, and to advance the reputation of the
Company.
4. AUTHORITY. Employee shall have such authority to act on behalf of
the Company: (a) as may be provided in this Agreement; (b) as may be provided in
the Company's by-laws (the "By-laws"); (c) as may be delegated to him from time
to time by the Board and Chief Executive Officer; and (d) as generally pertains
to Presidents of corporations.
<PAGE>
5. COMPENSATION.
(A) SALARY. During the first year of the Term, Employee shall be paid a
base salary of not less than ninety thousand ($90,000) per year, payable in
arrears at the established pay period of the Company. Thereafter the base salary
payable to Employee shall be reviewed at least annually by the Board, and
reasonable increases shall be based on Employee's performance as well as the
Company's performance as determined in the sole discretion of the Board, but in
no event shall Employee's base salary per year during the Term be less than
Employee's base salary in the first year of the Term.
(B) BONUS. In addition to any other compensation provided for in this
Agreement, during each year of the Term, Employee shall be eligible to receive
performance bonuses at the discretion of the Board.
(C) METHOD OF PAYMENT. All compensation payable under this Agreement to
Employee shall be paid via deposit to an account or accounts designated in
writing to the Company by Employee.
6. OTHER EMPLOYEE BENEFITS. During the Term, Employee shall be eligible
to participate in the employee benefit plans and compensation programs
maintained by the Company, including (without limitation) retirement plans,
life, health, disability and other insurance programs, paid vacations and
similar plans a programs, subject in each case to the generally applicable terms
and conditions of the applicable plan or program and to the determination of any
committee administering such plan or program.
7. REIMBURSEMENT OF EXPENSES. Employee shall be entitled to
reimbursement by the Company for all direct out-of-pocket expenditures made by
him on the Company's behalf in the performance of his services under this
Agreement, subject to any reasonable recordkeeping, reporting and other
reasonable requirements imposed from time to time by the Company.
8. Termination of Agreement.
(A) TERMINATION UPON DEATH. Employee's employment shall terminate
automatically upon Employee's death during the Term, in which event Employee's
estate shall be entitled to certain Rights (as such term is defined below).
(B) TERMINATION FOR CAUSE. The Company may terminate Employee's
employment during the Term for Cause. For purposes of this Agreement, "Cause"
for termination shall mean the occurrence of any of the following events:
(i) acts of dishonesty by Employee related to the Company
involving malfeasance;
(ii) Employee resignation;
(iii) any material deviation from the Financial Projections
attached hereto as Exhibit A;
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<PAGE>
(iv) gross negligence or willful malfeasance in the
performance of Employee's duties after reasonable notice of such
conduct;
(v) willful disregard of, or failure to follow written
instructions from, the Company's officers or board of directors to do
any legal act relating to the Company's business;
(vi) conviction of Employee of a crime relating to his
employment, or of any felony;
(vii) Employee's physical or mental disability, which prevents
performance of his duties for a consecutive period of at least 120
days, or at least 150 days in a period of 200 days; or
(C) TERMINATION WITHOUT CAUSE. The Company may terminate Employee
without cause on 30 days notice (a "Dismissal").
(D) EFFECT OF TERMINATION. In the event of a Dismissal, Employee shall
be entitled to Rights. In the event that the Company terminates Employee's
employment during the Term for Cause, Employee shall not be entitled to Rights.
(i) (i) "Rights" means that (i) Employee (or, as the case may
be,. Employee's estate) shall be entitled to receive the same salary
and benefits as. he would be entitled to receive had he been employed
by the Company for the three (3) month period following the earlier to
occur of the date of Dismissal.or the date of Employee's death, (ii)
Employee shall be entitled to reimbursement for all expenses incurred
prior to the last day that Employee provided services to the Company,
(iii) Employee's vesting schedule under the Company's 1998 Stock Option
Plan (as defined therein); shall be accelerated by one year, and (iv)
any stock repurchase rights in favor of the Company or Ari Horowitz
shall lapse. The Company acknowledges and agrees that any compensation,
irrespective of the kind or nature of such compensation, earned by
Employee from any third party after Employee terminates his employment
with the Company under this Section 8 shall not in any way reduce or
eliminate the Company's obligations to Employee under this Section 8.
9. DISCLOSURE, OWNERSHIP AND PROTECTION OF PROPRIETARY INFORMATION AND
PROPERTY. Because the Company's proprietary and confidential information is
among its most important assets, Employee shall, as a condition to employment
with the Company, sign the Company's standard proprietary information and
non-disclosure agreement.
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<PAGE>
10. RESTRICTIVE COVENANTS.
(A) COVENANTS AGAINST COMPETITION. During the Term of this agreement
and for one (1) year following the termination hereof, Employee shall not in any
manner, directly or indirectly, as an employee, employer, consultant, agent,
principal, partner, manager, stockholder, officer, director, or in any other
individual or representative capacity, engage in or become interested in the
business of providing network consulting services, or any business that is
competitive with the business of the Company during the Term, in those places
where the Company is doing business during the Term. Notwithstanding the
foregoing, Employee may own less than one percent (1%) of the issued and
outstanding capital stock of any publicly traded company.
(B) COVENANTS AGAINST HIRING CERTAIN EMPLOYEES AND CERTAIN EMPLOYMENT.
During the Term of this agreement and for one (1) year following the termination
hereof, Employee shall not in any manner, directly or indirectly, (i) solicit
for employment or employ any person who was employed by the Company during
Employee's employment
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<PAGE>
THERE IS A PAGE MISSING HERE IN ORIGINAL. IT GOES FROM ITEM 10. A, B TO16
5
<PAGE>
11. ASSIGNMENT. Employee shall not assign the rights or obligations
hereunder without the prior written consent of the Company. The Company may
assign its rights under this Agreement to an affiliate of or successor to the
Company.
12. GOVERNING LAW. This Agreement shall be governed by, construed and
enforced in accordance with the internal laws of the State of New York.
13. CAPTIONS. The paragraph and section headings contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
14. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof.
15. AMENDMENT AND NON-WAIVER. This Agreement may be amended, modified,
superseded or canceled, and the terms and covenants hereof may be waived, only
by a written instrument executed by both of the parties hereto, or in the case
of a waiver, by the party waiving compliance. The failure of either party at any
time or times to require performance of any provision hereof shall in no manner
affect the right at a later time to enforce the same. No waiver by either party
of the breach of any term or covenant contained in this Agreement, whether by
conduct or otherwise, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such breach, or waiver of
the breach of any other term or covenant contained in this Agreement.
16. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
New York, New York in accordance with the rules of the American Arbitration
Association then in effect. The prevailing party shall be entitled to recover
its fees. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. Punitive damages shall not be awarded.
17. EMPLOYMENT TAXES. All payments made pursuant to this Agreement will
be subject to withholding of applicable income and employment taxes.
18. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ENTERSPECT CORPORATION
By:
---------------------------------
Name: Ari B. Horowitz
Title: Chairman
EMPLOYEE:
- -----------------------------------
Carlos B. Cashman
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<PAGE>
Exhibit 10.5
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of May __, 1999,
by and between SILICON VALLEY BANK, a California-chartered bank, with its
principal place of business at 3003 Tasman Drive, Santa Clara, California 95054
and with a loan production office located at Wellesley Office Park, 40 William
Street, Suite 350, Wellesley, Massachusetts 02481, doing business under the name
Silicon Valley East" ("Bank") and OPUS360 CORPORATION, a Delaware corporation
with its chief executive office located at 733 3rd Avenue, New York, New York,
10017 ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and
Bank desires to extend credit to Borrower. This Agreement sets forth the terms
on which Bank will advance credit to Borrower, and Borrower will repay the
amounts owing to Bank.
The parties agree as follows:
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS.
As used in this Agreement, the following terms shall have the following
definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means a loan advance under the Committed
Revolving Line.
"Affiliate" means, with respect to any Person, any Person that owns
or controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Person's managers and members.
"Agreement" means this Loan and Security Agreement.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration and enforcement of the Loan Documents;
and Bank's reasonable attorneys' fees
<PAGE>
and expenses incurred in amending, enforcing or defending the Loan Documents,
(including fees and expenses of appeal or review, or those incurred in any
Insolvency Proceeding) whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records,
including, without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer programs, or tape files, and the equipment, containing such
information.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which banks in the Commonwealth of Massachusetts are authorized or
required to close.
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial Code.
"Collateral" means the property described on EXHIBIT A attached
hereto.
"Committed Revolving Line" means a credit extension of up to Seven
Hundred Fifty Thousand Dollars ($750,000.00).
"Committed Equipment Line" means a credit extension of up to Two
Hundred Fifty Thousand Dollars ($250,000.00).
"Contingent Obligation" means, as applied to any Person, any direct
or indirect liability, contingent or otherwise, of that Person with respect to
(i) any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; PROVIDED, HOWEVER, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; PROVIDED, HOWEVER, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
"Credit Extension" means each Advance, Equipment Advance, Letter of
Credit, or any other extension of credit by Bank for the benefit of Borrower
hereunder.
'Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
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<PAGE>
"Equipment Advance" has the meaning set forth in Section 2.1.3.
"Equipment Availability End Date" has the meaning set forth in
Section 2.1.3.
"Equipment Maturity Date" means the date which is four (4) years
from the Closing Date.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect
in the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including, without limitation,
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy Code,
as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which Borrower
has any interest, including merchandise, raw materials, pans, supplies, packing
and shipping materials, work in process and finished products intended for sale
or lease or to be furnished under a contract of service, of every kind and
description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any documents
of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Letter of Credit" means a letter of credit or similar undertaking
issued by Bank pursuant to Section 2.1.2.
"Letter of Credit Reserve" has the meaning set forth in Section
2.1.2.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
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<PAGE>
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other present or future agreement entered
into between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated from time to time.
"Material Adverse Effect" means a material adverse affection (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means, as applicable, (i) the Revolving Maturity
Date with respect to the Committed Revolving Line, and (ii) the Equipment
Maturity Date with respect to the Committed Equipment Line.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, and any notes, drafts,
instruments, securities, documents of title, or chattel paper, owned by or
payable to Borrower.
"Obligations" means all debt, principal, interest, Bank Expenses and
other amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.
"Payment Date" means the first (1st) calendar day of each month
commencing on the first such date after the Closing Date and ending on the
Revolving Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business;
(e) Indebtedness in connection with capital and operating leases in the
ordinary course of business; and
(f) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the Schedule;
and
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<PAGE>
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges or
levies, either not delinquent or being contested in good faith by appropriate
proceedings and as to which adequate reserves are maintained on Borrower's Books
in accordance with GAAP, PROVIDED, the same have no priority over any of Bank's
security interests;
(c) Liens (i) upon or in any Equipment acquired or held by Borrower or
any of its Subsidiaries to secure the purchase price of such Equipment or
indebtedness incurred solely for the purpose of financing the acquisition of
such Equipment, or (ii) existing on such equipment at the time of its
acquisition, PROVIDED, that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Leases or subleases and licenses or sublicenses granted to others
in the ordinary course of Borrower's business not interfering in any material
respect with the business of Borrower and its Subsidiaries taken as a whole, and
any interest or title of a lessor, licensor, or under any lease or license
provided that such leases, subleases, licenses and sublicenses do not prohibit
the grant of the security interest granted hereunder; and
(e) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, PROVIDED, that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate" whether or not such announced
rate is the lowest rate available from Bank.
"Responsible Officer" means each of the Chief Executive Officer,
the President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" means the date which is one (1) year from
the Closing Date.
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"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity of
which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or one
or more Affiliates of such Person.
"Tangible Net Worth" means as of any applicable date, the
consolidated total assets of Borrower and its Subsidiaries MINUS, without
duplication, (i) the sum of any mounts attributable to (a) goodwill, CO)
intangible items such as unamortized debt discount and expense, patents, trade
and service marks and names, copyrights and research and development expenses
except prepaid expenses, and (c) all reserves not already deducted from assets,
AND (ii) Total Liabilities.
"Total Liabilities" means as of any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but specifically excluding Subordinated
Debt.
1.2 ACCOUNTING AND OTHER TERMS.
All accounting terms not specifically defined herein shall be construed in
accordance with GAAP and all calculations and determinations made hereunder
shall be made .in accordance with GAAP. When used herein, the term 'financial
statements' shall include the notes and schedules thereto. The terms "including"
or "includes" shall always be read as meaning "including (or includes) without
limitation", when used herein or in any other Loan Document.
ARTICLE II
LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS.
Borrower promises to pay to the order of Bank, in lawful money of the
United States of America, the aggregate unpaid principal amount of all Credit
Extensions made by Bank to Borrower hereunder. Borrower shall also pay interest
on the unpaid principal amount of such Credit Extensions at rates in accordance
with this terms hereof.
2.1.1 (a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate outstanding
amount not to exceed (i) the Committed Revolving Line minus (ii) the face amount
of all outstanding Letters of Credit (including drawn but unreimbursed Letters
of Credit), PROVIDED, HOWEVER, that Credit Extensions under the Committed
Revolving Line for other than Letters of Credit shall in no event exceed the sum
of Two Hundred Fifty Thousand Dollars ($250,000.00) at any time. Subject to the
terms and
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conditions of this Agreement, amounts borrowed pursuant to this Section 2.1 may
be repaid and reborrowed at any time during the term of this Agreement.
(b) Whenever Borrower desires an Advance, Borrower will notify Bank
by facsimile transmission or telephone no later than 3:00 p.m. Eastern time, on
the Business Day that the Advance is to be made. Each such notification shall be
promptly confirmed by a Payment/Advance Form in substantially the form of
EXHIBIT B hereto. Bank is authorized to make Advances under this Agreement,
based upon instructions received from a Responsible Officer or a designee of a
Responsible Officer, or without instructions if in Bank's discretion such
Advances are necessary to meet Obligations which have become due and remain
unpaid. Bank shall be entitled to rely on any telephonic notice given by a
person who Bank reasonably believes to be a Responsible Officer or a designee
thereof, and Borrower shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance. Bank will credit the amount
of Advances made under this Section 2.1 to Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the Revolving
Maturity Date, at which time all Advances under this Section 2.1 and other
amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
2.1.2 LETTERS OF CREDIT.
(a) Subject to the terms and conditions of this Agreement, Bank
agrees to issue or cause to be issued Letters of Credit for the account of
Borrower in an aggregate outstanding face amount not to exceed the Committed
Revolving Line, minus (ii) the then outstanding principal balance of the
Advances. Each Letter of Credit shall have an expiry date no later than the
Revolving Maturity Date. All Letters of Credit shall be, in form and substance,
acceptable to Bank in its sole discretion and shall be subject to the terms and
conditions of Bank's form of standard Application and Letter of Credit
Agreement.
(b) The obligation of Borrower to immediately reimburse Bank for
drawings made under Letters of Credit shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and such Letters of Credit, under all circumstances whatsoever.
Borrower shall indemnify, defend, protect and hold Bank harmless from any loss,
cost, expense or liability, including, without limitation, reasonable attorneys'
fees, arising out of or in connection with any Letters of Credit.
(c) Borrower may request that Bank issue a Letter of Credit payable
in a currency other than United States Dollars. If a demand for payment is made
under any such Letter of Credit, Bank shall treat such demand as an Advance to
Borrower of the equivalent of the amount thereof (plus cable charges) in United
States currency at the then prevailing rate of exchange in San Francisco,
California, for sales of that other currency for cable transfer to the country
of which it is the currency.
(d) Upon the issuance of any letter of credit payable in a currency
other than United States Dollars, Bank shall create a reserve under the
Committed Revolving Line (the "Letter of Credit Reserve") for letters of credit
against fluctuations in currency exchange rates, in
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an amount equal to ten percent (10%) of the face amount of such letter of
credit. The amount of such reserve may be amended by Bank from time to time to
account for fluctuations in the exchange rate. The availability of funds under
the Committed Revolving Line shall be reduced by the amount of such reserve for
so long as such letter of credit remaining outstanding.
2.1.3 EQUIPMENT ADVANCES.
(a) Subject to and upon the terms and conditions of this Agreement,
at any time from the date hereof through the date which is one (1) year from the
Closing Date (the "Equipment Availability End Date"), Bank agrees to make
advances (each an "Equipment Advance" and collectively, the "Equipment
Advances") to Borrower in an aggregate outstanding amount not to exceed the
Committed Equipment Line. To evidence the Equipment Advance or Equipment
Advances, Borrower shall deliver to Bank, at the time of each Equipment Advance
request, an invoice for the equipment to be purchased. The Equipment Advances
shall be used only to purchase Equipment and shall not exceed one hundred
percent (100%) of the invoice amount of such equipment approved from time to
time by Bank, excluding taxes, shipping, warranty charges, freight discounts and
installation expense.
(b) Interest shall accrue from the date of each Equipment Advance at
the rate specified in Section 2.3(a) and shall be payable monthly for each month
through the month in which the Equipment Availability End Date falls. Any
Equipment Advances that are outstanding on the Equipment Availability End Date
will be payable in thirty-six (36) equal monthly installments of principal, plus
all accrued interest, beginning on the Payment Date of the month following the
Equipment Availability End Date and ending on the Equipment Maturity Date.
Equipment Advances, once repaid, may not be reborrowed.
(c) When Borrower desires to obtain an Equipment Advance, Borrower
shall notify Bank (which notice shall be irrevocable) by facsimile transmission
to be received no later than 3:00 p.m. Eastern time one (1) Business Day before
the day on which the Equipment Advance is to be made. Such notice shall be
substantially in the form of EXHIBIT B. The notice shall be signed by a
Responsible Officer or its designee and include a copy of the invoice for the
Equipment to be financed.
2.2 OVERADVANCES.
If, at any time or for any reason, the mount of Obligations owed by
Borrower to Bank pursuant to Section 2.1.1 and 2.1.2 of this Agreement is
greater than the Committed Revolving Line, Borrower shall immediately pay to
Bank, in cash, the amount of such excess.
2.3 INTEREST RATES, PAYMENTS AND CALCULATIONS.
(a) INTEREST RATE. Except as set forth in Section 2.3(b), any
Advances and Equipment Advances shall bear interest, on the average daily
balance thereof, at a per-annum rate equal to one and one quarter (1.25%)
percentage points above the Prime Rate.
(b) DEFAULT RATE. All Obligations shall bear interest, from and
after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
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(c) PAYMENTS. Interest hereunder shall be due and payable on each
Payment Date. Borrower hereby authorizes Bank to debit any accounts with Bank,
including, without limitation, Account Number ______________ for payments of
principal and interest due on the Obligations and any other amounts owing by
Borrower to Bank. Bank will notify Borrower of all debits which Bank has made
against Borrower's accounts. Any such debits against Borrower's accounts in no
way shall be deemed a set-off. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) COMPUTATION. In the event the Prime Rate is changed from time to
time hereafter, the applicable rate of interest hereunder shall be increased or
decreased effective as of 12:01 a.m. on the day the Prime Rate is changed, by an
mount equal to such change in the Prime Rate. All interest chargeable under the
Loan Documents shall be computed on the basis of a three-hundred sixty (360) day
year for the actual number of days elapsed.
2.4 CREDITING PAYMENTS.
Prior to the occurrence of an Event of Default, Bank shall credit a wire
transfer of funds, check or other item of payment to such deposit account or
Obligation as Borrower specifies. After the occurrence of an Event of Default,
the receipt by Bank of any wire transfer of funds, check, or other item of
payment whether directed to Borrower's deposit account with Bank or to the
Obligations or otherwise, shall be immediately applied to conditionally reduce
Obligations, but shall not be considered a payment in respect of the Obligations
unless such payment is of immediately available federal funds or unless and
until such check or other item of payment is honored when presented for payment.
Notwithstanding anything to the contrary contained herein, any wire transfer or
payment received by Bank after 12:00 noon Eastern time shall be deemed to have
been received by Bank as of the opening of business on the immediately following
Business Day. Whenever any payment to Bank under the Loan Documents would
otherwise be due (except by reason of acceleration) on a date that is not a
Business Day, such payment shall instead be due on the next Business Day, and
additional fees or interest, as the case may be, shall accrue and be payable for
the period of such extension.
2.5 FEES.
Borrower shall pay to Bank the following:
(a) LETTER OF CREDIT FEE. A Letter of Credit Fee equal to one and
one half (I .50 %) percent the face amount of each Letter of Credit issued,
which fee shall be due ,and payable upon the issuance of the applicable Letter
of Credit;
(b) FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's customary fees
and out-of-pocket expenses for each appraisal of Collateral and financial
analysis and examination of Borrower performed from time to time by Bank or its
agents;
(c) BANK EXPENSES. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses, and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as
and when they become due.
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2.6 ADDITIONAL COSTS.
In case any law, regulation, treaty or official directive or the
interpretation or application thereof by any court or any governmental authority
charged with the administration thereof or the compliance with any guideline or
request of any central bank or other governmental authority (whether or not
having the force of law):
(a) subjects Bank to any tax with respect to payments of principal
or interest or any other amounts payable hereunder by Borrower or otherwise with
respect to the transactions contemplated hereby (except for taxes on the overall
net income of Bank imposed by the United States of America or any political
subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 TERM.
Except as otherwise set forth herein, this Agreement shall become
effective on the Closing Date and, subject to Section 12.7, shall continue in
full force and effect for a term ending on the Maturity Date. Notwithstanding
foregoing, Bank shall have the right to terminate its obligation to make Credit
Extensions under this Agreement immediately and without notice upon the
occurrence and during the continuance of an Event of Default. Notwithstanding
termination of this Agreement, Bank's lien on the Collateral shall remain in
effect for so long as any Obligations are outstanding.
ARTICLE III
CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
The obligation of Bank to make the initial Credit Extension is subject to
the condition precedent that Bank shall have received, in form and substance
satisfactory to Bank, the following:
(a) this Agreement;
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(b) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) a negative pledge agreement covering intellectual property;
(d) an opinion of Borrower's counsel;
(e) financing statements (Forms UCC-1);
(f) a Warrant Agreement, together with an Antidilution Agreement and
Registration Rights Agreement;
(g) insurance certificate;
(h) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof;
(i) Certificate of Good Standing and Foreign Qualification (if
applicable); and
(j) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
The obligation of Bank to make each Credit Extension, including the
initial Credit Extension, is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as provided
in Section 2.1; and
(b) the representations and warranties contained in Section 5 shall
be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the accuracy of
the facts referred to in this Section 3.2(b).
ARTICLE IV
CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
Borrower grants and pledges to Bank a continuing security interest in all
presently existing and hereafter acquired or arising Collateral in order to
secure prompt payment of any and all Obligations and in order to secure prompt
performance by Borrower of each of its covenants and duties under the Loan
Documents. Except as set forth in the Schedule, such security interest
constitutes a valid, first priority security interest in the presently existing
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Collateral, and will constitute a valid, first priority security interest in
Collateral acquired after the date hereof. Borrower acknowledges that Bank may
place a "hold" on any Deposit Account pledged as Collateral to secure the
Obligations. Notwithstanding termination of this Agreement, Bank's Lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED.
Borrower shall from time to time execute and deliver to Bank, at the
request of Bank, all Negotiable Collateral, all financing statements and other
documents that Bank may reasonably request, in form satisfactory to Bank, to
perfect and continue perfected Bank's security interests in the Collateral and
in order to fully consummate all of the transactions contemplated under the Loan
Documents.
4.3 RIGHT TO INSPECT.
Bank (through any of its officers, employees or agents) shall have the
right, upon reasonable prior notice, from time to time during Borrower's usual
business hours, to inspect Borrower's Books and to make copies thereof and to
check, test and appraise the Collateral in order to verify Borrower's financial
condition or the amount, condition of, or any other matter relating to, the
Collateral.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each Subsidiary is a
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2 DUE AUTHORIZATION: NO CONFLICT.
The execution, delivery and performance of the Loan Documents are within
Borrower's powers, have been duly authorized, and are not in conflict with nor
constitute a breach of any provision contained in Borrower's
Articles/Certificate of Incorporation or Bylaws, nor will they constitute an
event of default under any material agreement to which Borrower is a party or by
which Borrower is bound. Borrower is not in default under any agreement to which
it is a party or by which it is bound, which default could have a Material
Adverse Effect.
5.3 NO PRIOR ENCUMBRANCES.
Borrower has good and indefeasible title to the Collateral, free and clear
of Liens, except for Permitted Liens.
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5.4 BONA FIDE ACCOUNTS.
The Accounts are bona fide existing obligations. The service or property
giving rise to such Accounts has been performed or delivered to the account
debtor or to the account debtor's agent for immediate shipment to and
unconditional acceptance by the account debtor. Borrower has not received notice
of actual or imminent Insolvency Proceeding of any account debtor whose accounts
are included in any financial information delivered to the Bank.
5.5 MERCHANTABLE INVENTORY.
All Inventory is in all material respects of good and marketable quality,
free from all material defects.
5.6 NAME: LOCATION OF CHIEF EXECUTIVE OFFICE.
Except as disclosed in the Schedule, Borrower has not done business and
will not without at least thirty (30) days prior written notice to Bank do
business under any name other than that specified on the signature page hereof.
The chief executive office of Borrower is located at the address indicated in
Section 10 hereof.
5.7 LITIGATION.
There are no actions or proceedings pending, or, to Borrower's knowledge,
threatened by or against Borrower or any Subsidiary before any court or
administrative agency in which an adverse decision could have a Material Adverse
Effect or a material adverse effect on Borrower's interest or Bank' s security
interest in the Collateral.
5.8 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements related to Borrower and any
Subsidiary that have been delivered by Borrower to Bank fairly present in all
material respects Borrower's consolidated financial condition as of the date
thereof and Borrower's consolidated results of operations for the period then
ended. There has not been a material adverse change in the consolidated
financial condition of Borrower since the date of the most recent of such
financial statements submitted to Bank on or about the Closing Date.
5.9 SOLVENCY.
Borrower is able to pay its debts (including trade debts) as they mature.
5.10 REGULATORY COMPLIANCE.
Borrower and each Subsidiary has met the minimum funding requirements of
ERISA with respect to any employee benefit plans subject to ERISA. No event has
occurred resulting from Borrower's failure to comply with ERISA that is
reasonably likely to result in Borrower's incurring any liability that could
have a Material Adverse Effect. Borrower is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940. Borrower is not engaged principally, or as one
of its
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important activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulations T and U
of the Board of Governors of the Federal Reserve System). Borrower has complied
with all the provisions of the Federal Fair Labor Standards Act. Borrower has
not violated any statutes, laws, ordinances or rules applicable to it, violation
of which could have a Material Adverse Effect
5.11 ENVIRONMENTAL CONDITION.
None of Borrower's or any Subsidiary's properties or assets has ever been
used by Borrower or any Subsidiary or, to the best of Borrower's knowledge, by
previous owners or operators, in the disposal of, or to produce, store, handle,
treat, release, or transport, any hazardous waste or hazardous substance other
than in accordance with applicable law; to the best of Borrower's knowledge,
none of Borrower's properties or assets has ever been designated or identified
in any manner pursuant to any environmental protection statute as a hazardous
waste or hazardous substance disposal site, or a candidate for closure pursuant
to any environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, sate or other governmental
agency concerning any action or omission by Borrower or any Subsidiary resulting
in the release, or other disposition of hazardous waste or hazardous substances
into the environment.
5.12 TAXES.
Borrower and each Subsidiary has filed or caused to be filed all tax
returns required to be filed on a timely basis, and has paid, or has made
adequate provision for the payment of, all taxes reflected therein, except those
being contested in good faith by proper proceedings with adequate reserves under
GAAP.
5.13 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities of any Person, except for Permitted Investments.
5.14 GOVERNMENT CONSENTS.
Borrower and each Subsidiary has obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all governmental authorities that are necessary for the continued operation
of Borrower's business as currently conducted.
5.15 FULL DISCLOSURE.
No representation, warranty or other statement made by Borrower in any
certificate or written statement furnished to Bank contains any untrue statement
of a material fact or omits to state a material fact necessary, in order to make
the statements contained in such certificates or statements not misleading.
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ARTICLE VI
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1 GOOD STANDING.
Borrower shall maintain its and each of its Subsidiaries' corporate
existence and good standing in its jurisdiction of incorporation and maintain
qualification in each jurisdiction in which the failure to so qualify could have
a Material Adverse Effect. Borrower shall maintain, and shall cause each of its
Subsidiaries to maintain, to the extent consistent with prudent management of
Borrower's business, in force all licenses, approvals and agreements, the loss
of which could have a Material Adverse Effect.
6.2 GOVERNMENT COMPLIANCE.
Borrower shall meet, and shall cause each Subsidiary to meet, the minimum
funding requirements of ERISA with respect to any employee benefit plans subject
to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply, with
all statutes, laws, ordinances and government rules and regulations to which it
is subject, noncompliance with which could have a Material Adverse Effect or a
material adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral.
6.3 FINANCIAL STATEMENT, REPORTS, CERTIFICATES.
Borrower shall deliver to Bank: (a) as soon as available, but in any event
within thirty (30) days after the end of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during such period, in a form and certified by an officer of Borrower
reasonably acceptable to Bank; (b) as soon as available, but in any event within
one hundred twenty (120) days after the end of Borrower's fiscal year, audited
consolidated financial statements of Borrower prepared in accordance with GAAP,
consistently applied, together with an unqualified opinion on such financial
statements of an independent certified public accounting firm reasonably
acceptable to Bank; (c) within five (5) days of filing, copies of all
statements, reports and notices sent or made available generally by Borrower to
its securityholders or to any holders of Subordinated Debt; (d) promptly upon
receipt of notice thereof, a report of any legal actions pending or threatened
against Borrower or any Subsidiary that could result in damages or costs to
Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000) or more;
and (e) such budgets, sales projections, operating plans or other financial
information as Bank may reasonably request from time to time.
Within thirty (30) days after the last day of each month, Borrower shall
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in substantially the form of EXHIBIT C hereto.
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6.4 INVENTORY; RETURNS.
Borrower shall keep all Inventory in good and marketable condition, free
from all material defects. Returns and allowances, if any, as between Borrowers
and its account debtors shall be on the same basis and in accordance with the
usual customary practices of Borrower, as they exist at the time of the
execution and delivery of this Agreement. Borrower shall promptly notify Bank of
all returns and recoveries and of all disputes and claims, where the return,
recovery, dispute or claim involves more than Fifty Thousand Dollars ($50,000).
6.5 TAXES.
Borrower shall make, and shall cause each Subsidiary to make, due and
timely payment or deposit of all material federal, state, and local taxes,
assessments, or contributions required of it by law, and will execute and
deliver to Bark, on demand, appropriate certificates attesting to the payment or
deposit thereof; and Borrower will make, and will cause each Subsidiary to make,
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
the amount or validity of such payment is (i) contested in good faith by
appropriate proceedings, (ii) is reserved against (to the extent required by
GAAP) by the Borrower and (iii) no lien other than a Permitted Lien results.
6.6 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as are reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank; be payable to Bank
to be applied on account of the Obligations.
6.7 PRINCIPAL DEPOSITORY ACCOUNT.
Borrower shall maintain a depository account with Bank.
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6.8 TANGIBLE NET WORTH.
Borrower shall maintain, as of the last day off each calendar month, a
Tangible Net Worth of not less than Two Million Dollars ($2,000,000).
6.9 FURTHER ASSURANCES.
At any time and from time to time Borrower shall execute and deliver such
further instruments and take such further action as may reasonably be requested
by Bank to effect the purposes of this Agreement.
ARTICLE VII
NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:
7.1 DISPOSITIONS.
Convey, sell, lease, transfer or otherwise dispose of (collectively, a
'Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers: (i) of inventory in the ordinary
course of business, (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; (iii) that constitute payment of normal and usual operating
expenses in the ordinary course of business; or (iv) of worn-out or obsolete
Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, OR MANAGEMENT, BUSINESS LOCATIONS.
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a material change in Borrower's ownership or management, PROVIDED
HOWEVER, that the Bank acknowledges that ownership of the Borrower may change
due to its anticipated equity round of financing which shall (a) not exceed
$20,000,000.00 in the aggregate, and (b) be completed or before November 1,
1999. Borrower will not, without at least thirty (30) days prior written
notification to Bank, relocate its chief executive office or add any new offices
or business locations.
7.3 MERGERS OR ACQUISITIONS.
Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with or into any other business organization, or acquire, or permit
any of its Subsidiaries to acquire, all or substantially all of the capital
stock or property of another Person unless, with respect to acquisitions only:
(A) (i) there is no Event of Default hereunder, AND (ii) that any such
acquisition will not result, on a prospective basis, in the breach of any of the
covenants, terms and conditions hereunder, AND (iii) that such merger,
consolidation or acquisition is in the same or similar of business as the
Borrower, AND (iv) the Borrower is the surviving legal entity, AND (v)
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the Borrower provides the Bank with at least forty five (45) days advance notice
of such intended or acquisition in which the Borrower shall not be the surviving
legal entity to enable the Bank to ensure the continued perfection of its
security interest in the Collateral and address any issues relative to the
effect of such acquisition upon this Agreement, the costs of which shall be
borne by the Borrower, AND (vi) no indebtedness (either direct or contingent) is
assumed by the Borrower in connection with such transaction without the Bank's
prior written consent, AND (vii) such acquisition does not result in a change in
the net worth (as determined in accordance with GAAP) of the Borrower equal to
or greater than twenty percent (20%) OR (B) (i) all Obligations of the Borrower
are repaid in connection with such acquisition, AND (ii) this Agreement (and any
commitment by the Bank to make Credit Extensions hereunder) is terminated.
7.4 INDEBTEDNESS.
Create, incur, assume or be or remain liable with respect to any
Indebtedness, or permit any Subsidiary so to do, other than Permitted
Indebtedness.
7.5 ENCUMBRANCES.
Create, incur, assume or suffer to exist any Lien with respect to any of
its property, or assign or otherwise convey any right to receive income,
including the sale of any Accounts, or permit any of its Subsidiaries so to do,
except for Permitted Liens.
7.6 DISTRIBUTION.
Pay any dividends or make any other distribution or payment on account of
or in redemption, retirement or purchase of any capital stock.
7.7 INVESTMENTS.
Directly or indirectly acquire or own, or make any Investment in or to any
Person, or permit any of its Subsidiaries so to do, other than Permitted
Investments.
7.8 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter into or permit to exist any material
transaction with any Affiliate of Borrower except for transactions that are in
the ordinary course of Borrower's business, upon fair and reasonable terms that
are no less favorable to Borrower than would be obtained in an arm's length
transaction with a nonaffiliated Person.
7.9 SUBORDINATED DEBT.
Make any payment in respect of any Subordinated Debt, or permit any of its
Subsidiaries to make any such payment, except in compliance with the terms of
such Subordinated Debt, or amend any provision contained in any documentation
relating to the Subordinated Debt without Bank's prior written consent.
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7.10 INVENTORY.
Store the Inventory with a bailee, warehouseman, or similar party unless
Bank has received a pledge of any warehouse receipt coveting such Inventory.
Except for Inventory sold in the ordinary course of business and except for such
other locations as Bank may approve in writing, Borrower shall keep the
Inventory only at the location set forth, in Section 10 hereof and such other
locations of which Borrower gives Bank prior written notice and as to which
Borrower signs and fries a financing statement where needed to perfect Bank's
security interest
7.11 COMPLIANCE.
Become an "investment company" or a company controlled by an "investment
company," within the meaning of the Investment Company Act of 1940, or become
principally engaged in, or undertake as one of its important activities, the
business of extruding credit for the purpose of purchasing or carrying margin
stock, or use the proceeds of any Advance for such purpose; fail to meet the
minimum funding requirements of ERISA; permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair
Labor Standards Act or violate any other law or regulation, which violation
could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral; or permit any of
its Subsidiaries to do any of the foregoing.
ARTICLE VIII
EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 PAYMENT DEFAULT.
If Borrower fails to pay, when due, any of the Obligations.
8.2 COVENANT DEFAULT.
(a) If Borrower fails to perform any obligation under Sections 6.3,
6.5, 6.6, 6.7, or 6.8 or violates any of the covenants contained in Article 7 of
this Agreement; or
(b) If Borrower fails or neglects to perform, keep, or observe any
other material term, provision, condition, covenant, or agreement contained in
this Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within tell (10) days after the occurrence thereof; PROVIDED,
HOWEVER, that if the default cannot by its nature be cured within the ten (10)
day period or cannot after diligent attempts by Borrower be cured within such
ten (10) day period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional reasonable period (which shall not
in any case exceed thirty (30) days) to attempt to cure such default, and within
such reasonable time period the failure to have cured such default shall not be
deemed an
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Event of Default (provided that no Advances will be required to be made during
such cure period);
8.3 MATERIAL ADVERSE CHANGE.
If there (i) occurs a material adverse change in the business, operations,
or condition (financial or otherwise) of the Borrower, or (ii) is a material
impairment of the prospect of repayment of any portion of the Obligation or
(iii) is a material impairment of the value or priority of Bank's security
interests in the Collateral;
8.4 ATTACHMENT.
If any material portion of Borrower's assets is attached, seized,
subjected to a writ or distress warrant, or is levied upon, or comes into the
possession of any trustee, receiver or person acting in a similar capacity and
such attachment, seizure, writ or distress warrant or levy has not been removed,
discharged or rescinded within ten (10) days, or if Borrower is enjoined,
restrained, or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs, or if a judgment or other
claim becomes a lien or encumbrance upon any material portion of Borrower's
assets, or if a notice of lien, levy, or assessment is fried of record with
respect to any of Borrower's assets by the United States Government, or any
department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 INSOLVENCY.
If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced
by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is
not dismissed or stayed within 30 days (provided that no Advances will be made
prior to the dismissal of such Insolvency Proceeding);
8.6 OTHER AGREEMENT.
If there is a default in any agreement to which Borrower is a party with a
third party or parties resulting in a right by such third party or parties,
whether or not exercised, to accelerate the maturity of any Indebtedness in an
amount in excess of One Hundred Thousand Dollars ($100,000.00) or that could
haven Material Adverse Effect;
8.7 SUBORDINATED DEBT.
If Borrower makes any payment on account of Subordinated Debt, except to
the extent such payment is allowed under any subordination agreement entered
into with Bank;
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8.8 JUDGMENTS.
If a judgment or judgments for the payment of money in an amount,
individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000.00) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of ten (10) days (provided that no Credit Extensions will
be made prior to the satisfaction or stay of such judgment); or
8.9 MISREPRESENTATIONS.
If any material misrepresentation or material misstatement exists now or
hereafter in any warranty or representation set forth herein or in any
certificate or writing delivered to Bank by Borrower or any Person acting on
Borrower's behalf pursuant to this Agreement or to induce Bank to enter into
this Agreement or any other Loan Document.
ARTICLE IX
BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
Upon the occurrence and during the continuance of an Event of Default,
Bank may, at its election, without notice of its election and without demand, do
any one or more of the following, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in Section
8.5 all Obligations shall become immediately due and payable without any action
by Bank);
(b) Cease advancing money or extending credit to or for the benefit
of Borrower under this Agreement or under any other agreement between Borrower
and Bank;
(c) Demand that Borrower (i) deposit cash with Bank in an amount
equal to the amount of any Letters of Credit remaining undrawn, as collateral
security for the repayment of any future drawings under such Letters of Credit,
and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in
advance all Letters of Credit fees scheduled to be paid or payable over the
remaining term of the Letters of Credit;
(d) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(e) Without notice to or demand upon Borrower, make such payments
and do such acts as Bank considers necessary or reasonable to protect its
security interest in the Collateral. Borrower agrees to assemble the Collateral
if Bank so requires, and to make the Collateral available to Bank as Bank may
designate. Borrower authorizes Bank to enter the premises where the Collateral
is located, to take and maintain possession of the Collateral, or any part of
it, and to pay, purchase, contest, or compromise any encumbrance, charge, or
lien which in Bank's determination appears to be prior or superior to its
security interest and to pay all
21
<PAGE>
expenses incurred in connection therewith. With respect to any of Borrower's
premises, Borrower hereby grants Bank a license to enter such premises and to
occupy the same, without charge in order to exercise any of Bank's lights or
remedies provided herein, at law, inequity, or otherwise;
(f) Without notice to Borrower set off and apply to the Obligations
any and all (i) balances and deposits of Borrower held by Bank, or (ii)
indebtedness at any time owing to or for the credit or the account of Borrower
held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Bank is hereby granted a non-exclusive, royalty-free license or
other right, solely pursuant to the provisions of this Section 9.1, to use,
without charge, Borrower's labels, patents, copyrights, mask works, rights of
use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling any
Collateral and, in connection with Bank's exercise of its rights under this
Section 9.1, Borrower's rights under all licenses and all franchise: agreements
shall inure to Bank's benefit;
(h) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in such
mariner and at such places (including Borrower's premises) as Bank determines is
commercially reasonable, and apply the proceeds thereof to the Obligations in
whatever manner or order it deems appropriate;
(i) Bank may credit bid and purchase any Collateral at any public
sale, or at any private sale as permitted by law; and
Any deficiency that exists after disposition of the Collateral as provided
above will be paid immediately by Borrower.
9.2 POWER OF ATTORNEY.
Effective only upon the occurrence and during the continuance of an Event
of Default, Borrower hereby irrevocably appoints Bank (and any of Bank's
designated officers, or employees) as Borrower's true and lawful attorney to:
(a) send requests for verification of Accounts or notify account debtors of
Bank's security interest in the Accounts; (b) endorse Borrower's name on any
checks or other forms of payment or security that may come into Bank's
possession; (c) sign Borrower's name on any invoice or bill of lading relating
to any Account, draft against account debtors, schedules and assignments of
Accounts, verifications of Accounts, and notices to account debtors; (d) make,
settle, and adjust all claims under and decision with respect to Borrower's
policies of insurance; and (e) settle and adjust disputes and claims respecting
the accounts directly with account debtors, for mounts and upon terms which Bank
determines to be reasonable; and (f) to file, units sole discretion, one or more
financing or continuation statements and amendments thereto, relative to any of
the Collateral without the signature of Borrower where permitted by law provided
Bank may exercise such power of attorney to sign the name of Borrower on any of
the documents described in Section 4.2 regardless of whether an Event of Default
has occurred. The appointment of Bank as Borrower's
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attorney in fact, and each and every one of Bank's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and Bank's obligation to provide advances hereunder
is terminated.
9.3 ACCOUNTS COLLECTION.
Upon the occurrence and during the continuance of an Event of Default,
Bank may notify any Person owing funds to Borrower of Bank's security interest
in such funds and verify the amount of such Account. Borrower shall collect all
amounts owing to Borrower for Bank, receive in trust all payments as Bank's
trustee, and if requested or required by Bank, immediately deliver such payments
to Bank in their original form as received from the account debtor, with proper
endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amounts or furnish any required proof of
payment due to third persons or entities, as required under the terms of this
Agreement, then Bank may do any or all of the following: (a) make payment of the
same or any part thereof; (b) set up such reserves under the Committed Revolving
Line as Bank deems necessary to protect Bank from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the type discussed in
Section 6.6 of this Agreement, and take any action with respect to such policies
as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute
Bank Expenses, shall be immediately due and payable, and shall bear interest at
the then applicable rate hereinabove provided, and shall be secured by the
Collateral. Any payments made by Bank shall not constitute an agreement by Bank
to make similar payments in the future or a waiver by Bank of any Event of
Default under this Agreement.
9.5 BANK'S LIABILITY FOR COLLATERAL.
So long as Bank complies with reasonable banking practices, Bank shall not
in any way or manner be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or arising in any manner or
fashion from any cause; (c) any diminution the value thereof; or (d) any act or
default of any carrier, warehouseman, bailee, forwarding agency, or other person
whomsoever. All risk of loss, damage or destruction of the Collateral shall be
borne by Borrower.
9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements shall be cumulative. Bank shall have all other rights and
remedies not expressly set forth herein as provided under the Code, by law, or
in equity. No exercise by Bank of one right or remedy shall be deemed an
election, and no waiver by Bank of any Event of Default on Borrower's part shall
be deemed a continuing waiver. No delay by Bank shall constitute a waiver,
election, or acquiescence by it. No waiver by Bank shall be effective unless
made in a written document signed on behalf of Bank and then shall be effective
only in the specific instance and for the specific purpose for which it was
given.
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9.7 DEMAND; PROTEST.
Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of accounts,
documents, instruments, chattel paper, and guarantees at any time held by Bank
on which Borrower may in any way be liable.
ARTICLE X
NOTICES
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower:
Opus360 Corporation
733 3rd Avenue New York, New York 10017
Attn:___________________
FAX:___________________
with a copy to:
O'Sullivan, Graev & Karabell
30 Rockefeller Plaza
New York, New York, 10012
Attn: James Moriarty, Esquire
FAX: (212) 728-5950
If to Bank:
Silicon Valley Bank
40 William Street
Wellesley, Massachusetts 02481
Attn: Mr. Douglas W. Marshall
FAX: (781) 431-9906
with a copy to:
Riemer & Braunstein
Three Center Plaza
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Boston, Massachusetts 02108
Arm: David A. Ephraim, Esquire
FAX: (617) 723-6831
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other.
ARTICLE XI
CHOICE OF LAW AND VENUE; JURY WAIVER
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY,THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA.
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF
THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
ARTICLE XII
GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS.
This Agreement shall bind and inure to the benefit of the respective
successors and permitted assigns of each of the parties; PROVIDED, HOWEVER, that
neither this Agreement nor any rights hereunder may be assigned by Borrower
without Bank's prior written consent, which consent may be granted or withheld
in Bank's sole discretion. Bank shall have the right without the consent of or
notice to Borrower to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, fights and benefits
hereunder.
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12.2 INDEMNIFICATION.
Borrower shall, indemnify, defend, protect and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities claimed or asserted by any other party in connection with the
transactions contemplated fly the Loan Documents; and (h) all losses or Bank
Expenses in any way suffered, incurred, or paid by Bank as a result of or in any
way arising out of, following, or consequential to transactions between Bank and
Borrower whether under the Loan Documents, or otherwise (including without
limitation reasonable attorneys fees and expenses), except for losses caused by
Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations set forth in
this Agreement.
12.4 SEVERABILITY OF PROVISIONS.
Each provision of this Agreement shall be severable from every other
provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
12.5 AMENDMENTS IN WRITING, INTERPRETATION.
This Agreement cannot be mended or terminated except by a writing signed
by Borrower and Bank. All prior agreements, understandings, representations,
warranties and negotiations between the parties hereto with respect to the
subject matter of this Agreement, if any, are merged into this Agreement and the
Loan Documents.
12.6 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement.
12.7 SURVIVAL.
All covenants, representations and warranties made in this Agreement shall
continue in full force and effect so long as any Obligations remain outstanding.
Tile obligations of Borrower to indemnify Bank with respect to the expenses,
damages, losses, costs and liabilities described in Section 12.2 shall survive
until all applicable statute of limitations periods with respect to actions that
may be brought against Bank have run.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank shall exercise the same
degree of care that it exercises with respect to its own proprietary information
of the same types to maintain the confidentiality of any non-public information
thereby received or received pursuant to this Agreement except that disclosure
of such information may be made (i) to the subsidiaries or affiliates of Bank in
connection with their presents or prospective business relations with
26
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Borrower, (ii) to prospective transferees or purchasers of any interest in the
Loans, provided that they have entered into a comparable confidentiality
agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as
required by law, regulations, rule or order, subpoena, judicial order or similar
order, (iv) as may be required in connection with the examination, audit or
similar investigation of Bank, and (v) as Bank may deem appropriate in
connection with the exercise of any remedies hereunder. Confidential information
hereunder shall not include information that either: (a) is in the public domain
or in the knowledge or possession of Bank when disclosed to Bank or becomes part
of the public domain after disclosure to Bank through no fault of Bank; or Co)
is disclosed to Bank by a third parry, provided Bank does not have actual
knowledge that such third party is prohibited from disclosing such information.
12.9 COUNTERSIGNATURE.
This Agreement shall become effective only when it shall have been
executed by Borrower and Bank (PROVIDED, HOWEVER, in no event shall this
Agreement become effective until signed by an officer of Bank in California).
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IN WITNESS WHEREOF, the parties hereto have earned this Agreement to be
executed as a sealed instrument under the laws of the Commonwealth of
Massachusetts as of the date first above written.
OPUS360 CORPORATION
By: /s/
-----------------------------------------
Title: (CHIEF EXECUTIVE OFFICER)
SILICON VALLEY, D/B/A SILICON VALLEY EAST
By:
-----------------------------------------
Title:
--------------------------------------
SILICON VALLEY BANK
By:
-----------------------------------------
Title:
--------------------------------------
(Signed in Santa Clara County,
California)
<PAGE>
EXHIBIT A
The Collateral shall consist of all right, tide and interest of
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions and improvements
to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products, including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and, including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of rifle representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, leases, license agreements,
franchise agreements, blueprints, drawings, purchase orders, customer lists,
route lists, claims, literature, reports, catalogs, income tax refunds, payments
of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, letters of
credit, certificates of deposit, instruments and chattel paper now owned or
hereafter acquired and Borrower's Books relating to the foregoing; and
(f) Any and all claims, fights and interests in any of the above and
all substitutions for, additions and accessions to and proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not be deemed to
include any copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; any patents,
trademarks, servicemarks and applications therefor; any trade secret rights,
including any rights to unpatented inventions, know-how, operating manuals,
license rights and agreements and confidential information, now owned or
hereafter acquired; or any claims for damages by way of any past, present and
future infringement of any of the foregoing.
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., E.S.T.
TO CENTRAL CLIENT SERVICE DIVISION DATE:___________________
TIME:___________________
FAX# (781) 431-0755
FROM:___________________________________________________________________________
BORROWER'S NAME
FROM:___________________________________________________________________________
AUTHORIZED SIGNER'S NAME
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE
FROM:_________________________________________________________________________
FROM ACCOUNT#________________________ TO ACCOUNT#_____________________________
- --------------------------------------------------------------------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $
PRINCIPAL PAYMENT (ONLY) $
INTEREST PAYMENT (ONLY) $
PRINCIPAL AND INTEREST (PAYMENT) $
OTHER INSTRUCTIONS:
- --------------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as of
the date of the telephone request for and Advance confirmed by this Advance
Request; PROVIDED, HOWEVER, that those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of such date.
- --------------------------------------------------------------------------------
BANK USE ONLY:
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
- -----------------------------
Authorized Requester
------------------------------
Authorized Signature (Bank)
Phone#________________________
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: OPUS360 CORPORATION
The undersigned authorized officer of OPUS360 CORPORATION hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending __________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by the Borrower at any time or date of determination
that Borrower is not in compliance with any of the terms of the Agreement, and
that such compliance is determined not just at the date this certificate is
delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
Monthly financial
statements Annual (CPA Monthly within 30 days Yes No
Audited) FYE within 120 days Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
Maintain on a Monthly
Basis:
Minimum Tangible Net
Worth $2,000,000.00 $________ Yes No
Comments Regarding Exceptions: ======================
BANK USE ONLY
Sincerely, RECEIVED
BY:___________________
________________ Date:____________
SIGNATURE DATE:
REVIEWED
________________ BY:___________________
TITLE
COMPLIANCE STATUS:
YES/NO
======================
<PAGE>
- --------------------------------------------------------------------------------
SILICON VALLEY BANK
LOAN ARRANGEMENT WITH
OPUS360 CORPORATION
________________, 1999
- --------------------------------------------------------------------------------
DOCUMENT AGENDA
RESPONSIBLE
PARTY(1)
--------
A. AUTHORITY DOCUMENTS
1. Certificate of Incorporation, as amended Borrower
2. By-Laws, as amended Borrower
3. Certificate of Legal Existing/Good Standing BC
4. Foreign Qualification BC
5. Secretary's Certificate of Authority and Incumbency BC
6. Corporate Borrowing Resolution (Silicon Valley Bank Form) LC
B. LOAN DOCUMENTS
7. Loan and Security Agreement LC
8. Compliance Certificate LC
9. UCC-1 Financing Statements
(a) Secretary of State of New York
(b) City of New York
(c) Other Locations, if any LC
- ----------
(1) LC = Lender's Counsel - Riemer & Braunstein
BC = Borrower's Counsel
<PAGE>
RESPONSIBLE
PARTY(1)
--------
10. Legal Option as to Authority/Enforceability BC
11. Negative Pledge Agreement LC
12. UCC-1 Financing Statements
(a) Secretary of State of New York
(b) City of New York
(c) Other Locations, if any LC
13. Perfection Certificate (to be delivered by Borrower
prior to closing)
14. Warrant to Purchase Stock LC
15. Antidilution Agreement LC
C. MISCELLANEOUS
16. UCC Searches LC
17. Payoff Existing Lienholders LC
18. Certificate of Insurance BC
<PAGE>
IRREVOCABLE STANDY LETTER OF CREDIT NO. SVB99IS1450
DATED JUNE 11, 1999
INSTRUCTION TO THE NEGOTIATING BANK:
UPON OUR RECEIPT OF DOCUMENT IN STRICT COMFORMANCE WITH THE TERMS AND
CONDITIONS OF THIS LETTER OF CREDIT, WE WILL REMIT FUNDS ACCORDING TO YOUR
INSTRUCTIONS.
DOCUMENTS MUST BE SENT TO US VIA OVERNIGHT COURIER (I.E. FEDERAL EXPRESS,
UPS, DHL OR ANY OTHER EXPRESS COURIER) AT OUR ADDRESS:
SILICON VALLEY BANK
3303 TASMAN DRIVE,
SANTA CLARA, CA 95054
ATTN: INTERNATIONAL DIVISION.
WE HEREBY ENGAGE WITH DRAWERS AND/OR BONAFIDE HOLDERS THAT DRAFT(S) DRAWN UNDER
AND NEGOITATED IN CONFORMANCE WITH THE TERMS AND CONDITIONS OF THE SUBJECT
CREDIT WILL BE DULY HONORED ON PRESENTATION.
THIS CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY
CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION 500.
- --------------------------- -------------------------------
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
<PAGE>
EXECUTION VERSION
ANTIDILUTION AGREEMENT
THIS ANTIDILUTION AGREEMENT is entered into as of , 1999, by and
between Silicon Valley Bank ("Purchaser") and the Company whose name appears on
the last page of this Antidilution Agreement.
RECITALS
A. Concurrently with the execution of this Antidilution Agreement, the
Purchaser is purchasing from the Company a Warrant (the "Warrant") pursuant to
which Purchaser has the right to acquire from the Company the Shares (as defined
in the Warrant).
B. By this Antidilution Agreement, the Purchaser and the Company desire
to set forth the adjustment in the number of Shares issuable upon exercise of
the Warrant as a result of a Diluting Issuance (as defined in the Warrant).
C. Capitalized terms used herein shall have the same meaning as set
forth in the Warrant.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
ARTICLE I
DEFINITIONS
As used in this Antidilution Agreement, the following terms have the
following respective meanings:
"Option" means any right, option, or warrant to subscribe for,
purchase, or otherwise acquire Common Stock or Convertible Securities.
"Convertible Securities" means any evidences of indebtedness, shares of
stock, or other securities directly or indirectly convertible into or
exchangeable for Common Stock.
"Issue" means to grant, issue, sell, assume, or fix a record date for
determining persons entitled to receive, any security (including Options),
whichever of the foregoing is the first to occur.
"Additional Common Shares" means all Common Stock (including reissued
shares) Issued (or deemed to be issued pursuant to Section 2) after the date of
the Warrant. Additional Common Shares does not include, however, any Common
Stock Issued upon conversion of Options and Convertible Securities outstanding
as of the date of the Warrant; the Shares; or Common Stock Issued pursuant to a
stock option plan, as an incentive to, or in a
<PAGE>
nonfinancing transaction to employees, officers, directors, or consultants to
the Company which was approved by the Board of Directors of the Company prior to
the date of the Warrant.
ARTICLE II
DEEMED ISSUANCE OF ADDITIONAL COMMON SHARES
The shares of Common Stock ultimately issuable upon exercise of an
Option (including the shares of Common Stock ultimately issuable upon conversion
or exercise of a Convertible Security issuable pursuant to an Option) are deemed
to be Issued when the Option is Issued. The shares of Common Stock ultimately
issuable upon conversion or exercise of a Convertible Security (other than a
Convertible Security Issued pursuant to an Option) shall be deemed Issued upon
Issuance of the Convertible Security. The maximum amount of Common Stock
issuable is determined without regard to any future adjustments permitted under
the instrument creating the Options or Convertible Securities.
ARTICLE III
ADJUSTMENT OF WARRANT PRICE FOR DILUTING ISSUANCES
3.1 WEIGHTED AVERAGE ADJUSTMENT.
If the Company issues Additional Common Shares after the date of the
Warrant and the consideration per Additional Common Share (determined pursuant
to Section 4) is less than the Warrant Price in effect immediately before such
Issue, the Warrant Price shall be reduced, concurrently with such Issue, to a
price (calculated to the nearest hundredth of a cent) determined by multiplying
the Warrant Price by a fraction:
(a) the numerator of which is the amount of such Common Stock
outstanding immediately before such Issue plus the amount of Common
Stock that the aggregate consideration received by the Company for the
Additional Common Shares would purchase at the Warrant Price in effect
immediately before such Issue, and
(b) the denominator of which is the amount of Common Stock
outstanding immediately before such Issue plus the number of such
Additional Common Shares.
3.2 ADJUSTMENT OF NUMBER OF SHARES.
Upon each adjustment of the Warrant Price, the number of Shares
issuable upon exercise of the Warrant shall be increased to equal the quotient
obtained by dividing (a) the product resulting from multiplying (i) the number
of Shares issuable upon exercise of the Warrant and (ii) the Warrant Price, in
each case as in effect immediately before such adjustment, by (b) the adjusted
Warrant Price.
-2-
<PAGE>
3.3. SECURITIES DEEMED OUTSTANDING.
For the purpose of this Section 3, all securities issuable upon
exercise of any outstanding Convertible Securities or Options, warrants, or
other rights to acquire securities of the Company shall be deemed to be
outstanding.
ARTICLE IV
COMPUTATION OF CONSIDERATION
The consideration received by the Company for the Issue of any
Additional Common Shares shall be computed as follows:
(a) CASH. Cash shall be valued at the amount of cash received
by the Corporation, excluding amounts paid or payable for accrued
interest or accrued dividends.
(b) PROPERTY. Property other than cash shall be computed at
the fair market value thereof at the time of the Issue as determined in
good faith by the Board of Directors of the Company. (c) MIXED
CONSIDERATION. The consideration for Additional Common Shares Issued
together with other property of the Company for consideration that
covers both shall be determined in good faith by the Board of
Directors. (d) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per Additional Common Share for Options and Convertible Securities
shall be determined by dividing:
(i) the total amount, if any, received or receivable
by the Company for the Issue of the Options or Convertible
Securities, plus the minimum amount of additional
consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for
a subsequent adjustment of such consideration) payable to the
Company upon exercise of the Options or conversion of the
Convertible Securities, by
(ii) the maximum amount of Common Stock (as set forth
in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of
such number) ultimately issuable upon the exercise of such
Options or the conversion of such Convertible Securities.
ARTICLE V
GENERAL
5.1 GOVERNING LAW.
This Antidilution Agreement shall be governed in all respects by the
laws of the Commonwealth of Massachusetts as such laws are applied to agreements
between Massachusetts residents entered into and to be performed entirely within
Massachusetts.
-3-
<PAGE>
5.2 SUCCESSORS AND ASSIGNS.
Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, assigns,
heirs, executors and administrators of the parties hereto.
5.3 ENTIRE AGREEMENT.
Except as set forth below, this Antidilution Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof.
5.4 NOTICES, ETC.
All notices and other communications required or permitted hereunder
shall be in writing and shall be mailed by first class mail, postage prepaid,
certified or registered mail, return receipt requested, addressed (a) if to
Purchaser at Purchaser's address as set forth below, or at such other address as
Purchaser shall have furnished to the Company in writing, or (b) if to the
Company, at the Company's address set forth below, or at such other address as
the Company shall have furnished to the Purchaser in writing.
5.5 SEVERABILITY.
In case any provision of this Antidilution Agreement shall be invalid,
illegal, or unenforceable, the validity, legality and enforceability of the
remaining provisions of this Antidilution Agreement shall not in any way be
affected or impaired thereby.
5.6 TITLES AND SUBTITLES.
The titles of the sections and subsections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Antidilution Agreement.
-4-
<PAGE>
5.7 COUNTERPARTS.
This Antidilution Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
PURCHASER COMPANY
SILICON VALLEY BANK OPUS 360 CORPORATION
By: By:
--------------------------- ----------------------------
Name: Name:
---------------------- --------------------------
Title: Title:
--------------------- -------------------------
Address: Address:
------------------- -----------------------
------------------- -----------------------
------------------- -----------------------
<PAGE>
CORPORATE BORROWING RESOLUTION
BORROWER: OPUS360 CORPORATION BANK: Silicon Valley Bank
733 3rd Avenue 3003 Tasman Drive
New York, New York 10017 Santa Clara, California 95054
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF OPUS360
CORPORATION ("BORROWER"), HEREBY CERTIFY that Borrower is a corporation duly
organized and existing under and by virtue of the laws of the State of Delaware.
I FURTHER CERTIFY that at a meeting of the Directors of Borrower (or
by other duly authorized corporate action in lieu of a meeting), duly called and
held, at which a quorum was present and voting, the following resolutions were
adopted.
BE IT RESOLVED, that any one (1) of the following named officers,
employees, or agents of Borrower, whose actual signatures are shown below:
NAMES POSITIONS ACTUAL SIGNATURES
acting for and on behalf of Borrower and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers of Borrower
and Bank, such sum or sums of money as in their judgment should be borrowed.
EXECUTE LOAN DOCUMENTS. To execute and deliver to Bank the loan
documents of Borrower, on Bank's forms, at such rates of interest and on such
terms as may be agreed upon, evidencing the sums of money so borrowed or any
indebtedness of Borrower to Bank, and also to execute and deliver to Bank one or
more renewals, extensions, modifications, refinancings, consolidations, or
substitutions for one or more of the loan documents, or any portion of the loan
documents.
GRANT SECURITY. To grant a security interest to Bank in any of
Borrower's assets, which security interest shall secure all of Borrower's
obligations to Bank.
NEGOTIATE ITEMS. To draw, endorse and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to Borrower or in which Borrower may have an interest, and
either to receive cash for the same or to cause such proceeds to be credited to
the account of Borrower with Bank, or to cause such other disposition of the
proceeds derived therefrom as they may deem advisable.
<PAGE>
LETTERS OF CREDIT. To execute letter of credit applications and
other related documents pertaining to Bank's issuance of letters of credit.
FOREIGN EXCHANGE CONTRACTS. To execute and deliver foreign exchange
contracts, either spot or forward, from time to time, in such amount as, in the
judgment of the officer or officers herein authorized.
ISSUE WARRANTS. To issue warrants to purchase Borrower's capital
stock, for such class, series and number, and on such terms, as an officer of
Borrower shall deem appropriate.
FURTHER ACTS. In the case of lines of credit, to designate
additional or alternate individuals as being authorized to request advances
thereunder, and in all cases, to do and perform such other acts and things, to
pay any and all fees and costs, and to execute and deliver such other documents
and agreements, including agreements waiving the right to a trial by jury, as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to
these Resolutions and performed prior to the passage of these resolutions are
hereby ratified and approved, that these Resolutions shall remain in full force
and effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of Borrower's agreements or commitments in effect at the
time notice is given.
I FURTHER CERTIFY that the persons named above are principal
officers of the Corporation and occupy the positions set opposite their
respective names; that the foregoing Resolutions now stand of record on the
books of the Corporation; and that they are in full force and effect and have
not been modified or revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on May __, 1999, and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X /s/
----------------------------------
*Secretary or Assistant Secretary
X
----------------------------------
*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this resolution should
also be signed by a second Officer or Director of Borrower.
<PAGE>
Exhibit 10.6
This LOAN AND SECURITY AGREEMENT (this
"Agreement"), dated August 17, 1999, between SILLCON
VALLEY BANK, a California-chartered bank, with its
principal place of business at 3003 Tasman Drive,
Santa Clara, California 95054 and with a loan
production office located at Wellesley Office Park,
40 William Street, Suite 350, Wellesley,
Massachusetts 0248l, doing business under the name
"Silicon Valley East" ("Bank") and OPUS360
CORPORATION, a Delaware corporation with is chief
executive office located at 733 3rd Avenue, New York,
New York 10017 ("Borrower"), provides the terms on
which Bank will lend to Borrower and Borrower will
repay Bank. The parties agree as follows:
Section 1. ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be
construed following GAAP. Calculations and determinations must be made following
GAAP. The term "financial statements" includes the notes and schedules. The
terms "including" and "includes" always mean "including (or includes) without
limitation" in this or any Loan Document. Capitalized terms in this Agreement
shall have the meanings set forth in Section 13. This Agreement shall be
construed to impart upon Bank a duty to act reasonably at all times.
Section 2. LOAN AND TERMS OF PAYMENT
1. CREDIT EXTENSIONS. Borrower will pay Bank the unpaid principal
amount of all Credit Extensions and interest on the unpaid principal amount of
the Credit Extensions.
(a) EQUIPMENT FACILITY.
(i) Subject to the terms and conditions of this Agreement,
Bank agrees to lend to Borrower from time to time prior to the
Commitment Termination Date, equipment advances (each an "Equipment
Advance" and collectively the "Equipment Advances"), in an aggregate
amount not to exceed the Committed Equipment Line. When repaid, the
Equipment Advances may act be re-borrowed. The proceeds of the
Equipment Advances will be used solely to reimburse Borrower for the
purchase of Eligible Equipment purchased within 60 days (determined
based upon the applicable invoice date of such Eligible Equipment) of
the Equipment Advance. Each Equipment Advance shall be considered a
promissory note evidencing the amounts due hereunder for all purposes.
Bank's obligation to lend hereunder shall terminate on the earlier of
(i) the occurrence and continuance of an Event of Default, or (ii) the
Commitment Termination Date. For purposes of this Section, the minimum
amount of each Equipment Advance is Fifty Thousand Dollars ($50,000.00)
and the maximum number of Equipment Advances that will be made is ten
(10).
<PAGE>
(ii) To obtain an Equipment Advance, Borrower will deliver to
Bank a completed supplement in substantially the form attached as
EXHIBIT B ("Loan Supplement"), together with a UCC Financing Statement
covering the Equipment described on the Loan Supplement and such
additional information as Bank may reasonably request at least five (5)
Business Days before the proposed funding date (the "Funding Date"). On
each Funding Date, Bank will specify in the Loan Supplement for each
Equipment Advance, the Basic Rate, the Loan Factor and the Payment
Dates. If Borrower satisfies the conditions of each Equipment Advance,
Bank will disburse such Equipment Advance by internal transfer to
Borrower's deposit account with Bank. Each Equipment Advance may not
exceed 100% of the Original Stated Cost.
(iii) Bank's obligation to lend the undisbursed portion of the
Committed Equipment Line will terminate if, in Bank's sole discretion,
there has been a material adverse change in the general affairs,
management, results of operation, condition (financial or otherwise) or
the prospects of Borrower, whether or not arising from transactions in
the ordinary course of business, or there has been any material adverse
deviation by Borrower from the most recent business plan of Borrower
presented to and accepted by Bank prior to the execution of this
Agreement.
2. OVERADVANCES. If Borrower's Obligations under Section 2.l.l exceed
the Committed Equipment Line, Borrower must immediately pay in cash to Bank the
excess.
3. INTEREST RATE; PAYMENTS.
(a) PRINCIPAL AND INTEREST PAYMENTS ON PAYMENT DATES. Borrower will
repay the Equipment Advances on the terms provided in the Loan Supplement.
Borrower will make payments monthly in advance of principal and accrued interest
for each Equipment Advance (collectively, "Scheduled Payments"), on the first
Business Day of the month following the Funding Date (or commencing on the
Funding Date if the Funding Date is the first Business Day of the month) with
respect to such Equipment Advance and continuing thereafter during the Repayment
Period on the first Business Day of each calendar month (each a "Payment Date"),
in an amount equal to the Loan Factor multiplied by the Loan Amount for such
Equipment Advance as of such Payment Date. All unpaid principal and accrued
interest is due and payable in full on the last Payment Date with respect to
such Equipment Advance. Payments received after 12:00 noon Eastern time are
considered received at the opening of business on the next Business Day. An
Equipment Advance may only be prepaid in accordance with Sections 2.3(e) and
2.3(g).
(b) INTEREST RATE. Borrower will pay interest on the unpaid principal
amount of each Equipment Advance from the first Payment Dates after the Funding
Date of such Equipment Advance until the Equipment Advance has been paid in
full, at the per-annum rate of interest equal to the Basic Rate determined by
Bank as of the Funding Date for each Equipment Advance in accordance with the
definition of the Basic Rate. Any amounts outstanding during the continuance of
an Event of "Default shall bear interest at a per-annum rate equal to the Basic
Role plus five percent (5%) (the "Default Rate"). If any change in the law
increases Bank's expenses or decreases its return from the Equipment Advances,
Borrower will pay Bank upon request the amount of such increase or decrease.
2
<PAGE>
(c) INTERIM PAYMENT. In addition to the Scheduled Payments, on the
Funding Date for each Equipment Advance (unless the Funding Date is the first
Business Day of the month), Borrower shall pay to Bank, on behalf of Bank, an
amount (the "Interim Payment") equal to the initial Equipment Advance multiplied
by the product of (i) the quotient derived from dividing the initial Loan Factor
with respect to such Equipment Advance by 30, and (ii) the number of days from
the Funding Date of the Equipment Advance until the first Payment Date with
respect to such Equipment Advance.
(d) FINAL PAYMENT. On the Maturity Date with respect to each Equipment
Advance, Borrower will pay, in addition to the unpaid principal and accrued
interest and all other amounts due on such date with respect to such Equipment
Advance, an amount equal to the Final Payment.
(e) PREPAYMENT UPON AN EVENT OF LOSS. If any Financed Equipment is
subject to an Event of Loss and Borrower is required to, or elects to, prepay
the Equipment Advance with respect to such Financed Equipment pursuant to
Section 6.6, then such Equipment Advance shall be prepaid to the extent and in
the manner provided in such section.
(f) MANDATORY PREPAYMENT UPON AN ACCELERATION. If the Equipment
Advances are accelerated following the occurrence of an Event of Default or
otherwise (other than following an Event of Loss), then Borrower will
immediately pay to Bank (i) all unpaid Scheduled Payments with respect to each
Equipment Advance due prior to the date of prepayment, (ii) all accrued unpaid
interest, including interest at the Default Rate, to the date of the prepayment,
(iii) the Final Payment and (iv) all other sums, if any, that shall have become
due and payable with respect to any Equipment Advance.
(g) PERMITTED PREPAYMENT OF LOANS. With Bank's prior written consent,
Borrower shall have the option to prepay all, but not less than all, of the
Equipment Advances advanced by Bank under this Agreement, PROVIDED, Borrower (i)
provides written notice to Bank of its election to exercise to prepay the
Equipment Advances at least thirty (30) days prior to such prepayment, and (ii)
pays, on the date of the prepayment (A) all remaining Scheduled Payments
(including principal and interest); (B) all unpaid accrued interest to the date
of the prepayment; (C) the Final Payment; and (D) all other sums, if any, that
shall have become due and payable hereunder with respect to this Agreement.
(h) REQUEST TO DEBIT. Bank may debit any of Borrower's deposit
accounts, including Account Number _______ for principal and interest payments
or any amounts Borrower owes Bank when due. Bank will notify Borrower when it
debits Borrower's accounts. These debits are not a sit-off.
4. FEES. Borrower will pay to Bank:
(a) FINAL PAYMENT FEE. A fully earned, non-refundable Final Payment Fee
as and when set forth in Section 2.3(d); and
(b) BANK EXPENSES. All Bank Expenses (including reasonable attorneys'
fees and expenses), incurred through and after the Closing Date when due.
3
<PAGE>
5. ADDITIONAL COSTS. If any law or regulation increases Bank's costs or
reduces its income for any loan, Borrower will pay the increase in cost or
reduction in income or additional expense; PROVIDED, HOWEVER, that Borrower
shall not be liable for any amount attributable to any period before 180 days
prior to the date Bank notifies Borrower of such increased costs. Bank agrees
that it will allocate any increased costs among its customers similarly affected
in good faith and in a manner consistent with Bank's customary practice.
Section 3. CONDITIONS OF LOANS
1. CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION. Bank's obligation
to make the initial Credit Extension is subject to the condition precedent that
it receive the agreements, documents and fees it requires.
2. CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. Bank's obligations to
make each Credit Extension, including the initial Credit Extension, is subject
to the following:
(a) timely receipt of a completed Loan Supplement and UCC
financing statement; and
(b) the representations and warranties in Section 5 must be
materially true on the date or the Payment/Advance Form and on the
effective date of each Credit Extension, and no Event of Default may
have occurred and be continuing, or result from the Credit Extension.
Each Credit Extension is Borrower's representation and warranty on that
date that the representations and warranties in Section 5 remain true.
Section 4. CREATION OF SECURITY INTEREST
1. GRANT OF SECURITY INTEREST. Borrower grants Bank a continuing
security interest in all presently existing and later acquired Collateral to
secure all Obligations and performance of each of Borrower's duties under the
Loan Documents. Any security interest will be a f'irst priority security
interest in the Collateral. Bank may place a "hold" on any deposit account
pledged as Collateral. lf the Agreement is terminated, Bank's lien and security
interest in the Collateral will continue until Borrower fully satisfies its
Obligations.
Section 5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
1. DUE ORGANIZATION AND AUTHORIZATION. Borrower and each Subsidiary is
duly existing and in good standing in its state of formation and qualified and
licensed to do business in, and in good standing in, any state in which the
conduct of its business or its ownership of property requires that it be
qualified.
The execution, delivery and performance of the Loan Documents have been
duly authorized and do not conflict with Borrower's formations documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Sorrower is not in default under any agreement to which or by which it is
bound in which the default could cause a Material Adverse Change.
4
<PAGE>
2. COLLATERAL. Borrower has good title to the Collateral, free of
Liens, except for liens (i) in favor of the Bank arising under the May
Agreement, or (ii) for taxes, fees, assessments or other governmental charges or
levies, either not delinquent or being contested in good faith by appropriate
proceedings and as to which adequate reserves are maintained on Borrower's books
in accordance with GAAP, PROVIDED, the same have no priority over any of Bank's
security interests.
3. LITIGATION. Except as shown in the Schedule, there are no actions or
proceedings pending or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary in which an adverse decision could cause a Material
Adverse Change.
4. NO MATERIAL ADVERSE CHANGES IN FINANCIAL STATEMENTS. All
consolidated financial statements for Borrower and any Subsidiary delivered to
Bank fairly present in all material respects Borrower's consolidated financial
condition and Borrower's consolidated results of operations. There has not been
any material deterioration in Borrower's consolidated financial condition since
the date of the most recent financial statements submitted to Bank.
5. SOLVENCY. Borrower is able to pay its debts (including trade debts)
as they mature.
6. REGULATORY COMPLIANCE. Borrower is not an "investment company" or a
company "controlled" by an "investment company" under the Investment Company
Act. Borrower is not engaged as one of its important activities in extending
credit for margin stock (under Regulations T and U of the Federal Reserve Board
of Governors). Borrower has complied with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could cause a Material Adverse Change. None of Borrower's or any Subsidiary's
properties or assets has been used by Borrower or any Subsidiary or, to the best
of Borrower's knowledge, by previous Persons, in disposing, producing, storing,
treating, or transporting any hazardous substance other than legally. Borrower
and each Subsidiary has timely filed all required tax returns and paid, or made
adequate provision to pay, all material taxes, except those being contested in
good faith with adequate reserves under GAAP. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all government authorities that are
necessary to continue its business as currently conducted.
7. SUBSIDIARIES. Borrower does not own any stock, partnership interest
or other equity securities.
8. FULL DISCLOSURE. No representation, warranty or other statement of
Borrower in any certificate or written statement given to Bank contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained in the certificates or statements not
misleading.
Section 6. AFFIRMATIVE COVENANTS
Borrower will do all of the following:
5
<PAGE>
1. GOVERNMENT COMPLIANCE. Borrower will maintain its and all
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a material adverse effect on Borrower's
business or operations. Borrower will comply, and have each Subsidiary comply,
with all laws, ordinances and regulations to which it is subject, noncompliance
with which could have a material adverse effect on Borrower's business or
operations or cause a Material Adverse Change.
2. FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but no
later than thirty (30) days after the last day of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during the period, in a form acceptable to Bank and certified by a
Responsible Officer, (ii) as soon as available, but no later than one hundred
twenty (120) days after the end of Borrower's fiscal year, audited consolidated
financial statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm acceptable to Bank; (iii) within five (5) days of filing,
copies of all statements, reports and notices made available to Borrower's
security holders or to any holders of Subordinated Debt and all reports on Form
10-K, 10-Q and 8-K filed with the Securities and Exchange Commission; (iv) a
prompt report of any legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or any Subsidiary
of $100,000.00 or more; and (v) budgets, sales projections, operating plans or
other financial information Bank reasonably requests from time to time.
(b) Within thirty (30) days after the last day of each month, Borrower
will deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in the form of EXHIBIT C.
3. TAXES. Borrower will make, and cause each Subsidiary to make, timely
payment of all material federal, state and local taxes or assessments and will
deliver to Bank, on demand, appropriate certificates attesting to the payment.
4. INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral insured against
loss or damage by fire, theft, explosion, sprinklers and all other hazards and
risks, and in such amounts, as ordinarily insured against by other owners in
similar businesses conducted in the locations where Borrower's business is
conducted on the date hereof. Borrower shall also maintain insurance relating to
Borrower's ownership and use of the Collateral in amounts and of a type that are
customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as are reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof, and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to
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Bank before canceling its policy for any reason. At Bank's request, Borrower
shall deliver to Bank certified copies of such policies of insurance and
evidence of the payrolls of all premiums therefor. All proceeds payable under
any such policy shall, at the option of Bank, be payable to Bank to be applied
on account of the Obligations.
5. PRIMARY ACCOUNTS. Borrower will maintain a depository account with
Bank.
6. LOSS; DESTRUCTION; OR DAMAGE. Borrower will bear the risk of the
Financed Equipment being lost, stolen, destroyed or damaged. If, during the term
of this Agreement, any item of Financed Equipment becomes obsolete or is lost,
stolen, destroyed, damaged beyond repair, rendered permanently unfit for use, or
seized by a governmental authority for any reason for a period equal to at least
the remainder of the term of this Agreement (an "Event of Loss"), then in each
case, Borrower:
(a) Prior to the occurrence of an Event of Default, at Borrower's
option, will (i) pay to Bank on account of the Obligations all accrued interest
to the date of the prepaymemt. plus all outstanding principal, plus the Final
Payment: or (ii) repair or replace any Financed Equipment subject to an Event of
Loss provided the repaired or replaced Financed Equipment is of equal or like
value to the Financed Equipment subject to an Event of Loss and provided further
that Bank has a first priority perfected security interest in such repaired or
replaced Financed Equipment.
(b) During the continuance of an Event of Default, on or before the
Payment Date after such Event of Loss for each such item of Financed Equipment
subject to such Event of Loss, Borrower will, at Bank's option, pay to Bank an
amount equal to the sum of: (i) all accrued and unpaid Scheduled Payments (with
respect to such Equipment Advance related to the Event of Loss), due prior to
the next such Payment Date, (ii) all regularly Scheduled Payments (including
principal and interest), (iii) the Final Payment plus (iv) all other sums, if
any, that shall have become due and payable, including interest at the Default
Rate with respect to any past due amounts.
(c) On the date of receipt by Bank of the amount specified above with
respect to each such item of Financed Equipment subject to an Event of Loss,
this Agreement shall terminate as to such Financed Equipment. If any proceeds of
insurance or awards received from governmental authorities are in excess of the
amount owed under this Section, Bank shall promptly remit to Borrower the amount
in excess of the amount owed to Bank.
7. TANGIBLE NET WORTH. Borrower shall maintain, as of the last day of
each calendar month, a Tangible Net Worth of not less than Two Million Dollars
($2,000,000.00).
8. EQUITY. On or before September 30, 1999, the Borrower shall deliver
to the Bank a signed commitment letter and such other documentation as may be
reasonably required by the Bank relative to the Borrower's Series B equity
financing.
9. FURTHER ASSURANCES. At any time and from time to time, Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
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Section 7. NEGATIVE COVENANTS
Borrower will not do any of the following without the Bank's written
consent, which will not be unreasonably withheld:
1. Change its name or the chief executive office or principal place of
business, move or dispose of any interest in the Collateral, permit any lien or
security interest to attach to the Collateral, or enter into any transaction
outside the ordinary course of Borrower's business.
2. Become an "investment company" or a company controlled by an
"investment company," under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Credit Extension for that purpose; fail to
meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, if the
violation could have a material adverse effect on Borrower's business or
operations or cause a Material Adverse Change, or permit any of its Subsidiaries
to do so.
3. COMPLIANCE. Undertakes as one of its important activities extending
credit to purchase or carry margin stock, or use the proceeds of any Credit
Extension for that purpose; fail to meet the minimum funding requirements of
ERISA, permit a Reportable Event or Prohibited Transaction, as defraud in ERISA,
to occur; fail to comply with the Federal Fair Labor Standards Act or violate
any other law or regulation, if the violation could reasonably be expected to
have a material adverse effect on Borrower's business or operations or cause a
Material Adverse Change, or permit any of its Subsidiaries to do so.
Section 8. EVENTS OF DEFAULT
Any one of the following is an Event of Default:
1. PAYMENT DEFAULT. Borrower fails to pay any of the Obligations within
three (3) days after their due date. During the additional period, the failure
to cure the default is not an Event of Default (but no Credit Extensions will be
made during the cure period).
2. COVENANT DEFAULT. Borrower does not perform any obligation in
Article 6 or violates any covenant in Article 7 or does not perform or observe
any other material term, condition or covenant in this Agreement, any Loan
Documents, or in any agreement between Borrower and Bank and as to any default
under a term, condition or covenant that can be cured, has not cured the default
within 10 days after it occurs, or if the default cannot be cured within 10 days
or cannot be cured after Borrower's attempts in the 10-day period, and the
default may be cured within a reasonable time, then Borrower has an additional
time (of not more than 30 days) to attempt to cure the default. During the
additional period, the failure to cure the default is not an Event of Default
(but no Credit Extensions will be made during the cure period).
3. MATERIAL ADVERSE CHANGE. If there occurs (i) a material impairment
in the perfection or priority of the Book's security interest in the Collateral
or in the value of such Collateral other than normal depreciation which is not
covered by adequate insurance; (ii) a material adverse
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change in the business, operations, or condition (financial or otherwise) of the
Borrower, or (iii) a material impairment of the prospect of repayment of any
portion of the Obligations.
4. ATTACHMENT. (i) Any material portion of Borrower's assets is
attached, seized, levied on, or comes into possession of a trustee or receiver
and the attachment, seizure or levy is not removed in 10 days; (ii) Borrower is
enjoined, restrained, or represented by court order from conducting a material
part of its business; (iii) a judgment or other claim becomes a Lien on a
material portion of Borrower's assets; or (iv) a notice of lien, levy, or
assessment is filed against any of Borrower's assets by any government agency
and not paid within l0 days after Borrower receives notice. These are not Events
of Default if stayed or if a bond is posted pending contest by Borrower (but no
Credit Extensions will be made during the cure period).
5. INSOLVENCY. (i) Borrower becomes insolvent; (ii) Borrower begins an
Insolvency Proceeding; or (iii) an Insolvency Proceeding is begun against
Borrower and not dismissed or stayed within 30 days (but no Credit Extensions
will be made before any Insolvency Proceeding is dismissed).
6. MISREPRESENTATIONS. If Borrower or any Person acting for Borrower
makes any material misrepresentation or material misstatement now or later in
any warranty or representation. In this Agreement or in any communication
delivered to Bank or to induce Bank to enter this Agreement or any Loan
Document.
7. CROSS-DEFAULT. The occurrence of any Event of Default (as defined in
that certain Loan and Security Agreement, dated May 19, 1999, by and between the
Borrower and the Bank and, referred to herein as the "May Agreement"), shall
constitute an Event of Default under this Agreement. In addition, the Borrower
further acknowledges and agrees that the occurrence of any Event of Default
under this Agreement shall additionally constitute an Event of Default under the
May Agreement.
Section 9. BANK'S RIGHTS AND REMEDIES
1. RIGHTS AND REMEDIES. When an Event of Default occurs and continues,
Bank may, without notice or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs, all Obligations are
immediately due and payable without any action by Bank);
(b) declare all Obligations (as defined in the May Agreement) under the
May Agreement immediately due and payable (but if an Event of Default described
in Section 8.5 occurs, all such Obligations are immediately due and payable
without any action by Bank);
(c) stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;
(d) make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank
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requests and make it available as Bank designates. Bank may enter premises where
the Collateral is located, take and maintain possession of any part of the
Collateral, and pay, purchase, contest, or compromise any Lien which appears to
be prior or superior to its security interest and pay all expenses incurred.
Borrower grants Bank a license to enter and occupy any of its premises, without
charge, to exercise any of Bank's rights or remedies;
(e) apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) any account held by Bank owing to or for the credit or the
account of Borrower;
(f) ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale and sell the Collateral;
(g) dispose of the Collateral according to the Code; and
(h) exercise any and all fights and remedies of the Bank under the May
Agreement.
2. POWER OF ATTORNEY. When an Event of Default occurs and continues,
Borrower irrevocably appoints Bank as its lawful attorney to: (i) endorse
Borrower's name on any checks or other forms of payment or security; (ii) make,
settle and adjust all claims with respect to the Collateral under Borrower's
insurance policies; and (iii) transfer the Collateral into the name of Bank or a
third party as the Code permits. Bank may exercise the power of attorney to sign
Borrower's name on any documents necessary to perfect or continue the perfection
of any security interest regardless of whether an Event of Default has occurred.
Bank's appointment as Borrower's attorney in fact and all of Bank's rights and
powers, coupled with an interest, are irrevocable until all Obligations have
been fully repaid and performed and Bank's obligation to provide Credit
Extensions terminates.
3. BANK EXPENSES. If Borrower fails to pay any amount or furnish any
required proof of payment to third persons, Bank may make all or part of the
payment or obtain insurance policies required in Section 6.4, and take any
action under the policies Bank deems prudent. Any amounts paid by Bank are Bank
Expenses and immediately due and payable, bearing interest at the then
applicable rate and secured by the Collateral. No payments by Bank are deemed an
agreement to make similar payments in the future or Bank's waiver of any Event
of Default.
4. BANK'S LIABILITY FOR COLLATERAL. If Bank complies with reasonable
banking practices, it is not liable or responsible for: (a) the safekeeping of
the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in
the value of the Collateral; or (d) any act or default of any carrier,
warehouseman, bailee, or other person. Borrower bears all risk of loss, damage
or destruction of the Collateral.
5. REMEDIES CUMULATIVE. Bank's rights and remedies under this
Agreement, the Loan Documents and all other agreements are cumulative. Bank has
all rights and remedies provided under the Code, by law, or in equity. Bank's
exercise of one right or remedy is not an election, and Bank's waiver of any
Event of Default is not a continuing waiver. Bank's delay is not a waiver,
election, or acquiescence. No waiver is effective unless signed by Bank and then
is only effective for the specific instance and purpose for which it was given.
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6. DEMAND WAIVER. Borrower waives demand, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement extension, or renewal of accounts,
documents, instruments, chattel paper and guaranties held by Bank on which
Borrower is liable.
Section 10. NOTICES.
All notices or demands by any parity to this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile at the addresses listed at the beginning of this
Agreement. A Party may change its notice address by giving the other Party
written notice.
Section 11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA.
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON, OR ARISING OUT OF, ANY OF THE
LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
Section 12. GENERAL PROVISIONS
1. SUCCESSORS AND ASSIGNS. This Agreement binds and is for the benefit
of the successors and permitted assigns of each party. Borrower may not assign
this Agreement or any rights or Obligations under it without Bank's prior
written consent which may be granted or withheld in Book's discretion. Bank has
the right, without the consent of or notice to Borrower, to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Book's obligations, rights and benefits under this Agreement, the Loan Documents
or any related agreement.
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2. INDEMNIFICATION. Borrower will indemnify, defend and hold harmless
Bank and its officers, employees and agents against: (a) all obligations,
demands, claims and liabilities asserted by any other party in connection with
the transactions contemplated by the Loan Documents; and (b) all losses or Bank
Expenses incurred, or paid by Bank from, following, or consequential to
transactions between Bank and Borrower (including reasonable attorneys' fees and
expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
3. TIME OF ESSENCE. Time is of the essence for the performance of all
Obligations in this Agreement.
4. SEVERABILITY OF PROVISION. Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.
5. AMENDMENTS IN WRITING INTEGRATION. All amendments to this Agreement
must be in writing signed by both Bank and Borrower. This Agreement and the Loan
Documents represent the entire agreement about this subject matter, and
supersedes prior or contemporaneous negotiations or agreements. All prior or
contemporaneous agreements, understandings, representations, warranties and
negotiations between the parties about the subject matter of this Agreement and
the Loan Documents merge into this Agreement and the Loan Documents.
6. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, are an original, and all taken together, are one
Agreement.
7. SURVIVAL. All covenants, representations and warranties made in this
Agreement continue in full force while any Obligations remain outstanding. The
obligations of' Borrower in Section 12.2 to indemnify Bank will survive until
all statutes of limitations for actions, that may be brought against Bank, have
run.
8. CONFIDENTIALITY. In handling any confidential information, Bank will
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (i) to Book's
subsidiaries or affiliates in connection with their present or prospective
business relations with Borrower; (ii) to prospective transferees or purchasers
of any interest in the Loans; (iii) as required by law, regulation, subpoena, or
other judicial order or similar order, (iv) as required in connection with
Bank's examination or audit; and (v) as Bank considers appropriate in exercising
remedies under this Agreement. Confidential information does not include
information that either: (a) is in the public domain or in Bank's possession
when disclosed to Bank, or becomes part of the public domain after disclosure to
Bank through no fault of the Bank; or (b) is disclosed to Bank by a third party,
if Bank does not know that the third party is prohibited from disclosing the
information.
9. ATTORNEYS' FEES, COSTS AND EXPENSES. In any action or proceeding
between Borrower and Bank arising out of the Loan Documents, the prevailing
parry will be entitled to recover its reasonable attorneys' fees and other costs
and expenses incurred, in addition to any other relief to which it may be
entitled, whether or not a lawsuit is filed.
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Section 13. DEFINITIONS
1. Definitions.
"Affiliate" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"Bank Expenses" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"Basic Rate" is, as of the Funding Date, the per-annum rate of interest
(based on a year of 360 days) equal to the sum of (a) the U.S. Treasury note
yield to maturity for a term equal to the Treasury Note Maturity as quoted in
THE WALL STREET JOURNAL on the day the Loan Supplement is prepared, plus (b) the
Loan Margin.
"Business Day" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"Closing Date" is the date of this Agreement.
"Code" is the Massachusetts Uniform Commercial Code.
"Collateral" is the property described on EXHIBIT A.
"Committed Equipment Line" is a Credit Extension of up to One Million
Five Hundred Thousand Dollars ($1,500,000.00).
"Commitment Termination Date" is December 31, 1999.
"Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the scaled or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"Credit Extension" is each Equipment Advance or any other extension of
credit by Bank for Borrower's benefit.
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"Default Rate" is defined in Section 2.3(b).
"Eligible Equipment" is general purpose computer equipment, office
equipment, test and laboratory equipment, furnishings, and, subject to any
limitations set forth below, Other Equipment that complies with all of
Borrower's representations and warranties to Bank and which is acceptable to
Bank in all respects. All Equipment financed with the proceeds of Equipment
Advances shall be new, provided that Bank, in its sole discretion, may finance
used equipment.
"Equipment" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"Equipment Advance" is defined in Section 2.1.1.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"Final Payment" is a payment (in addition to, and not a substitution
for, the regular monthly payments of principal plus accrued interest) due on the
Maturity Date for such Equipment Advance equal to the Loan Amount for such
Equipment Advance at such time multiplied by the Final Payment Percentage.
"Final Payment Percentage" is, for each Equipment Advance, six and
three quarters percent (6.75%). "Financed Equipment' is defined in the Loan
Supplement.
"Funding Date" is any date on which an Equipment Advance is made to or
on account of Borrower. "GAAP" is generally accepted accounting principles.
"Indebtedness" is (a) indebtedness for borrowed money or the deterred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"Insolvency Proceeding" is any proceeding by or against any Person
under the United States Bankruptcy Code, or any other bankruptcy, or insolvency
law, including assignments for the benefit of creditors, compositions,
extensions generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Lien" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Amount" is the aggregate amount of the Equipment Advance.
"Loan Factor" is the percentage which results from dividing (i) the
monthly Scheduled Payment with respect to the applicable Equipment Advance by
(ii) the original principal amount of such Equipment Advance.
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"Loan Margin" is three hundred (300) basis points.
"Loss Supplement" is attached as EXHIBIT B.
"Loan Documents" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower, and any other present or future agreement
between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated.
"Material Adverse Change" is defined in Section 8.3.
"Maturity Date" is, with respect to each Equipment Advance, the last
day of the Repayment Period for such Equipment Advance, or if earlier, the date
of' acceleration of such Equipment Advance by Bank following an Event of
Default.
"May Agreement" is defined in Section 8.7.
"Obligations" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letter of credit and foreign
exchange contracts, if any, and including interest accruing after Insolvency
Proceedings begin and debts, liabilities, or obligations of Borrower assigned to
Bank.
"Original Stated Cost" is (i), the original cost to the Borrower of the
item of new Equipment net of any and all freight, installation, tax, or (ii) the
fair market value assigned to such item of used Equipment by mutual agreement of
Borrower and Bank at the time of making of the Equipment Advance.
"Other Equipment" is leasehold improvements, intangible property such
as computer software and software licenses, equipment specifically designed or
manufactured for Borrower, other intangible property, limited use property and
other similar property.
"Payment Date" is defined in Section 2.3(a).
"Person" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
"Repayment Period," as to each Equipment Advance, is thirty six (36)
months.
"Responsible Officer" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Schedule" is any attached schedule of exceptions. "Scheduled Payments"
is defined in Section 2.3(a).
"Subordinated Debt" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).
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"Subsidiary" is for any Person, joint ventures, or any other business
entity of which more than 50% of the voting stock or other equity interest is
owned or controlled, directly or indirectly, by the Person or one or more
Affiliates of the Person.
"Tangible Net Worth" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries MINUS, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, AND (ii) Total Liabilities plus Subordinated Debt.
"Total Liabilities" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
"Treasury Note Maturity" is thirty six (36) months.
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EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest
in and to the following:
Each item of equipment, or personal property financed with an
"Equipment Advance" pursuant to that certain Loan and Security Agreement, dated
as of August __,1999 (the "Loan Agreement"), by and between Debtor and Secured
Party, including, without limitation, the property described in Annex A hereto,
whether now owned or hereafter acquired, together with all substitutions,
renewals or replacements of and additions, improvements, and accessions to any
and all of the foregoing, and all proceeds from sales, renewals, releases or
other dispositions thereof.
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EXHIBIT B
FORM OF LOAN AGREEMENT SUPPLEMENT
LOAN AGREEMENT SUPPLEMENT No. [ ]
LOAN AGREEMENT SUPPLEMENT No. [ ], dated _________,19__ ("Supplement"),
to the Loan and Security Agreement, dated as of ___________, 1999 (the "Loan
Agreement), by and between the undersigned Opus360 Corporation ("Borrower") and
Silicon Valley Bank ('Bank").
Capitalized terms used herein but not otherwise defined herein are used
with the respective meanings given to such terms in the Loan Agreement.
To secure the prompt payment by Borrower of all amounts from time to time
outstanding under the Loan Agreement, and the performance by Borrower of all the
terms contained in the Loan Agreement, Borrower grants Bank, a first priority
security interest in each item of equipment and other property described in
Annex A hereto, which equipment and other property shall be deemed to be
additional Financed Equipment and Collateral. The Loan Agreement is hereby
incorporated by reference herein and is hereby ratified, approved and confirmed.
Annex A (Equipment Schedule) and Annex B (Loan Terms Schedule) are attached
hereto. The proceeds of the Loan should be transferred to Borrower's account
with Bank set forth below:
Bank Name: Silicon Valley Bank
Account No.:
Borrower hereby certifies that (a) the foregoing information is true and correct
and authorizes Bank to endorse in its respective books and records, the Basic
Rate applicable to the Funding Date of the Loan contemplated in this Loan
Agreement Supplement and the principal amount set forth in the Loan Terms
Schedule; (b) the representations and warranties made by Borrower in the Loan
Agreement are true and correct on the date hereof and will be true and correct
on such Funding Date. No Event of Default has occurred and is continuing under
the Loan Agreement. This Supplement may be executed by Borrower and Bank in
separate counterparts, each of which when so executed and delivered, shall be an
original, but all such counterparts shall together constitute but one and the
same Instrument.
This Supplement is delivered as of this day and year first above
written.
SILICON VALLEY BANK OPUS30 CORPORATION
By: By:
-------------------------- --------------------------
Name: Name:
--------------------- ---------------------
Title: Title:
-------------------- --------------------
Annex A - Description of Financed Equipment
Annex B - Loan Terms Schedule
18
<PAGE>
ANNEX A TO EXHIBIT B
The Financed Equipment being financed with the Equipment Advance which
this Loan Agreement Supplement is being executed, is listed below. Upon the
funding of such Equipment Advance, this schedule automatically shall be deemed
to be a part of the Collateral.
19
<PAGE>
ANNEX B TO EXHIBIT B
LOAN TERMS SCHEDULE #_________
Loan Funding Date: _____________, 199_
Original Loan Amount: $__________
Basic Rate: ________%
Loan Factor. ________%
Scheduled Payment Dates and Amounts*:
One (l) payment of $______ due ____________
_____ payment of $______ due monthly in advance from ____ through ______
One (l) payment of $______ due ____________
Maturity Date:
Final Payment: An additional amount equal to the Final Payment Percentage
multiplied by the Loan Amount then in effect, shall be paid on the
Maturity Date with respect to such Loan.
Payment No. Payment Date
1
2
3
4
...
35
[36]
...
* The amount of each Scheduled Payment will change as the Loan Amount changes.
20
<PAGE>
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: OPUS360 CORPORATION
The undersigned authorized officer of OPUS360 CORPORATION certifies
that under the terms and conditions of the Loan and Security Agreement, dated as
of August __, 1999, between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending __________ with all required
covenants except as noted below and (ii) all representations and warranties in
the Agreement are true and correct in all material respects on this date.
Attached are the required documents supporting the certification. The Officer
certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) consistently applied from one period to the next
except as explained in an accompanying letter or footnotes. The Officer
acknowledges that no borrowings may be requested at any time or date of
determination that Borrower is not in compliance with any of' the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES"
COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- --------
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
10-Q, 10-K and 8-K Within 5 days after filing with SEC Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
Minimum Tangible Net Worth $2,000,000,00 $____ Yes No
(tested monthly)
Equity Executed commitment Yes No
By 9/30/99
COMMENTS REGARDING EXCEPTIONS: See Attached.
Sincerely, BANK USE ONLY
SIGNATURE RECEIVED BY:
AUTHORIZED SIGNER
TITLE DATE:
- -------------------------------- VERIFIED:
Date AUTHORIZED SIGNER
DATE:
21
<PAGE>
LOAN AND SECURITY AGREEMENT
by and between
SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
ATTN: Loan Services
(408) 496-2429
and
OPUS360 CORPORATION
733 3rd Avenue
New York, New York 10017
TOTAL CREDIT AMOUNT: $1,500,000.00
Date: August 17, 1999
Repayment Period: 36 months
Treasury Note Maturity: 36 months
Final Payment Percentage: 6.75% Loan Margin: 300 basis points
Minimum Funding Amount: $50,000.00
Maximum Number of Loans Ten (10)
Commitment Termination Date: December 31, 1999
The terms and information set forth on this cover page are a part of
the attached Loan and Security Agreement, dated as of the date first written
above (this "Agreement"), entered into by and between Silicon Valley Bank
("Bank") and the borrower ("Borrower") set forth above. The terms and conditions
of this Agreement agreed to between Bank and Borrower are as follows:
<PAGE>
NEGATIVE PLEDGE AGREEMENT
This Negative Pledge Agreement is made as of ___________, 1999 by and
between OPUS360 CORPORATION, a Delaware corporation ("Borrower") and SILICON
VALLEY BANK, a California-chartered bank, with its principal place of business
at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan production
office located at Wellesley Office Park, 40 William Street, Suite 350,
Wellesley, Massachusetts 02481, doing business under the name "Silicon Valley
East" ("Bank").
In connection with, among other documents, the Loan and Security
Agreement (the "Loan Documents') being concurrently executed herewith between
Borrower and Bank, Borrower agrees as follows:
1. Except for the granting of licenses or sublicenses by Borrower in
the ordinary course of business, Borrower shall not sell, transfer, assign,
mortgage, pledge, lease, grant a security interest in, or encumber any of the
Borrower's Intellectual Property (as defined below):
2. Borrower has not, and shall not, enter into a negative pledge
agreement, or similar agreement, affecting the rights of the Intellectual
Property with any other party.
3. It shall be an event of default under the Loan Documents between
Borrower and Bank if there is a breach of any term of this Negative Pledge
Agreement.
4. As used herein,
(a) "Intellectual Property" means:
(i) Any and all Copyrights;
(ii) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now
or hereafter existing, created, acquired or held;
(iii) Any and all design rights which may be available to
Borrower now or hereafter existing, created, acquired or held;
(iv) All Mask Works or similar rights available for the
protection of semiconductor chips;
(v) All Patents;
(vi) Any Trademarks;
(vii) Any and all claims for damages by way of past, present
and future infringements of any of the rights included above, with the
right, but not the obligation, to sue for and collect such damages for
said use or infringement of the intellectual property rights identified
above;
<PAGE>
(viii) All licenses or other rights to use any of the
Copyrights, Patents, Trademarks, or Mask Works and all license fees and
royalties arising from such use to the extent permitted by such license
or rights;
(ix) All amendments, extensions, renewals and extensions of
any of the Copyrights, Trademarks, Patents, or Mask Works; and
(x) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing.
(b) "Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
(c) "Mask Works" means all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired;
(d) "Patents" means all patents, patent applications and like
protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same.
(e) "Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Borrower connected
with and symbolized by such trademarks.
5. Capitalized terms used but not otherwise defined herein shall have
the same meaning as in the Loan Documents.
6. The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA.
7. This Agreement shall become effective only when it shall have been
executed by Borrower and Bank (provided, however, in no event shall this
Agreement become effective until signed by an officer of Bank in California).
-2-
<PAGE>
EXECUTED as a sealed instrument this ______ day of ________, 1999 under
the laws of the Commonwealth of Massachusetts.
BORROWER:
OPUS360 CORPORATION
By:
----------------------------------
Name:
Title:
BANK:
SILICON VALLEY BANK
D/B/A SILICON VALLEY EAST
By:
----------------------------------
Name:
Title:
SILICON VALLEY BANK
By:
-----------------------------------
Name:
Title:
(Signed in Santa Clara, California)
<PAGE>
Exhibit 10.8
ENTERSPECT CORPORATION
1998 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock Purchase
Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as shall
be administering the Plan in accordance with Section 4 hereof.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the Board
in accordance with Section 4 hereof. ---------
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means Enterspect Corporation, a Delaware corporation.
(h) "CONSULTANT" means any person who is engaged by the Company or any
Parent or Subsidiary to render consulting or advisory services to such entity.
(i) "DIRECTOR" means a member of the Board of Directors of the Company.
of the Code.
(j) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3)
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
<PAGE>
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq
Stock Market, its Fair Market Value shall be the closing sales price
for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or system for the last market trading day prior
to the time of determination, as reported in The WALL STREET JOURNAL or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean between the high bid and low asked prices for
the Common Stock on the last market trading day prior to the day of
determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith
by the Administrator.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(p) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "OPTION" means a stock option granted pursuant to the Plan.
(r) "OPTION AGREEMENT" means a written or electronic agreement between
the Company and an Optionee evidencing the terms and conditions of an individual
option grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(s) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
Options are exchanged for Options with a lower exercise price.
(t) "OPTIONED STOCK" means the Common Stock subject to an Option or a
Stock Purchase Right.
2
<PAGE>
(u) "OPTIONEE" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(v) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(w) "PLAN" means this 1998 Stock Option Plan.
(x) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant
to a grant of a Stock Purchase Right under Section 12 below.
(y) "SECTION 16(B)" means Section 16Co) of the Securities Exchange Act
of 1934, as amended.
(z) "SERVICE Provider" means an Employee, Director or Consultant.
(aa) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13 below.
(bb) "STOCK PURCHASE RIGHT" means a right to purchase Common Stock
pursuant to Section 12 below.
(cc) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares which may be subject to
option and sold under the Plan is 4,000,000 Shares, plus an annual increase to
be added on each anniversary date of the adoption of the Plan (beginning in
1999) equal to the lesser of(i) 100,000 Shares, (ii) four percent (4%) of the
outstanding Shares on such date or (iii) a lesser amount determined by the
Board. The Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan, upon
exercise of either an option or Stock Purchase Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be
administered by different Committees with respect to different groups
of Service Providers.
3
<PAGE>
(ii) SECTION 162(M). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m)
of the Code, the Plan shall be administered by a Committee of two or
more "outside directors" within the meaning of Section 162(m) of the
Code.
(iii) RULE 16B-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the requirements
for exemption under Rule 16b-3.
(iv) OTHER ADMINISTRATION. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan
and, in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities, the
Administrator shall have the authority in its discretion:
(i) to determine the Fan Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each
such award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, of any Option or
Stock Purchase Right granted hereunder. Such terms and conditions
include, but are not limited to, the exercise price, the time or times
when Options or Stock Purchase Rights may be exercised (which may be
based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding
any Option or Stock Purchase Right or the Common Stock relating
thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(e) instead of Common
Stock;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option has declined since the date the Option was
granted;
(viii) to initiate an Option Exchange Program;
4
<PAGE>
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax
treatment under foreign tax laws;
(x) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued
upon exercise of an Option or Stock Purchase Right that number of
Shares having a Fair Market Value equal to the amount required to be
withheld. The Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be
determined. All elections by Optionees to have Shares withheld for this
purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable; and
(xi) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees.
5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Service Providers. Incentive Stock Options may be granted only
to Employees.
6. LIMITATIONS.
(a) $100,000 RULE. Each Option shall be designated in the Option
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) NO RIGHT TO CONTINUING EMPLOYMENT. Neither the Plan nor any Option
or Stock Purchase Right shall confer upon an Optionee any right with respect to
continuing the Optionee's relationship as a Service Provider with the Company,
nor shall they interfere in any way with the Optionee's right or the Company's
right to terminate such relationship at any time, with or without cause.
(c) SHARE LIMITATIONS. The following limitations shall apply to grants
of Options:
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 150,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 400,000
Shares which shall not count against the limit set forth in subsection
(i) above.
5
<PAGE>
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's
capitalization as described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a
transaction described in Section 13), the cancelled Option will be
counted against the limits set forth in subsections (i) and (ii) above.
For this purpose, if the exercise price of an Option is reduced, the
transaction will be treated as a cancellation of the Option and the
grant of a new Option.
7. TERM OF PLAN. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for a term often (10) years unless sooner
terminated under Section 15 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Incentive Stock Option shall be five (5) years from
the date of grant or such shorter term as may be provided in the Option
Agreement.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per share exercise price for the Shares to be
issued upon exercise of an option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant
of such Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the exercise price shall
be no less than 110% of the Fair Market Value per Share on the
date of grant.
(B) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market
Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of
a Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per
Share exercise price shall be no less than 100% of the Fair Market
Value per Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market
Value per Share on the date of grant pursuant to a merger or other
corporate transaction.
6
<PAGE>
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) CONSIDERATION. The consideration to be paid for the Shares to be
issued upon exercise of an Option, including the method of payment, shall be
determined by the Administrator (and, in the case of an Incentive Stock option,
shall be determined at the time of grant). Such consideration may consist of(1)
cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six months on the date of surrender, and (y) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which such Option shall be exercised, (5) consideration received by the
Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (6) any combination of the foregoing methods of
payment. In making its determination as to the type of consideration to accept,
the Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option granted
hereunder shall be exercisable according to the terms hereof at such times and
under such conditions as determined by the Administrator and set forth in the
Option Agreement. Unless the Administrator provides otherwise, vesting of
Options granted hereunder shall be tolled during any unpaid leave of absence. An
Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an Optionee
ceases to be a Service Provider, such Optionee may exercise his or her option
within such period of time as is specified in the Option Agreement (of at least
thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the
7
<PAGE>
Option as set forth in the option Agreement). In the absence of a specified time
in the option Agreement, the Option shall remain exercisable for three (3)
months following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service
Provider as a result of the optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the option Agreement
to the extent the option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the option Agreement, the
option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the optionee does not
exercise his or her option within the time specified herein, the option shall
terminate, and the Shares covered by such option shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's death. If, at the
time of death, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall immediately revert to
the Plan. The Option may be exercised by the executor or administrator of the
Optionee's estate or, if none, by the person(s) entitled to exercise the Option
under the Optionee's will or the laws of descent or distribution. If the Option
is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
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12. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically of the terms, conditions and restrictions
related to the offer, including the number of Shares that such person shall be
entitled to purchase, the price to be paid, and the time within which such
person must accept such offer. The offer shall be accepted by execution of a
Restricted Stock purchase agreement in the form determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines otherwise,
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine.
(c) OTHER PROVISIONS. The Restricted Stock purchase agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) RIGHTS AS A STOCKHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a stockholder
and shall be a stockholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 13 of
the Plan.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
9
<PAGE>
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her option or Stock Purchase Right until
fifteen (15) days prior to such transaction as to all of the optioned Stock
covered thereby, including Shares as to which the Option or Stock Purchase Right
would not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option applicable to any Shares purchased upon
exercise of an Option or Stock Purchase Right shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company with
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option and Stock Purchase Right shall be assumed
or an equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option or Stock
Purchase Right, the optionee shall fully vest in and have the right to exercise
the Option or Stock Purchase Right as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
or Stock Purchase Right becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock Purchase
Right shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or Stock Purchase Right shall be considered assumed
if, following the merger or sale of assets, the option or right confers the
right to purchase or receive, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Employee
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<PAGE>
or Consultant to whom an Option or Stock Purchase Right is so granted within a
reasonable time after the date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) STOCKHOLDER APPROVAL. The Board shall obtain stockholder approval
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
17. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the degree and manner
required under Applicable Laws.
11
<PAGE>
Exhibit 10.9
JP MORGAN AND OPUS360 CORPORATION
DEAL SHEET
October 15, 1999
BACKGROUND:
JP Morgan ("JP Morgan") and Opus360 desire to enter into a partnership for
the extranet-based Opus Xchange contractor procurement service;
JP Morgan desires to immediately begin to drive the development of Opus
Xchange as a member of the Opus360 Charter Member Program;
Opus360 desires to announce a partnership with leading IT organizations;
Opus360 and JP Morgan desire for JP Morgan to benefit from the success of
Opus360 in conjunction with its early involvement with the company.
Opus360 desires for JP Morgan to benefit from the success of Opus360 in
conjunction with its early involvement with the Company and JP Morgan
wishes to receive such benefit in the form of warrants that will be issued
at today's, pre-IPO price.
DEAL TERMS:
1. JP Morgan will sign a three year service agreement for the Opus Xchange
service, to be negotiated in good faith, and effective upon the signing of
this deal sheet. The service agreement will be contingent upon a trial
period to begin on or about January 1, 2000 and continuing for no more than
three months. (See prepayment terms below)
2. JP Morgan will become a Charter Member [of] the Opus Xchange service and
will participate actively in the continued development of Opus Xchange.
3. JP Morgan will be guaranteed a position on the Customer Advisory Board.
This Board will drive the development of Opus Xchange for as long as JP
Morgan is a customer of Opus360.
4. JP Morgan will assist Opus360 to produce a case study documenting the
benefits of the Opus360 solutions in lieu of an internally developed
application.
5. JP Morgan will approve a press release announcing the partnership at a
mutually agreeable time.
6. JP Morgan will pay Opus360 an annual Fee for the Opus Xchange service.
Proposed pricing for the Opus Xchange service is as follows:
OPUS XCHANGE
Opus360 will charge JP Morgan an annual, fixed subscription fee for usage of the
Opus Xchange service plus a per requisition fee based on the aggregate number of
requisitions or transactions
<PAGE>
over the Opus Xchange service. [***]
Additional requisitions for full-time recruiting requirements will also be
included.
PRICING
[***]
Prepayment: There will be a one-time fee of [***] payable upon the execution
of an agreement consistent with this memorandum of understanding. Half of the
prepayment will be applied to the setup and configuration of the application
and half will cover the first year's subscription payment. [***]
J.P. Morgan will receive [***] upon the execution of an agreement consistent
with this memorandum of understanding.
OTHER:
This deal sheet is valid through December 14, 1999.
JP Morgan Corporation Opus360 Corporation
By:______________________________ By:________________________
Ari Horowitz
Chairman & CEO
Date:____________________________ Date:______________________
<PAGE>
Exhibit 10.10
November 21, 1999
Opus360 Corporation
733 Third Avenue
17th Floor
New York, NY 10017
Attn: Ari Horowitz
Dear Mr. Horowitz;
The following is a summary of the principal terms of a
strategic alliance proposed to be entered into between CareerPath.Com
("CareerPath") and Opus360 Corporation ("Opus") with respect to a co-branded
website featuring content provided by FreeAgent.Com ("FreeAgent"). It is the
intent of the parties that Opus will be CareerPath's premier partner with
respect to project and contract workers and CareerPath will be Opus's premier
partner with respect to full-time career and employment services. The strategic
alliance is expected to be evidenced by more definitive agreements to be
negotiated and executed by the parties. However, this letter, once executed by
both parties, are intended to be binding and represent an enforceable agreement
between CareerPath and Opus.
1. CO-BRANDED SITE AND CO-BRANDED CONTENT. Subject to
CareerPath's reasonable approval, Free Agent will design,
produce, host and maintain a Co-Branded Site featuring content
and services geared towards temporary and project workers.
The Co-Branded Site will feature the following:
- Content and services provided by FreeAgent with
functionality and features similar to those found and
to be found on the site, FreeAgent.com.
- Services currently include Xchange, e*portfolio,
e*office, Buyers Coop and content servicing the
temporary and project workforce community.
- The brand "CareerPath.com Xchange, powered by
FreeAgent.com"
- Content which is regularly updated by FreeAgent and
at least as current and complete as that included on
the FreeAgent.com site, including, but not limited
to, all project listings included on that site or any
other co-branded site operated by FreeAgent.com.
<PAGE>
2. ADVERTISING AND PROMOTION OF THE CO-BRANDED SITE. CareerPath
and FreeAgent will market and promote the Co-Branded Site to
their existing customers, new customers and visitors to the
CareerPath.com and FreeAgent.com sites by including link,
graphics, text and promotional offers through the
CareerPath.com site and the FreeAgent.com site.
- FreeAgent and CareerPath will cooperate with one
another to jointly manage and market the Co-Branded
Site to create brand awareness.
- CareerPath and FreeAgent will create mutually
approved press releases to promote the Co-Branded
Site.
- CareerPath and FreeAgent will explore opportunities
to create specialized print and off-line advertising
aimed at marketing the Co-Branded Site as a leading
resource for part time work opportunities.
- The Co-Branded Site will include banner advertising
and links to the CareerPath.com site and
FreeAgent.com site, as well as third-party sites to
be mutually agreed upon with the parties sharing any
advertising revenues generated by such advertising in
accordance with paragraph 5 below.
- Each of CareerPath and FreeAgent will include
frequent notices promoting the other's site on
outgoing e-mail and newsletter services to its
audience (to the extent such service is then provided
by the respective party).
- All marketing costs for joint campaigns (created and
mutually approved by the parties) will be shared
equally by CareerPath and FreeAgent.
3. SALES CHANNELS; EXCLUSIVITY. CareerPath and FreeAgent shall
cooperate in the development of joint sales efforts through
its independent sales channels. FreeAgent acknowledges that
its sales efforts are currently focused primarily on selling
its enterprise solutions to corporate users and that its
current business strategy is to market its services to project
providers through its partners, such as CareerPath. FreeAgent
agrees that during the eighteen (18) month exclusivity period
("Exclusivity Period") commencing on the launch date of the
Co-Branded Site. [***] The parties agree to update these
lists quarterly as set forth in the definitive agreement.
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<PAGE>
4. CROSS-PROMOTION. Opus and CareerPath shall cooperate in the
development of programs designed to cross promote their
respective sites.
- CareerPath and FreeAgent shall promote one another on
their hosted sites (including the Co-Branded Site) by
identifying the other as their affiliate with direct
links to such affiliate's site. Opus understands that
CareerPath is currently redesigning its site and the
placement of such links will be agreed upon once that
redesign is complete.
- FreeAgent will provide content, features and
information targeted to free agents for prominent
display on the Career Path.com site. CareerPath will
provide content, features and information targeted to
full time employees for prominent display on the
FreeAgent.com site.
- To adequately promote each other's service to the
other party's audience, each of FreeAgent and
CareerPath will supply the other party with copy,
content and other information geared to informing,
educating and empowering job seekers and employers
within their targeted audiences with the intent of
establishing higher conversion rates and greater
volume to the programs described in this deal sheet.
5. REVENUE SHARING. CareerPath and FreeAgent will share in the
revenues generated on or by the Co-Branded Site, as follows:
- CareerPath and FreeAgent anticipate that the
Co-Branded Site will generate revenues from the
following sources: Advertising, subscription and
transaction fees from users of the Xchange service,
subscription fees from registered users, fees
generated from e*portfolio users and fees generated
from e*office users (back office services).
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<PAGE>
- FreeAgent will pay to CareerPath
- [***] FreeAgent shall not sell or license any
advertising, promotional, sponsorship, or similar
rights on the Co-branded Site without the prior
written consent of CareerPath, which consent shall
not be unreasonably withheld or delayed, and
FreeAgent shall have no obligation to accept any
advertising or promotional, sponsorship or similar
material on the Co-branded Site.
- CareerPath will receive [***]
- CareerPath will receive [***]
- Subject to compliance with its privacy policies,
CareerPath will auto-convert its resume database on
FreeAgent.com to drive Xchange transactions.
CareerPath will receive [***]
- [***]
4
<PAGE>
- [***]
- [***]
- As new revenue sources on the Co-Branded Site are
generated, FreeAgent and CareerPath shall negotiate
in good faith an equitable sharing arrangement for
CareerPath.
- FreeAgent and CareerPath will mutually agree to a
schedule of fees for services offered on the
Co-Branded Site, which schedule shall be modified
from time to time as mutually agreed. With
FreeAgent's consent, CareerPath will be able to offer
customers certain "promotional deals" consisting of
bundled services through the Co-Branded Site.
However, the sale of services to individuals on the
Co-Branded Site shall be not less than the service
fees charged on FreeAgent.com, as modified from time
to time.
- FreeAgent and CareerPath will share equally in the
cost of building the co-branded site described in
Paragraph 1 above, provided CareerPath's
contributions shall not exceed [***]
6. [***]
7. [***]
5
<PAGE>
- [***]
- All payments will be accompanied by detailed reports
of the calculation of the payment. The definitive
agreement will provide for customary audit rights to
be conducted at the requesting party's expense
(except where a misstatement in excess of 2% is
found, in which case the cost shall be borne by the
party responsible for such misstatement.
8. ADVERTISING. CareerPath shall provide the Co-Branded Site
[***] million of advertising in CareerPath.com's web site
and affiliated newspapers over the first three years of the
term of the agreement at a [***] discount from rate card
from newspaper and online venues offered to any other
CareerPath customer. The size and placement of this
advertising will be mutually agreed to by the parties.
9. ISSUANCE OF COMMON STOCK. Upon execution of the definitive
agreements, Opus shall deliver to CareerPath 163,570 shares at
$12.23 per share of Opus Common Stock (an amount equal to
$2,000,000 based upon a $350 million valuation of Opus) in
consideration of the advertising provided for in paragraph 8
above and payment of the [***]
10. TERMINATION FOR MATERIAL BREACH OR DEFAULT. Either Party may
terminate the Term immediately by giving notice to the other
Party if the other Party: (a) becomes insolvent; (b) files a
petition in bankruptcy; (c) makes an assignment for the
benefit of creditors; (d) discontinues the operation of its
Web site or (e) commits a material breach of any of its
obligations under the Agreement and such breach is not cured
within thirty (30) days after the breaching Party receives
notice of such breach from the non-breaching Party (each of
(a), (b), (c) and (d), collectively or individually, a
("Termination Event").
11. In the event that FreeAgent terminates the Agreement upon one
of the Termination Events described above in (a), (b), (c) or
(d) above then any shares of Common Stock received by
CareerPath as a result of this Agreement shall be subject to
the following conditions:
6
<PAGE>
(i) (ii) If a Termination Event occurs before the first
anniversary of the Launch Date, FreeAgent shall have
the right to buy back 75% of Opus shares received by
CareerPath at the price per share originally paid by
CareerPath; provided, that any such repurchase of
such Common Stock must be completed by FreeAgent
within ninety (90) days of the relevant Termination
Event.
(iii) If a Termination Event occurs during the time period
on or after the first anniversary and before the
second anniversary of the Launch Date, FreeAgent
shall have the right to buy back 50% of the shares
received by CareerPath at the price per share
originally paid by CareerPath; provided, that any
such repurchase of such Common Stock must be
completed by FreeAgent within ninety (90) days of the
relevant Termination Event.
(iv) If a Termination Event occurs during the time period
on or after the second anniversary and before the
third anniversary of the Launch Date, FreeAgent shall
have the right to buy back 25% of the shares received
by CareerPath at the price per share originally paid
by CareerPath; provided, that any such repurchase of
such Common Stock must be completed by FreeAgent
within ninety (90) days of the .relevant Termination
Event
(v) CareerPath will be subject to any lock-up provisions
on the Common Stock requested by the Opus'
underwriters.
12. TERM. The term of the agreement and the initial portion of the
advertising described in paragraph 8 shall commence on the
date of that each of the Board of Directors of CareerPath and
Opus360 approves this agreement and expires three years
following the Lunch Date, with the possibility for one-year
extensions m be mutually agreed upon by the parties,
confidentiality. All technical data, technology, trade
secrets, documentation, manuals, reports, software, source
code for software, financial documents or data, and any other
information and documents disclosed by the parties to each
other pursuant to this letter agreement (including the terms
of this letter agreement and any long form agreement to be
entered into) shall be deemed to be confidential information
of each respective party (the "Confidential Information"). The
parties will not use or disclose and will keep confidential
the Confidential Information of the other party, except to
employees, consultants, or agents to whom disclosure is
necessary and who shall be bound by the terms hereof, using
the same date as it uses to maintain the confidentiality of
its most confidential information. The parties acknowledge
that the remedy at law for any breach of the foregoing
provisions of this paragraph shall be inadequate and each
party shall be
7
<PAGE>
entitled to obtain injunctive relief against any such breach
or threatened breach, in addition to any other remedy
available to it.
The parties may disclose Confidential Information pursuant to
any governmental, or administrative order, subpoena, or
discovery request, provided that they use reasonable efforts
to notify the other party of such order, subpoena, or
discovery request so such party may seek to make such
disclosure subject to a protective order or confidentiality
agreement (it being agreed that if the party is unable to
obtain or does not seek a protective order and the disclosing
party is legally compelled to disclose such Confidential
Information, disclosure of such Confidential Information may
be made without liability). While the parties are prohibited
from disclosing the term of this letter agreement or any long
form agreement, they may disclose the existence of an
agreement between the parties.
"Confidential Information" shall not include information that:
(a) is in the public domain at the time of disclosure through
no fault of either party, (b) becomes rightfully known from a
third-party source under no obligation to maintain
confidentiality; (c) becomes publicly available through no
fault of or failure to act in breach of this letter agreement;
(d) was already known prior to the parties having access to
one another; or (e) was independently developed by an employee
of either party who had no access to any information disclosed
under this letter agreement.
BOARD APPROVAL. The effectiveness of this Agreement is
conditioned upon the approval of the Board of Directors of
CareerPath.com and Opus.
8
<PAGE>
If the foregoing is acceptable to you, please so indicate by
signing in the space provided below, at which time this letter shall constitute
a binding agreement between us.
CAREERPATH.COM, INC.
BY:________________________
Jonathan Swerdlow
Its: Vice President
By:________________________
Ari Horowitz
Its: Chief Executive Officer
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<PAGE>
SCHEDULE A
CareerPath.com Competitors:
1) [***]
2) [***]
Opus360/FreeAgent Competitors:
[***]
<PAGE>
2) Tier 2 [***]
<PAGE>
Exhibit 10.11
CHURCHILL BENEFIT CORPORATION, D/B/A FREEAGENT.COM, CONSULTING AGREEMENT
Agreement made this __ day of _________, 1999 by and between Churchill Benefit
Corporation, d/b/a FreeAgent.com ("FreeAgent.com"), having a place of business
at 100 East Linton Blvd., Suite 402A, Delray Beach, Florida 33483 and
__________________ ("Broker"), having a place of business at __________________.
WHEREAS, FreeAgent.com is in the business of providing, through employees
of FreeAgent.com selected by clients, brokers or clients of brokers, as an
independent contractor to clients, or clients of brokers who have requested
brokers to refer temporary staffing, to perform computer programming, software
development, systems analysis, professional engineering, technical writing or
other consulting services and Broker is desirous of retaining FreeAgent.com to
provide certain of said consulting services;
NOW, THEREFORE, in consideration of the premises set forth above and for
other good and valuable consideration, the receipt of which is hereby
acknowledged and subject to the terms and conditions of this Agreement, the
parties hereto agree as follows:
1. SERVICES.
Broker hereby retains FreeAgent.com to perform the services set forth in
Schedule A to this Agreement and any additional Schedules executed by Broker and
FreeAgent.com. Each Schedule for services will be successively lettered [for
example, A, B, C, etc.], will describe the consulting services (the "Services")
that Broker will purchase from FreeAgent.com, will name Broker's Client (the
entity that has requested Broker to provide temporary staffing), will set forth
the approximate commencement date and duration of the Services, the name of
FreeAgent.com's employee (the "Named Employee") who will perform the Services,
the prices and other details of the Services, and will be signed by an
authorized representative of FreeAgent.com and Broker. Schedule A and any other
Schedules executed by Broker and FreeAgent.com during the term of this Agreement
(the "Schedules") will be subject to the terms and conditions of this Agreement.
FreeAgent.com will use its reasonable commercial efforts to cause the Named
Employee to perform the Services in a good and workmanlike manner. It is
understood and agreed that the Named Employee has been selected by Broker or
Broker's Client to perform the Services, that FreeAgent.com has not participated
in such selection and that FreeAgent.com does not have the resources, nor will
it have any obligation, to replace the Named Employee with another employee of
FreeAgent.com in the event that the Named Employee is unable or unwilling, for
any reason, to perform the Services; FreeAgent.com shall have no liability to
Broker or Broker's Client on account of such inability or unwillingness of the
Named Employee.
If Broker orders from FreeAgent.com additional Services, such Services
shall be specified in a Schedule which when signed by Broker and FreeAgent.com
shall become part of this Agreement and subject to its terms and conditions.
Broker acknowledges that the successful completion of the Services by
FreeAgent.com will require the full, timely and good faith cooperation of
Broker, Broker's Client
<PAGE>
and their employees, including, without limitation, making available to
FreeAgent.com personnel of Broker's Client who will assist in the installation,
testing, and support relating to the Services, and Broker's Client providing in
a timely manner all information and access to key personnel as appropriate to
enable FreeAgent.com to perform the Services.
2. AUTHORITY, AND HOURS OF SERVICE.
(a) Authority: FreeAgent.com and Broker represent and warrant that they
have the right, power, and authority to enter into this Agreement, and to
perform their obligations under this Agreement.
(b) Hours of Service: FreeAgent.com shall provide the Services during
Broker's Client's regular working hours and at a location to be agreed to by
Broker's Client and FreeAgent.com, using materials and equipment furnished by
Broker's Client or FreeAgent.com. FreeAgent.com shall determine the method,
details, and means of performing the Services. Any services provided outside of
the specified hours of service shall be furnished at FreeAgent.com's applicable
rates and terms then in effect.
3. PAYMENTS, FEES AND CHARGES.
(a) Broker shall pay FreeAgent.com for the Services its rates, fees and
charges set forth in the Schedule for such services. FreeAgent.com will maintain
records of the hours that the Services have been performed, have Broker's Client
sign the records to confirm the hours worked, and submit the signed records to
Broker, together with FreeAgent.com's invoice for payment based upon the hours
worked. FreeAgent.com is entitled to payment of its invoices only upon Broker
receiving the necessary payments from Broker's Client to cover the hours
represented by FreeAgent.com's invoice; Broker will use its reasonable
commercial efforts to obtain such payments from Broker's Client. Broker may pay
FreeAgent.com's invoice prior to receiving payment from Broker's Client. In the
event that Broker's Client refuses to pay Broker for the Services because of
unsatisfactory performance by the Named Employee and Broker has paid
FreeAgent.com for the Services, then, unless FreeAgent.com has paid the Named
Employee for the Services, FreeAgent.com will refund any overpayment to Broker.
In the event that FreeAgent.com has paid the Named Employee for the Services,
then the obligation to refund such overpayment shall be that of the Named
Employee only, but FreeAgent.com shall use its reasonable commercial efforts to
cause the Named Employee to refund such overpayment.
(b) Broker shall pay FreeAgent.com at FreeAgent.com's applicable rates and
terms then in effect for the services performed for Broker or Broker's Client
which are not set forth above and which are requested or approved by Broker.
Broker shall, to the extent approved in advance by Broker's Client, reimburse
FreeAgent.com for expenses incurred by FreeAgent.com with respect to services
rendered to Broker's Client under this Agreement, including, but not limited to,
the cost of travel required to perform such services.
(c) Unless different payment terms are set forth in a Schedule to this
Agreement, FreeAgent.com shall invoice Broker at the end of each two (2) week
period for all fees and charges accrued, and all reimbursable expenses incurred,
during such two (2) week period, and Broker shall pay the invoiced amount within
thirty (30) days of receipt of such invoice. In
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addition to any remedies for non-payment provided for in this Agreement, any
amount payable under this Agreement not paid within thirty (30) days after the
invoice date shall bear interest from the invoice date to the date of payment at
the lesser of one and one-half percent (1 V2%) per month or the highest rate
allowed by applicable law.
4. TERM OF AGREEMENT.
This Agreement shall continue in effect for the period set forth in the
Schedules; if no period is set forth, then it shall be for a period of twelve
(12) months from the date hereof and for such longer period as FreeAgent.com is
performing Services under this Agreement.
5. OWNERSHIP OF WORK PRODUCT.
Unless FreeAgent.com or the Named Employee and Broker's Client otherwise
agree in writing, all documents, deliverables, software, systems designs, disks,
tapes, and any other materials (collectively "Materials") created in whole or in
part by the Named Employee in the course of providing services to Broker's
Client under this Agreement shall be treated as "work made for hire" (as the
term is defined in Section 101 of the Copyright Act of 1976, as amended) of
Broker's Client and the copyright and all other ownership rights in the
Materials shall be owned by Broker's Client, and the Named Employee shall
immediately disclose to Broker's Client all discoveries, inventions,
enhancements, developments, improvements and similar creations (collectively
"Creations") made, in whole or in part, by the Named Employee in the course of
providing services to Broker's Client. Broker's Client shall own all rights to
the Materials and Creations, including, without limitation, all copyright,
trademark, service mark, and patent rights and all other intellectual property
rights in, to and under the Materials and Creations (collectively the
"Intellectual Property"). For good and valuable consideration, FreeAgent.com
hereby assigns or will cause the Named Employee to assign to Broker's Client all
right, title and interest, throughout the world, to the Intellectual Property.
6. WARRANTIES.
(a) FreeAgent.com warrants that during the period that FreeAgent.com is
performing services under this Agreement the Intellectual Property will not
infringe any copyright, United States trademark, patent, or other proprietary
right of any other person. Broker's Client shall promptly notify FreeAgent.com
in writing of any claim, action, or proceeding relating to the foregoing
warranty and shall permit FreeAgent.com to control the settlement of such claim,
action or proceeding and, through counsel of FreeAgent.com's choice, to defend
the claim, action, or proceeding at its expense. Broker's Client shall cooperate
with and assist FreeAgent.com, as requested by FreeAgent.com, in the defense of
any such claim, action, or proceeding. In the event of any such claim, action,
or proceeding, FreeAgent.com may, at its option and expense, either: (x) procure
for Broker's Client the right to use the Intellectual Property; (y) replace or
modify the Intellectual Property to make it non-infringing, but functionally
equivalent; or (z) if the right to continue to use the Intellectual Property
cannot be procured and the Intellectual Property cannot be replaced or modified
at reasonable expense, reimburse Broker's Client for the amount paid, if any,
under this Agreement for the Intellectual Property, less a reasonable sum for
use. It is understood and agreed that any liability or obligation with respect
to the foregoing warranties shall be the liability and obligation of the
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Named Employee, although FreeAgent.com will use its reasonable commercial
efforts to cause the Named Employee to perform his or her obligations under this
Agreement. The foregoing states the entire liability of FreeAgent.com and the
Named Employee with respect to infringement of any patent, copyright, or other
proprietary right by the Intellectual Property.
(b) FreeAgent.com warrants that during the period that FreeAgent.com is
performing Services under this Agreement the Services will be performed in a
good and workmanlike manner and that the Intellectual Property will be free from
material defects and conform to applicable specifications. FreeAgent.com will,
during the period that FreeAgent.com is performing Services under this
Agreement, correct any such material defects and bring the Intellectual Property
into material conformance with applicable specifications. It is understood and
agreed that any liability or obligation with respect to the foregoing warranties
shall be the liability and obligation of the Named Employee, although
FreeAgent.com will use its reasonable commercial efforts to cause the Named
Employee to perform his or her obligations under this Agreement. The foregoing
states the entire liability of FreeAgent.com and the Named Employee with respect
to defects in the Services or non-conformance with specifications.
7. DISCLAIMER OF WARRANTY AND LIMITATION OF LIABILITY.
(a) EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, FreeAgent.com and the
Named Employee EXPRESSLY DISCLAIM ANY AND ALL WARRANTIES CONCERNING THE SERVICES
TO BE RENDERED, WHETHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
(b) Broker's (including Broker's Client's) and FreeAgent.com's (including
the Named Employee's) cumulative liability to the other for all claims arising
in connection with the performance of services under this Agreement Services
shall not exceed the total fees payable by Broker under this Agreement for the
specific services giving rise to the claim. IN NO EVENT SHALL Broker (including
Broker's Client) or FreeAgent.com (including the Named Employee) BE LIABLE TO
THE OTHER FOR ANY INDIRECT, CONSEQUENTIAL, PUNITIVE, SPECIAL, EXEMPLARY, OR
INCIDENTAL DAMAGES OF WHATEVER KIND AND HOWEVER CAUSED, EVEN IF Broker
(including Broker's Client's) or FreeAgent.com (including the Named Employee),
AS APPLICABLE, KNEW OR SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH DAMAGES.
(c) Broker will use its reasonable commercial efforts to obtain the
agreement of Broker's Client to the provisions of this Article and the previous
Article.
8. INDEPENDENT CONTRACTOR.
FreeAgent.com, in performance of this Agreement, is acting as an
independent contractor and shall have exclusive control of the manner and means
of performing the services to be performed under this Agreement. FreeAgent.com
has advised the Named Employee that the Named Employee is not an employee of
Broker or Broker's Client and is not entitled to any benefits provided by Broker
or Broker's Client, or by law, to their employees, including, without
limitation, worker's compensation, health, disability, or any other insurance,
vacations, sick days
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or leave, pension or other retirement benefits, or any other benefits under
employee benefit plans. Broker will make not deductions from the fees paid to
FreeAgent.com under this Agreement for any federal, state or local taxes. It
shall be FreeAgent.com's obligation to make all income tax and other tax
withholdings and payments with respect to the Named Employee.
9. INSURANCE.
FreeAgent.com shall provide evidence of the following insurance prior to
commencing the performance of services under this Agreement:
(a) worker's compensation, employers' liability, and occupational disease
insurance meeting statutory minimum requirements;
(b) commercial general liability insurance, including bodily injury,
property damage, and products and completed operations, personal injury, and
advertising injury with the following limits of liability: (i) per occurrence of
$1,000,000, and (ii) general aggregate of $2,000,000; and
(c) automobile liability insurance covering all owned, hired and non-owned
vehicles with a $1,000,000 combined single limit per occurrence.
10. TERMINATION.
Should FreeAgent.com or Broker (a) default in the performance of any of its
material obligations under this Agreement for a period of thirty (30) days after
the other has given written notice of such default, or (b) dissolve or become
insolvent or subject any of its property to the appointment of a receiver or
make an assignment for the benefit of creditors, then the other may upon written
notice terminate this Agreement. A waiver of default shall be in writing signed
by both FreeAgent.com and Broker and shall not be a waiver of any other or of a
subsequent default. Broker may terminate this Agreement upon written notice to
FreeAgent.com in the event that Broker's Client no longer desires the services
of FreeAgent.com, but Broker shall use its reasonable commercial efforts to
cause Broker's Client to give FreeAgent.com at least fifteen (15) days notice of
termination without cause.
11. OTHER SERVICE.
At the Broker's request, other services not specified in this Agreement
will be furnished by the Named Employee on a reasonable efforts basis at
FreeAgent.com's applicable rates and terms then in effect.
12. ACCESS TO FACILITIES.
FreeAgent.com shall have reasonable access to Broker's Client's facilities
to provide services under this Agreement, and Broker shall provide a safe place
in which to perform such services.
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13. CONFIDENTIALITY.
Broker's Client may provide FreeAgent.com with technical data, trade
secrets, plans for products or services, client or supplier lists, marketing
plans, software, source code for software, financial documents or data,
inventions, processes, technology, designs, and other information and documents
of Broker's Client or Broker's Client's clients ("Confidential Information").
Confidential Information shall not include information that: (a) is or becomes
generally available to the public other than as a result of a disclosure by
FreeAgent.com; (b) is or becomes available to FreeAgent.com on a
non-confidential basis; and (c) is independently developed by the FreeAgent.com
without the use of the Confidential Information. FreeAgent.com will not disclose
and will keep confidential the Confidential Information, except to employees,
consultants, or agents to whom disclosure is necessary to render services under
this Agreement and who shall be bound by the terms hereof, using the same care
as it uses to maintain the confidentiality of its most confidential information.
FreeAgent.com may disclose Confidential Information pursuant to any
governmental, judicial, or administrative order, subpoena, or discovery request,
provided that FreeAgent.com uses reasonable efforts to notify Broker's Client of
such order, subpoena, or discovery request so that Broker's Client may seek to
make such disclosure subject to a protective order or confidentiality agreement.
14. GENERAL.
Neither Broker nor FreeAgent.com shall be responsible for any failure to
perform any obligation under this Agreement due to strikes or causes beyond its
reasonable control; this provision does not affect Broker's obligation to make
payment that is otherwise due.
FreeAgent.com and Broker shall be entitled to assign this Agreement and its
rights hereunder to the purchaser of all or substantially all of its assets, or
to the surviving entity in any merger or consolidation.
This Agreement, including all Schedules, constitutes the entire agreement
between FreeAgent.com and Broker with respect to the furnishing by FreeAgent.com
of Services by the Named Employee. No provision of this Agreement shall be
deemed waived, amended, or modified by either party unless such waiver,
amendment or modification be in writing signed by the party against whom it is
sought to enforce the waiver, amendment or modification.
Any notice required or permitted to be given by either party under this
Agreement shall be in writing and shall be sent by personal or overnight
commercial delivery to the address specified by each party herein.
In any action or proceeding to enforce any of the terms or provisions of
this Agreement or on account of the breach hereof, the party prevailing shall be
entitled to recover all its expenses, including, without limitation, reasonable
attorney's fees.
The terms and conditions of this Agreement, including all Schedules, shall
prevail notwithstanding any variance with the terms and conditions of any order
submitted by Broker for FreeAgent.com services.
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IN WITNESS WHEREOF, the parties to this Agreement have caused it to be duly
executed by their respective duly authorized officers or representatives on the
day and year first above written.
Churchill Benefit Corporation, d/b/a Broker:_____________________________
FreeAgent.com
By:____________________________________ By:_________________________________
Date:__________________________________ Date:_______________________________
<PAGE>
Schedule A
To Agreement between Churchill Benefit Corporation, d/b/a FreeAgent.com
("FreeAgent.com") and _________________ ("Broker"), dated _________________,
1999.
The Services, Broker's Client on behalf of whom the Services will be performed,
the commencement date and duration of the Services, the name of FreeAgent.com's
employee who will perform the Services, the prices, terms of payment and other
details of such Services referred to in the Agreement (the "Agreement") to which
this Schedule A is attached are as follows:
Description of the Services to be performed by the Named Employee:
Broker's Client:
The commencement date and duration of the Services:
FreeAgent.com employee assigned to perform the Services (the "Named Employee"):
Rate:
Overtime rate:
Invoicing frequency:
Payment terms:
IN WITNESS WHEREOF, the parties hereto each acting with proper authority have
executed this Schedule A, on the date written above.
Churchill Benefit Corporation, d/b/a Broker:_____________________________
FreeAgent.com
By:____________________________________ By:_________________________________
Name:__________________________________ Name:_______________________________
Title:_________________________________ Title:______________________________
Date:__________________________________ Date:_______________________________
<PAGE>
Exhibit 10.12
================================================================================
SECURITIES PURCHASE AGREEMENT
DATED AS OF DECEMBER 24, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Article I FILING; ISSUANCE AND RESERVATION; SALE OF THE SECURITIES.................................1
1.1 Filing of Certificate of Incorporation................................................1
1.2 Authorization of Issuance and Sale of Securities and Reservation of Shares............1
1.3 The Closings of the Sale of the Securities............................................1
Article II THE CLOSING.............................................................................2
2.1 The Closing...........................................................................2
2.2 Deliveries at the Closing.............................................................2
Article III REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................3
3.1 Organization; Good Standing; Qualification and Power..................................3
3.2 Authorization.........................................................................3
3.3 Non-contravention.....................................................................4
3.4 Capitalization of the Company.........................................................4
3.5 Bankruptcy, Etc.......................................................................5
3.6 Legal Compliance......................................................................5
3.7 Intellectual Property.................................................................5
3.8 Commencement of Business..............................................................6
3.9 Offering Exemption....................................................................6
3.10 Brokers...............................................................................6
3.11 Registration Rights...................................................................7
3.12 Use of Proceeds.......................................................................7
3.13 Year 2000.............................................................................7
3.14 Section 1202 Compliance...............................................................7
3.15 No Actions............................................................................7
Article IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS........................................8
4.1 Experience............................................................................8
4.2 Investment............................................................................8
4.3 Rule 144..............................................................................8
4.4 No Public Market......................................................................8
4.5 Brokers or Finders....................................................................9
Article V ADDITIONAL AGREEMENTS....................................................................9
5.1 Affirmative and Negative Covenants of the Company.....................................9
5.2 Legal Existence Compliance, Etc......................................................10
5.3 Survival of Representations, Warranties and Agreements, Etc..........................10
5.4 Transaction Expenses and Taxes.......................................................11
Article VI MISCELLANEOUS..........................................................................11
6.1 No Third Party Beneficiaries.........................................................11
6.2 Entire Agreement.....................................................................11
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6.3 Successors and Assigns...............................................................11
6.4 Counterparts.........................................................................12
6.5 Notices..............................................................................12
6.6 Governing Law........................................................................12
6.7 Consent to Jurisdiction..............................................................13
6.8 Amendments and Waivers...............................................................13
6.9 Certain Definitions..................................................................13
6.10 Incorporation of Schedules and Exhibits..............................................16
6.11 Construction.........................................................................16
6.12 Interpretation.......................................................................16
6.13 Independence of Covenants and Representations and Warranties.........................16
6.14 Remedies.............................................................................17
6.15 Severability.........................................................................17
6.16 Exchanges: Lost, Stolen or Mutilated Certificates....................................17
6.17 Indemnity............................................................................17
6.18 Waiver of Jury Trial.................................................................18
</TABLE>
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Annex I - Preferred Shares to be Purchased by the Purchasers
SCHEDULES
Schedule 3.4 - Agreements Relating to Capital Stock of Company
Schedule 3.6 - Permits
Schedule 3.7(a) - Intellectual Property
Schedule 3.7(b) - Infringement of Intellectual Property
Schedule 3.7(c) - Intellectual Property Filings
Schedule 3.8 - Contracts and Commitments
Schedule 3.10 - Brokers
EXHIBITS
Exhibit A - Form of Certificate of Incorporation
Exhibit B - Form of Registration Rights Agreement
Exhibit C - Form of Stockholders' Agreement
Exhibit D - Form of Opinion of Company Counsel
Exhibit E - Form of Officer's Certificate
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SECURITIES PURCHASE AGREEMENT, dated as of December
24, 1998, among ENTERSPECT CORPORATION, a Delaware corporation
(the "Company"), and the purchasers (the "Purchasers")
identified on Annex I.
The Company desires to sell to Purchaser and Purchaser desires to
purchase from the Company shares as set forth on ANNEX I hereto, (the "Preferred
Shares") of Series A Convertible Preferred Stock, $.001 par value of the Company
(the "Series A Preferred Stock"), having the designations, preferences and
rights set forth in the Amended and Restated Certificate of Incorporation of the
Company (the "Certificate of Incorporation") attached hereto as EXHIBIT A.
In consideration of the mutual promises herein made and in
consideration of the representations, warranties, and covenants herein
contained, the parties agree as follows:
ARTICLE I
FILING; ISSUANCE AND RESERVATION;
SALE OF THE SECURITIES
1.1 FILING OF CERTIFICATE OF INCORPORATION.
Immediately prior to the execution and delivery of this Agreement, the
Company will file with the Secretary of State of the State of Delaware the
Amended and Restated Certificate of Incorporation which, among other things, (i)
designates 6,400,000 shares of the Company's capital stock as Series A Preferred
Stock, and (ii) sets forth the terms, designations, powers, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions, of the Series A Preferred Stock.
1.2 AUTHORIZATION OF ISSUANCE AND SALE OF SECURITIES AND RESERVATION OF
SHARES.
Subject to the terms and conditions hereof, the Company has authorized
(i) the issuance and sale to the Purchasers of the Preferred Shares at the
Closing, and (ii) the reservation of an aggregate of 6,400,000 shares (the
"Reserved Shares") of Common Stock for issuance upon any conversions of any of
the Preferred Shares.
1.3 THE CLOSINGS OF THE SALE OF THE SECURITIES.
At the Closing or a Subsequent Closing (as defined in Section 2.1
below), as the case may be, on the terms and subject to the conditions contained
herein, the Company shall issue, sell and deliver to each Purchaser, and each
Purchaser shall severally purchase from the Company, the Preferred Shares set
forth opposite its name on Annex I and each Purchaser shall deliver to the
Company, by wire transfer of immediately available funds to an account
designated by the Company, the purchase price for such Preferred Shares set
forth opposite each Purchaser's name on Annex I.
<PAGE>
ARTICLE II
THE CLOSING
2.1 THE CLOSING.
The closing hereunder with respect to the issuance, sale and delivery
of the Preferred Shares (the "Closing") shall take place on December 24, 1998
(the "Closing Date"). Subsequent closings (each a "Subsequent Closing") may take
place up to sixty (60) days after the Closing.
2.2 DELIVERIES AT THE CLOSING.
(a) At the Closing, the Company shall deliver to the Purchasers
purchasing Preferred Shares at the Closing:
(i) one stock certificate registered in the name of each
Purchaser, representing that number of Preferred Shares being purchased
by such Purchaser as set forth on Annex I;
(ii) counterparts of each of the Registration Rights Agreement
and the Stockholders' Agreement in the form of EXHIBITS B and C,
respectively, attached hereto, duly executed by the Company;
(iii) an opinion dated as of the date hereof of OGK, counsel
to the Company, with respect to the matters set forth in EXHIBIT D; and
(iv) a certificate of the Secretary of the Company dated as of
the date hereof, certifying (A) that true and complete copies of the
Company's Fundamental Documents (as hereinafter defined), as in effect
on the date hereof, are attached to such certificate as EXHIBIT E; (B)
as to the incumbency and genuineness of the signatures of each officer
of the Company executing any of the Documents; and (C) the genuineness
of the resolutions of the Board of Directors (the "Board") of the
Company authorizing the execution, delivery and performance of the
Documents to which the Company is a party and the consummation of the
transactions contemplated thereby.
(b) At the Closing, each Purchaser shall deliver to the Company:
(i) the purchase price for the Preferred Shares being
purchased by each Purchaser on such date; and
(ii) counterparts of the Registration Rights Agreement and the
Stockholders Agreement, duly executed by such Purchaser.
(c) At each Subsequent Closing, the Company shall deliver to the
Purchaser:
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(i) one stock certificate registered in the name of each
Purchaser, representing that number of Preferred Shares being purchased
by such Purchaser as set forth on Annex I; and
(ii) counterparts of the Registration Rights Agreement and
Stockholders' Agreement.
(d) At each Subsequent Closing, each Purchaser purchasing Preferred
Shares at such Subsequent Closing shall deliver to the Company:
(i) the purchase price for the Preferred Shares being
purchased by each Purchaser on such date;
(ii) counterparts of the Registration Rights Agreement and
Stockholders' Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to the Purchasers to enter into and perform
their respective obligations under this Agreement, the Company represents and
warrants to each Purchaser as follows as of the Closing Date:
3.1 ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER.
The Company is duly organized, validly existing and in good standing
under the Laws of its jurisdiction of formation, has all requisite power to own,
lease and operate its assets and to carry on its business as presently being
conducted, and is qualified to do business and in good standing in every
jurisdiction in which the failure to so qualify or be in good standing could
have, individually or in the aggregate, a Material Adverse Effect on the
Company. The Company has delivered to the Purchasers true and complete copies of
its Fundamental Documents as in effect on the date hereof.
3.2 AUTHORIZATION.
(a) The Company has all requisite power and authority to execute and
deliver each Document to which it is a party and any and all instruments
necessary or appropriate in order to effectuate fully the terms and conditions
of each such Document and all related transactions and to perform its
obligations under each such Document. Each Document to which the Company is a
party has been duly authorized by all necessary action (corporate or otherwise)
on the part of the Company and each Document to which the Company is a party has
been duly executed and delivered by the Company, and constitutes the legal,
valid and legally binding obligation of the Company, enforceable in accordance
with its terms, except as enforceability thereof may be limited by any
applicable bankruptcy, reorganization, insolvency or other Laws affecting
creditors' rights generally or by general principles of equity.
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(b) The authorization, issuance, sale and delivery of the Preferred
Shares and the reservation of the Reserved Shares have been duly authorized by
all requisite action of the Company's Board and stockholders. As of the Closing,
the Preferred Shares and, upon their issuance, the Reserved Shares, will be
validly issued and outstanding, fully paid and nonassessable, with no personal
liability attaching to the ownership thereof, free and clear of any Liens
whatsoever and with no restrictions on the voting rights thereof and other
incidents of record and beneficial ownership pertaining thereto, in each case
other than pursuant to the Documents. The Issuance of the Preferred Shares, and,
when issued, the Reserved Shares, shall be free of all statutory pre-emptive
rights, if any.
3.3 NON-CONTRAVENTION.
The execution, delivery and performance by the Company of the Documents
to which it is a party, the consummation of the transactions contemplated
thereby and compliance with the provisions thereof, including the issuance, sale
and delivery of the Preferred Shares have not and shall not, and the issuance,
sale and delivery of the Reserved Shares shall not, (a) violate any Law to which
the Company, or any of its assets is subject, (b) violate any provision of the
Fundamental Documents of the Company, (c) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or require any notice
under any contract to which the Company is a party or by which any of the assets
of the Company is bound or (d) result in the imposition of any Lien upon any of
the assets of the Company. Other than state blue sky securities filings, the
Company has not been or is not required to give any notice to, make any filing
with, or obtain any authorization, consent or approval of any Governmental
Entity or any other Person for the valid authorization, issuance and delivery of
the Preferred Shares or any other Documents or for the valid authorization,
reservation, issuance and delivery of the Reserved Shares.
3.4 CAPITALIZATION OF THE COMPANY.
(a) Immediately upon consummation of the Closing, the authorized
capital stock of the Company shall consist of:
(i) 8,000,000 shares of preferred stock ("Preferred Stock") of
which 6,400,000 shares will be designated Series A Preferred Stock, all
of which designated shares, purchased on the Closing Date, will be
fully paid and nonassessable, with no liability attaching to the
ownership thereof; and
(ii) 22,000,000 shares of the Company's common stock ("Common
Stock"), of which (A) 6,332,485 shares will be issued and outstanding,
fully paid and nonassessable, (B) 4,000,000 shares will be reserved for
issuance pursuant to the Company's 1998 Stock Option Plan (the "Stock
Option Plan"), (C) 3,667,515 shares will be treasury shares, and (D)
6,400,000 shares will be reserved for issuance upon conversion of the
Preferred Shares.
(b) Except as contemplated by the Documents or otherwise set forth on
SCHEDULE 3.4, there are, and immediately after consummation of the Closing there
will be, no (i)
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outstanding warrants, options, agreements, convertible securities or other
commitments or instruments pursuant to which the Company is or may become
obligated to issue or sell any shares of its capital stock or other securities,
or (ii) preemptive or similar rights to purchase or otherwise acquire shares of
the capital stock or other securities of the Company pursuant to any provision
of Law, such Person's Fundamental Documents or any contract to which such Person
is a party.
3.5 BANKRUPTCY, ETC.
The Company is not involved in any Proceeding by or against the Company
as a debtor before any Governmental Entity under Title 11 of the United States
Code or any other insolvency or debtors' relief act, whether state or Federal,
or for the appointment of a trustee, receiver, liquidator, assignee,
sequestrator or other similar official for any part of the property of the
Company.
3.6 LEGAL COMPLIANCE.
The Company has not violated any provisions of its Charter or Bylaws,
and has complied, in all material respects, with all applicable Laws, Orders and
Permits, and no Proceeding is pending or, to the best knowledge of the Company,
threatened, alleging any failure to so comply. SCHEDULE 3.6 sets forth a list of
all Permits under which the Company is operating or bound. The Company has
furnished to the Purchasers true and complete copies of such Permits. Such
Permits (a) constitute all Permits used or required in the conduct of the
business of the Company as presently conducted, (b) are in full force and
effect, (c) have not been violated in any material respect and (d) are not
subject to any pending or, to the best knowledge of the Company, threatened
Proceeding seeking their revocation or limitation.
3.7 INTELLECTUAL PROPERTY.
(a) SCHEDULE 3.7(A) identifies all Intellectual Property used by the
Company in connection with the business of the Company. The Company has
sufficient title and ownership of all Intellectual Property necessary for its
business as currently conducted.
(b) Except as specifically set forth on SCHEDULE 3.7(B):
(i) the Company has not infringed upon or misappropriated any
Intellectual Property rights of third parties, and the Company has not
received any charge, complaint, claim, demand or notice alleging any
such infringement or misappropriation;
(ii) the Company has the right to use, sell, license and
dispose of, and has the right to bring actions for the infringement of,
all Intellectual Property necessary or required for the conduct of its
business as currently conducted and as proposed to be conducted; and
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(iii) no activity, service or procedure currently conducted or
proposed to be conducted by the Company violates or will violate any
agreement governing the use of Intellectual Property.
(c) SCHEDULE 3.7(C) contains a true and complete list of all
applications and filings made or taken pursuant to Federal, state, local and
foreign Laws by the Company to perfect or protect its interest in the
Intellectual Property, including, without limitation, all patents, patent
applications, trademarks, trademark applications, service marks and servicemark
applications.
3.8 COMMENCEMENT OF BUSINESS.
Except as set forth on SCHEDULE 3.8 and activities in connection with
the obtaining, ownership and maintenance of Intellectual Property (none of which
have resulted in any liability of the Company), (a) the Company has not (i)
carried on any business (other than with respect to (A) the organization of the
Company and (B) the execution and delivery of the Documents), (ii) had any
revenue or income, or (iii) entered into any written or oral contract,
agreement, understanding (except as disclosed in writing to the Purchasers),
lease, guaranty or other obligation, other than the Documents; (b) the Company
has no liabilities of any nature whatsoever (matured or unmatured, fixed or
contingent), except the expenses that it has paid or incurred in connection with
its incorporation and organization, the payment of legal expenses and other
miscellaneous expenses incident to its preoperating period and its operations
prior to the Closing; (c) the Company owns no interest in real property; (d) the
Company is not a party to or directly or indirectly bound by any indenture,
mortgage, deed of trust or other agreement or instrument relating to the
borrowing of money, and (e) the Company has never had and does not presently
have any subsidiaries and has never owned and does not presently own any capital
stock or other proprietary interest, directly or indirectly, in any corporation,
association, trust, partnership or joint venture or other entity.
3.9 OFFERING EXEMPTION.
Based in part upon and assuming the accuracy of the representations of
the Purchasers in Article VI, the offering, sale and issuance of the Preferred
Shares have been, are, and will be, exempt from registration under the
Securities Act, and such offering, sale and issuance is also exempt from
registration under applicable state securities and "blue sky" laws. The Company
has made all requisite filings and has taken or will take all action necessary
to be taken to comply with such state securities or "blue sky" laws. The
outstanding shares of Common Stock are duly authorized and issued, fully paid
and non-assessable and were issued in compliance with all applicable federal and
state securities laws.
3.10 BROKERS.
SCHEDULE 3.10 sets forth a true and complete list of each agent,
broker, investment banker, Person or firm who or which has acted on behalf, or
under the authority, of the Company (or its predecessors) or any of its
stockholders or will be entitled to any fee or commission directly or indirectly
from the Company or any of its stockholders or any Purchasers in connection with
any of the transactions contemplated hereby.
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3.11 REGISTRATION RIGHTS.
Immediately following the Closing, except as contemplated by the
Documents, no person has any right to cause the Company to effect the
registration under the Securities Act of any securities (including debt
securities) of the Company.
3.12 USE OF PROCEEDS.
The proceeds received by the Company from the sale of the Preferred
Shares shall be used by the Company for working capital and other general
corporate purposes.
3.13 YEAR 2000.
All of the Company's products, devices and programs are designed to be
used prior to, during and after the calendar year 2000 A.D., and such products,
devices and programs will operate during each such time period without error
relating to date data and date-dependent data, specifically including any error
relating to, or the program of, date data which represents or references
different centuries or more than one century, other than such errors which have
not had nor could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company's business as presently
conducted or as proposed to be conducted. Other than any of the following which
has not had nor could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate, on the Company's business as presently
conducted or as proposed to be conducted, without limiting the generality of the
foregoing:
(a) Each such product, device or program will not abnormally end or
provide invalid or incorrect results as a result of date data, specifically
including date data which represents or references different centuries or more
than one century; and
(b) Each such product, device or program has been designed to ensure
year 2000 compatibility, including, but not limited to, date data century
recognition, calculations which accommodate same century and multi-century
formulas and date values and date data interface values that reflect the
century.
3.14 SECTION 1202 COMPLIANCE.
The Preferred Shares issuable hereunder and the Common Stock issuable
upon conversion thereof will constitute "qualified small business stock" within
the meaning of Section 1202 of the Code, as of the date of issuance.
3.15 NO ACTIONS.
There is no action, suit, investigation or proceeding(or any basis
therefor) pending against, or to the knowledge of the Company threatened against
or affecting the Company or any of its properties before any court of arbitrator
or any governmental body, agency, official or authority.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
As a material inducement to the Company to enter into and perform its
obligations under this Agreement, each Purchaser, severally and not jointly,
represents and warrants to the Company, as to itself only, as of the date
hereof, as follows:
4.1 EXPERIENCE.
Such Purchaser is an accredited investor within the meaning of
Regulation D promulgated by the Securities and Exchange Commission and, by
virtue of its experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company, such Purchaser
is capable of evaluating the merits and risks of its investment in the Company
and has the capacity to protect its own interests. Such Purchaser has had access
to the Company's senior management and has had the opportunity to conduct such
due diligence review as it has deemed appropriate.
4.2 INVESTMENT.
Such Purchaser has not been formed solely for the purpose of making
this investment and such Purchaser is acquiring the Preferred Shares for
investment for its own account, not as a nominee or agent, and not with the view
to, or for resale in connection with, any distribution of any part thereof. Such
Purchaser understands that the Preferred Shares and the related Reserved Shares,
as applicable, to be acquired have not been registered under the Securities Act
or applicable state and other securities laws by reason of a specific exemption
from the registration provisions of the Securities Act and applicable state and
other securities laws, the availability of which depends upon, among other
things, the bona fide nature of the investment intent and the accuracy of the
respective Purchaser's representations as expressed herein.
4.3 RULE 144.
Such Purchaser acknowledges and understands that it must bear the
economic risk of this investment for an indefinite period of time because the
Preferred Shares must be held indefinitely unless subsequently registered under
the Securities Act and applicable state and other securities laws or unless an
exemption from such registration is available. Such Purchaser understands that
any transfer agent of the Company will issue stop-transfer instructions with
respect to the Preferred Shares and the related Reserved Shares, as applicable,
unless any transfer thereof is subsequently registered under the Securities Act
and applicable state and other securities laws or unless an exemption from such
registration is available.
4.4 NO PUBLIC MARKET.
Such Purchaser understands that no public market now exists for any of
the securities issued by the Company and that there is no assurance that a
public market will ever exist for the securities of the Company.
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4.5 BROKERS OR FINDERS.
Such Purchaser has not retained any investment banker, broker or finder
in connection with the purchase of the Preferred Shares. Such Purchaser will
severally and not jointly indemnify and hold the Company harmless against any
liability, settlement or expense arising out of, or in connection with, any such
claim.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 AFFIRMATIVE AND NEGATIVE COVENANTS OF THE COMPANY.
The Company agrees as follows:
(a) FINANCIAL INFORMATION. The Company will deliver the following
reports to each Qualified Purchaser:
(i) As soon as practicable after the end of each fiscal year,
and in any event within 120 days thereafter, consolidated balance
sheets of the Company, if any, as of the end of such fiscal year, and
consolidated statements of income and consolidated statements of
changes in cash flow of the Company and its Subsidiaries, if any, for
such fiscal year, prepared in accordance with GAAP and setting forth in
each case in comparative form the figures for the previous fiscal year
and the budgeted figures for the current fiscal year, all in reasonable
detail and audited by independent public accountants of national
standing commonly known as "Big 5" accountants selected by the Company,
together with a certificate of the Company executed by the chief
executive officer or principal financial or accounting officer of the
Company certifying that all covenants to be complied with by the
Company hereunder have been complied with (or setting forth in
reasonable detail any covenants that have not been so complied with).
(ii) As soon as practicable after the end of the first, second
and third quarterly accounting periods in each fiscal year of the
Company and in any event within 45 days thereafter, a consolidated
balance sheet of the Company and its Subsidiaries, if any, as of the
end of each such quarterly period, and consolidated statements of
income and consolidated statements of change in cash flow of the
Company for such period and for the current fiscal year to date,
prepared in accordance with GAAP (other than for accompanying notes),
subject to changes resulting from normal year-end audit adjustments,
and setting forth in each case in comparative form the figures for the
same periods of the previous fiscal year and the budgeted figures for
the current periods, all in reasonable detail and signed by the
principal financial or accounting officer of the Company.
(iii) promptly after the commencement or threatened
commencement thereof, notice of all actions, suits, investigations, and
proceedings before any court or governmental department, arbitration
panel, commission, board, bureau, agency or
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instrumentality, domestic or foreign, affecting the Company or any of
its subsidiaries other than ordinary and routine litigation covered
under the limits of existing insurance policies.
(iv) copies of all amendments to the Charter or Bylaws of the
Company.
(b) ADDITIONAL INFORMATION. The Company will deliver or provide to each
Qualified Purchaser such other information and data, including access to books
and records of the Company as any such holder may from time to time reasonably
request.
(c) RIGHTS OF INSPECTION. Each Qualified Purchaser shall have the right
to visit and inspect any of the properties of the Company and to discuss its
affairs, finances and accounts with its officers and auditors, all at such
reasonable times during normal business hours and as often as may be reasonably
requested.
(d) KEY-MAN INSURANCE. The Company, at its own expense, shall maintain
term life insurance in adequate amounts on key management employees in
accordance with the directions of the Board.
(e) INSURANCE. The Company shall maintain such other insurance with
such coverages and in such amounts as shall be determined by the Board of the
Company, including such insurance as the Board of the Company shall deem
necessary to protect the assets of the Company.
5.2 LEGAL EXISTENCE COMPLIANCE, ETC.
The Company shall maintain its existence as a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation.
The Company shall conduct its business in compliance in all material
respects with all permits and licenses issued by, and all statutes, rules,
regulations and orders of, and all restrictions imposed by, all governmental
authorities, domestic or foreign, federal or state, applicable to the conduct of
its business and the ownership of its property (including, without limitation,
applicable statutes, rules, regulations, orders and restrictions relating to
environmental, safety and other similar standards or controls).
The Company shall conduct its business in compliance in all material
respects with all licenses, agreements and contracts to which it is a party.
5.3 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS, ETC.
All representations and warranties hereunder shall survive the Closing
for a period of one year. Except as otherwise provided herein, all agreements
and/or covenants contained herein shall survive indefinitely until, by their
respective terms, they are no longer operative.
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5.4 TRANSACTION EXPENSES AND TAXES.
(a) The Company agrees to pay promptly up to $15,000 of the reasonable
out-of-pocket expenses, including reasonable attorneys' fees and expenses, of
the Purchasers arising in connection with the negotiation and execution of this
Agreement and the other Documents, the related due diligence and the
consummation of the transactions contemplated hereby and thereby.
(b) All sales, use, transfer, stamp (including documentary stamp taxes,
if any), excise, recording, income, capital gain, franchise and other similar
Taxes or governmental charges with respect to the securities issued pursuant
hereto shall be borne by the Company.
ARTICLE VI
MISCELLANEOUS
6.1 NO THIRD PARTY BENEFICIARIES.
Except as expressly provided herein, this Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns, personal representatives, heirs and
estates, as the case may be.
6.2 ENTIRE AGREEMENT.
This Agreement and the other Documents constitute the entire agreement
among the Parties and supersede any prior understandings, agreements or
representations by or among the Parties, written or oral, that may have related
in any way to the subject matter of any Document including, without limitation,
any letter of intent dated as of or prior to the date hereof, between the
Company and any Purchaser.
6.3 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors and permitted assigns. No Party may
assign either this Agreement or any of its rights, interests, or obligations
hereunder without the prior written approval of the other Parties; PROVIDED,
HOWEVER, that each Purchaser may assign any of its rights under any of the
Documents to (i) any Affiliate of such Purchaser, (ii) any Person who shall
acquire substantially all of the assets of such Purchaser or a majority in
voting power of the capital stock of such Purchaser (whether pursuant to a
merger, consolidation, stock sale or otherwise), (iii) any lender of such
Purchaser (or any agent therefor) for security purposes and the assignment
thereof by any such lender or agent to any Purchaser in connection with the
exercise by any such lender or agent of all of its rights and remedies as a
secured creditor with respect thereto and (iv) any Person to whom such Purchaser
shall transfer any Preferred Shares in accordance with the terms of the
Documents.
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6.4 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
6.5 NOTICES.
All notices, requests, demands, claims, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, telecopied, sent by nationally recognized overnight
courier or mailed by registered or certified mail (return receipt requested),
postage prepaid, to the Parties at the following addresses (or at such other
address for a Party as shall be specified by like notice) or by E-Mail:
If to the Company, to:
Enterspect Corporation
733 3rd Avenue, 17th Floor
New York, NY 10017
Telephone: 212-301-2212
Telecopy: 212-599-8481
Attention: Ari Horowitz
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, NY 10112
Telephone: 212-408-2420
Telecopy: 212-728-5950
Attention: John J. Suydam, Esq.
If to a Purchaser, to its E-mail address shown on Annex I:
All such notices and other communications shall be deemed to have been
given and received (i) in the case of personal delivery, on the date of such
delivery, (ii) in the case of delivery by telecopy, on the date of such
delivery, (iii) in the case of delivery by nationally recognized overnight
courier, on the third business day following dispatch, (iv) in the case of
mailing, on the seventh business day following such mailing and (v) in the case
of E-mail, 24 hours after sending.
6.6 GOVERNING LAW.
THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF
LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK, OR ANY
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OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF NEW YORK TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL
LAW OF THE STATE OF NEW YORK WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF
THIS AGREEMENT, EVEN IF UNDER SUCH JURISDICTION'S CHOICE OF LAW OR CONFLICT OF
LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY
APPLY.
6.7 CONSENT TO JURISDICTION.
The Company agrees that any action or proceeding to enforce any right
arising out of this Agreement, may be commenced in the Supreme Court of New York
in New York County or in the United States District Court for the Southern
District of New York, and the Company consents to such jurisdiction, agrees that
venue will be proper in such courts in any such matter, agrees that New York
County is the most convenient forum for litigation in any such suit, action or
legal proceeding, and agrees that a summons and complaint commencing an action
or proceeding in any such court shall be properly served and shall confer
personal jurisdiction if served by registered or certified mail to the Company,
or as otherwise provided by the laws of the State of New York or the United
States. The Company agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
6.8 AMENDMENTS AND WAIVERS.
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Company and the holders of at
least 51% of the then outstanding Preferred Shares or Common Stock issued upon
conversion of the Preferred Shares. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
6.9 CERTAIN DEFINITIONS.
"AFFILIATE" means, with respect to any Person, any of (a) a director,
officer or stockholder holding 5% or more of the capital stock (on a fully
diluted basis) of such Person, (b) a spouse, parent, sibling or descendant of
such Person (or a spouse, parent, sibling or descendant of any director or
officer of such Person) and (c) any other Person that, directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, another Person. The term "control" includes, without
limitation, the possession, directly or indirectly, of the power to direct the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"CLOSING" shall have the meaning given in Article II.
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"CODE" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"DOCUMENTS" means this Agreement, the Registration Rights Agreement and
the Stockholders Agreement.
"FUNDAMENTAL DOCUMENTS" means the documents by which any Person (other
than an individual) establishes its legal existence or which govern its internal
affairs. For example, the "Fundamental Documents" of a corporation would be its
charter and by-laws.
"GAAP" means United States Generally Accepted Accounting Principles,
consistently applied.
"GOVERNMENTAL ENTITY" means any court, administrative agency, tribunal,
department, bureau or commission or other governmental authority or
instrumentality, domestic or foreign, Federal, state or local.
"INTELLECTUAL PROPERTY" means all industrial and intellectual property,
including, without limitation, (i) patents, patent applications, patent rights,
trademarks, trademark applications, copyrights, copyright applications,
know-how, certificates of public convenience and necessity, franchises,
licenses, proprietary processes and formulae, layouts, processes, inventions,
and (ii) all proprietary rights pertaining to any product or service
manufactured, sold, distributed or marketed, or used, employed or exploited in
the development, manufacture, license, sale, distribution, marketing or
maintenance thereof, and all documentation and media constituting, describing or
relating to the foregoing.
"LAW" means any constitution, law, statute, treaty, rule, directive,
requirement or regulation or Order of any Governmental Entity.
"LIABILITY" means any liability or obligation, whether known or
unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued,
liquidated or unliquidated and whether due or to become due, regardless of when
asserted.
"LIEN" means any security interest, pledge, bailment (in the nature of
a pledge or for purposes of security), mortgage, deed of trust, the grant of a
power to confess judgment, conditional sale or title retention agreement
(including any lease in the nature thereof), charge, encumbrance, easement,
reservation, restriction, cloud, right of first refusal or first offer, option,
or other similar arrangement or interest in real or personal property.
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, a material
adverse effect on the business, operations, assets, condition (financial or
otherwise), operating results, liabilities or prospects of such Person and its
Subsidiaries, if any, taken as a whole.
"ORDERS" means judgments, writs, decrees, injunctions, orders,
compliance agreements or settlement agreements of or with any Governmental
Entity or arbitrator.
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"PARTY" or "PARTIES" means the signatories hereto.
"PERMITS" means all permits, licenses, authorizations, registrations,
franchises, approvals, consents, certificates, variances and similar rights
obtained, or required to be obtained, from Governmental Entities.
"PERSON" shall be construed broadly and shall include an individual, a
partnership, a corporation, a limited liability company, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization, or a
Governmental Entity (or any department, agency, or political subdivision
thereof).
"PROCEEDING" means any action, suit, proceeding, complaint, charge,
hearing, inquiry or investigation before or by a Governmental Entity or an
arbitrator.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
dated as of the date hereof among the Company, the Purchasers and the other
parties thereto (if any), in form and substance reasonably satisfactory to the
Purchasers and attached hereto as EXHIBIT B.
"QUALIFIED PURCHASER" means any Person who acquires more than $500,000
worth of Series A Preferred Stock pursuant to this Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SUBSIDIARY" means any corporation, partnership, limited liability
company or other business entity, with respect to which the Company (or any
Subsidiary thereof) has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
"STOCKHOLDERS AGREEMENT" means the Stockholders' Agreement dated as of
the date hereof, among the Company, the Purchasers and the other parties thereto
(if any), in form and substance reasonably satisfactory to the Purchasers and
attached hereto as EXHIBIT C.
"TAX" as used in this Agreement, means any of the Taxes, and "Taxes"
means, with respect to any Person, (a) all income taxes (including any tax on or
based upon net income, gross income, income as specially defined, earnings,
profits or selected items of income, earnings or profits) and all gross
receipts, sales, use, ad valorem, transfer, franchise, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property or
windfall profits taxes, alternative or add-on minimum taxes, customs duties and
other taxes, fees, assessments or charges of any kind whatsoever, together with
all interest and penalties, additions to tax and other additional amounts
imposed by any taxing authority (domestic or foreign) on such Person (if any)
and (b) any liability for the payment of any amount of the type described in the
clause (a) above as a result of being a "transferee" (within the meaning of
Section 6901 of the Code or any other applicable Law) of another entity or a
member of an affiliated or combined group.
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6.10 INCORPORATION OF SCHEDULES AND EXHIBITS.
The Schedules and Exhibits identified in this Agreement are
incorporated herein by reference and made a part hereof.
6.11 CONSTRUCTION.
Where specific language is used to clarify by example a general
statement contained herein, such specific language shall not be deemed to
modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement shall be
deemed to be the language chosen by the Parties to express their mutual intent,
and no rule of strict construction shall be applied against any Party.
6.12 INTERPRETATION.
Accounting terms used but not otherwise defined herein shall have the
meanings given to them under GAAP. As used in this Agreement (including all
Schedules, Exhibits and amendments hereto), the masculine, feminine and neuter
gender and the singular or plural number shall be deemed to include the others
whenever the context so requires. References to Articles and Sections refer to
articles and sections of this Agreement. Similarly, references to Schedules and
Exhibits refer to schedules and exhibits, respectively, attached to this
Agreement. Unless the content requires otherwise, words such as "hereby,"
"herein," "hereinafter," "hereof," "hereto," "hereunder" and words of like
import refer to this Agreement. The article and section headings contained in
this Agreement are inserted for convenience only and shall not affect in any way
the meaning or interpretation of this Agreement.
The representations, warranties, and covenants of the Company and the
Investors contained herein or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing for a period of one
year and shall in no way be affected by any investigation of the subject matter
hereof made by or on behalf of the Purchasers or the Company.
6.13 INDEPENDENCE OF COVENANTS AND REPRESENTATIONS AND WARRANTIES.
All covenants hereunder shall be given independent effect so that if a
certain action or condition constitutes a default under a certain covenant, the
fact that such action or condition is permitted by another covenant shall not
affect the occurrence of such default, unless expressly permitted under an
exception to such initial covenant. In addition, all representations and
warranties hereunder shall be given independent effect so that if a particular
representation or warranty proves to be incorrect or is breached, the fact that
another representation or warranty concerning the same or similar subject matter
is correct or is not breached will not affect the incorrectness of or a breach
of a representation and warranty hereunder.
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6.14 REMEDIES.
The Parties shall each have and retain all other rights and remedies
existing in their favor at Law or equity, including, without limitation, any
actions for specific performance and/or injunctive or other equitable relief
(including, without limitation, the remedy of rescission) to enforce or prevent
any violations of the provisions of this Agreement. Without limiting the
generality of the foregoing, the Company hereby agrees that in the event the
Company fails to convey any number of Preferred Shares or Reserved Shares, as
the case may be, to the Purchasers in accordance with the provisions of this
Agreement, the Purchasers' remedy at law may be inadequate. In such event, each
Purchaser shall have the right, in addition to all other rights and remedies it
may have, to specific performance of the obligations of the Company to convey
such number of Preferred Shares or Reserved Shares, as the case may be.
6.15 SEVERABILITY.
It is the desire and intent of the Parties that the provisions of this
Agreement be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
by a court of competent jurisdiction to be invalid, prohibited or unenforceable
for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
6.16 EXCHANGES: LOST, STOLEN OR MUTILATED CERTIFICATES.
Upon surrender by a holder of Series A Preferred Stock to the Company
of any certificate representing Series A Preferred Stock purchased or acquired
hereunder, the Company at its expense will issue in exchange therefor, and
deliver to the holder of Series A Preferred Stock, a new certificate or
certificates representing such shares, in such denominations as may be requested
by the holder of Series A Preferred Stock. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of any certificate
representing any Series A Preferred Stock purchased or acquired by a holder of
Series A Preferred Stock hereunder, and in case of any such loss, theft or
destruction, upon delivery of any indemnity agreement satisfactory to the
Company, or in case of any such mutilation, upon surrender and cancellation of
such certificate, the Company at its expense will issue and deliver to such
holder a new certificate for such Series A Preferred Stock of like tenor, in
lieu of such lost, stolen or mutilated certificate.
6.17 INDEMNITY
The Company shall, for a period of one year, with respect to the
representations, warranties, covenants and agreements made by the Company herein
indemnify, defend and hold the Investors and the holders of Series A Preferred
Stock (and their respective shareholders,
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directors, officers, employees, agents, affiliates and controlling parties)
(each, an "Indemnified Party") harmless from and against all liability, loss or
damage, together with all reasonable costs and expenses related thereto
(including legal and accounting fees and expenses), arising from the untruth,
inaccuracy or breach of any such representations, warranties, covenants or
agreements of the Company contained in this Agreement or the assertion of any
claims relating to the foregoing. Without limiting the generality of the
foregoing, each Indemnified Party shall be deemed to have suffered liability,
loss or damage as a result of the untruth, inaccuracy or breach of any such
representations, warranties, covenants or agreements if such liability, loss or
damage shall be suffered by the Indemnified Party as a result of, or in
connection with, such untruth, inaccuracy or breach or any facts or
circumstances constituting such untruth, inaccuracy or breach. The Company shall
indemnify and hold harmless each Indemnified Party against any losses, claims,
damages or liabilities, joint or several, to which any of the foregoing persons
may become subject, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any violations by the
Company of the Securities Act or state securities or "blue sky" laws applicable
to the Company relating to action or inaction required of the Company in
connection with the Securities Act or registration or qualification under such
state securities or blue sky laws; and shall reimburse each such Indemnified
Party for any legal or any other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability or action. In case any such action is brought against an Indemnified
Party, the Company will be entitled to participate in and assume the defense
thereof with counsel reasonably satisfactory to such Indemnified Party, and
after notice from the Company to such Indemnified Party of its election to
assume the defense thereof, the Company shall be responsible for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof, provided that if any Indemnified Party shall have reasonably
concluded that there may be one or more legal defenses available to such
Indemnified Party which conflict in any material respect with those available to
the Company, or that such claim or litigation involves or could have an effect
upon matters beyond the scope of the indemnity agreement provided in this
Section 6.17 the Company shall reimburse such Indemnified Party and shall not
have the right to assume the defense of such action on behalf of such
Indemnified Party and the Company shall reimburse such Indemnified Party and any
person controlling such Indemnified Party for that portion of the fees and
expenses of any counsel retained by the indemnified party which are reasonably,
related to the matters covered by the indemnity agreement provided in this
Section 6.17. The Company shall not make any settlement of any claims
indemnified against hereunder without the written consent of the Indemnified
Party or Parties, which consent shall not be unreasonably withheld.
6.18 WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OTHER DOCUMENT.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Securities Purchase
Agreement as of the date first above written.
ENTERSPECT CORPORATION
By:
-----------------------------------------
Name: Ari Horowitz
Title: Chief Executive Officer
WHEATLEY PARTNERS, L.P.
by Wheatley Partners, LLC,
its general partner
By:
-----------------------------------------
Name: Barry Rubenstein
Title: Chief Executive Officer
WHEATLEY FOREIGN PARTNERS, L.P.
by Wheatley Partners, LLC,
its general partner
By:
-----------------------------------------
Name: Barry Rubenstein
Title: Chief Executive Officer
CROSS POINT VENTURE PARTNERS, L.P.
by:
------------------------------------,
its general partner
By:
-----------------------------------------
Name:
Title:
<PAGE>
Exhibit 10.13
================================================================================
SECURITIES PURCHASE AGREEMENT
DATED AS OF SEPTEMBER 3, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I FILING; ISSUANCE AND RESERVATION; SALE OF THE SECURITIES.............1
1.1 Filing of Amended and Restated Certificate of Incorporation...........1
1.2 Authorization of Issuance and Sale of Securities and Reservation of
Shares................................................................1
1.3 The Closings of the Sale of the Securities............................1
ARTICLE II CLOSING; DELIVERIES AT CLOSINGS.....................................2
2.1 Closings..............................................................2
2.2 Deliveries at the Closings............................................2
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................3
3.1 Organization; Good Standing; Qualification............................3
3.2 Authorization.........................................................3
3.3 Non-contravention.....................................................3
3.4 Capitalization of the Company.........................................4
3.5 Equity Investment and Acquisitions....................................4
3.6 Financial Statements..................................................5
3.7 Bankruptcy, Etc.......................................................5
3.8 Legal Compliance......................................................5
3.9 Intellectual Property.................................................5
3.10 Offering Exemption....................................................6
3.11 Properties............................................................6
3.12 Material Adverse Changes..............................................6
3.13 Brokers...............................................................7
3.14 Registration Rights...................................................7
3.15 Use of Proceeds.......................................................7
3.16 Year 2000.............................................................7
3.17 Section 1202 Compliance...............................................7
3.18 No Actions............................................................8
3.19 Disclosure............................................................8
3.20 Related Transactions..................................................8
3.21 Agreements............................................................8
3.22 Tax Matters...........................................................8
3.23 Insurance.............................................................9
3.24 Amendments to Stockholders' Agreement and Registration Rights
Agreement.............................................................9
3.25 ERISA Plans...........................................................9
3.26 Environmental Matters.................................................9
3.27 Employees............................................................10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS...................10
4.1 Experience...........................................................10
4.2 Investment...........................................................10
4.3 Rule 144.............................................................10
4.4 No Public Market.....................................................11
4.5 Brokers or Finders...................................................11
4.6 Access to Data.......................................................11
ARTICLE V ADDITIONAL AGREEMENTS...............................................11
5.1 Affirmative Covenants of the Company.................................11
5.2 Legal Existence; Compliance, Etc.....................................13
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PAGE
5.3 Stockholders' Agreement; Registration Rights Agreement...............13
5.4 Preemptive Rights....................................................13
5.5 Survival of Representations, Warranties and Agreements, Etc..........15
5.6 Transaction Expenses and Taxes.......................................15
ARTICLE VI MISCELLANEOUS......................................................15
6.1 No Third Party Beneficiaries.........................................15
6.2 Entire Agreement.....................................................15
6.3 Successors and Assigns...............................................16
6.4 Counterparts.........................................................16
6.5 Notices..............................................................16
6.6 Governing Law........................................................17
6.7 Consent to Jurisdiction..............................................17
6.8 Amendments and Waivers...............................................17
6.9 Certain Definitions..................................................18
6.10 Incorporation of Schedules and Exhibits..............................20
6.11 Construction.........................................................20
6.12 Interpretation.......................................................20
6.13 Independence of Covenants and Representations and Warranties.........20
6.14 Remedies.............................................................21
6.15 Severability.........................................................21
6.16 Exchanges: Lost, Stolen or Mutilated Certificates....................21
6.17 Indemnity............................................................21
6.18 Waiver of Jury Trial.................................................22
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<PAGE>
ANNEXES
Annex I - Preferred Shares to be Purchased by the Purchasers
SCHEDULES
Schedule 3.4 - Agreements Relating to Capital Stock of Company
Schedule 3.5 - Subsidiaries
Schedule 3.6 - Financial Statements
Schedule 3.8 - Permits
Schedule 3.9(a) - Intellectual Property
Schedule 3.9(b) - Infringement of Intellectual Property
Schedule 3.13 - Brokers
Schedule 3.20 - Related Transactions
Schedule 3.21 - Agreements
EXHIBITS
Exhibit A - Form of Amended and Restated Certificate of Incorporation
Exhibit B - Form of legal opinion of O'Sullivan Graev & Karabell, LLP
Exhibit C - Registration Rights Agreement
Exhibit D - Stockholders' Agreement
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<PAGE>
SECURITIES PURCHASE AGREEMENT dated
as of September 3, 1999, among OPUS360
CORPORATION, a Delaware Corporation (the
"Company"), and the purchasers (the
"Purchasers") identified on ANNEX I.
The Company desires to sell to Purchasers and Purchasers desire to
purchase from the Company shares as set forth on ANNEX I hereto (the "Preferred
Shares") of Series B Convertible Preferred Stock, $.001 par value of the Company
(the "Series B Preferred Stock"), having the designations, preferences and
rights set forth in the Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") of the Company attached hereto as EXHIBIT A.
In consideration of the mutual promises herein made and in
consideration of the representations, warranties, and covenants herein
contained, the parties agree as follows:
ARTICLE I
FILING; ISSUANCE AND RESERVATION;
SALE OF THE SECURITIES
1.1 FILING OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
Immediately prior to the execution and delivery of this Agreement, the
Company will file with the Secretary of State of the State of Delaware the
Second Amended and Restated Certificate of Incorporation which, among other
things, (i) designates 8,700,000 shares of the Company's capital stock as Series
B Preferred Stock, and (ii) sets forth the terms, designations, powers,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations and restrictions, of the Series B Preferred
Stock.
1.2 AUTHORIZATION OF ISSUANCE AND SALE OF SECURITIES AND RESERVATION OF
SHARES.
Subject to the terms and conditions hereof, the Company has authorized (i)
the issuance and sale to the Purchasers of the Preferred Shares at the Closing,
and (ii) the reservation of an aggregate of 8,700,000 shares (the "Reserved
Shares") of Common Stock for issuance upon any conversions of any of the
Preferred Shares.
1.3 THE CLOSINGS OF THE SALE OF THE SECURITIES.
At the Closing or a Subsequent Closing (as defined in Section 2.1 below),
as the case may be, on the terms and subject to the conditions contained herein,
the Company shall issue, sell and deliver to each Purchaser, and each Purchaser
shall severally purchase from the Company, the Preferred Shares set forth
opposite its name on ANNEX I and each Purchaser shall deliver to the Company, by
wire transfer of immediately available funds to an account designated by the
Company, the purchase price for such Preferred Shares set forth opposite each
Purchaser's name on ANNEX I.
<PAGE>
ARTICLE II
CLOSING; DELIVERIES AT CLOSINGS
2.1 CLOSINGS.
The initial closing hereunder with respect to the issuance, sale and
delivery of the Preferred Shares (the "Closing") shall take place on September
3, 1999 (the "Closing Date"). Subsequent closings (each a "Subsequent Closing")
may take place up to forty-five (45) days after the Closing.
2.2 DELIVERIES AT THE CLOSINGS.
(a) At the Closing, the Company shall deliver to the Purchasers
purchasing Preferred Shares at such time:
(i) one stock certificate registered in the name of each Purchaser,
representing that number of Preferred Shares being purchased by such
Purchaser as set forth on ANNEX I;
(ii) an opinion dated as of the date hereof of O'Sullivan Graev &
Karabell, LLP, counsel to the Company as to the matters set forth in
EXHIBIT B attached hereto; and
(iii) a certificate of the Secretary of the Company dated as of the
date hereof, certifying (A) that true and complete copies of the Company's
Fundamental Documents (as hereinafter defined), as in effect on the date
hereof, are attached to such certificate; (B) as to the incumbency and
genuineness of the signatures of each officer of the Company executing any
of the Documents; and (C) the genuineness of the resolutions of the Board
of Directors (the "Board") of the Company authorizing the execution,
delivery and performance of the Documents to which the Company is a party
and the consummation of the transactions contemplated thereby.
(b) At the Closing, each Purchaser shall deliver to the Company the
purchase price for the Preferred Shares being purchased by such Purchaser on
such date.
(c) At each Subsequent Closing, the Company shall deliver to the
Purchasers purchasing Preferred Shares at such time:
(iv) one stock certificate registered in the name of each such
Purchaser, representing that number of Preferred Shares being purchased by
such Purchaser as set forth on ANNEX I; and
(v) the items referenced in Section 2.2(a)(ii) and (iii) above.
(d) At each Subsequent Closing, each Purchaser purchasing Preferred
Shares at such time shall deliver to the Company the purchase price for the
Preferred Shares being purchased by such Purchaser on such date.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to the Purchasers to enter into and perform
their respective obligations under this Agreement, the Company represents and
warrants to each Purchaser as follows as of the Closing Date:
3.1 ORGANIZATION; GOOD STANDING; QUALIFICATION.
Each of the Company and its Subsidiary is duly organized, validly existing
and in good standing under the Laws of its jurisdiction of formation, has all
requisite power to own, lease and operate its assets and to carry on its
business as presently being conducted, and is qualified to do business and in
good standing in every jurisdiction in which the failure to so qualify or be in
good standing could have, individually or in the aggregate, a Material Adverse
Effect on the Company. The Company has delivered to the Purchasers true and
complete copies of its Fundamental Documents as in effect on the date hereof.
3.2 AUTHORIZATION.
(a) The Company has all requisite power and authority to execute and
deliver each Document to which it is a party and any and all instruments
necessary or appropriate in order to effectuate fully the terms and conditions
of each such Document and all related transactions and to perform its
obligations under each such Document. Each Document to which the Company is a
party has been duly authorized by all necessary action (corporate or otherwise)
on the part of the Company and each Document to which the Company is a party has
been duly executed and delivered by the Company, and constitutes the legal,
valid and legally binding obligation of the Company, enforceable in accordance
with its terms, except as enforceability thereof may be limited by any
applicable bankruptcy, reorganization, insolvency or other Laws affecting
creditors' rights generally or by general principles of equity.
(b) The authorization, issuance, sale and delivery of the Preferred
Shares and the reservation of the Reserved Shares have been duly authorized by
all requisite action of the Company's Board and stockholders. As of the Closing,
the Preferred Shares and, upon their issuance, the Reserved Shares, will be
validly issued and outstanding, fully paid and nonassessable, with no personal
liability attaching to the ownership thereof, free and clear of any Liens
whatsoever and with no restrictions on the voting rights thereof and other
incidents of record and beneficial ownership pertaining thereto, in each case
other than pursuant to the Documents. The issuance of the Preferred Shares, and,
when issued, the Reserved Shares, shall be free of all statutory or contractual
pre-emptive rights or rights of first refusal, if any.
3.3 NON-CONTRAVENTION.
The execution, delivery and performance by the Company of the Documents to
which it is a party, the consummation of the transactions contemplated thereby
and compliance with the provisions thereof, including the issuance, sale and
delivery of the Preferred Shares and the Reserved Shares, shall not (a) violate
any Law to which the Company or any of its assets is
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<PAGE>
subject, (b) violate any provision of the Fundamental Documents of the Company,
(c) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify or cancel, or require any notice under any contract to which the Company
is a party or by which any of the assets of the Company is bound or (d) result
in the imposition of any Lien upon any of the assets of the Company. Other than
federal and state securities filings, the Company has not been or is not
required to give any notice to, make any filing with, or obtain any
authorization, consent or approval of any Governmental Entity or any other
Person for the valid authorization, issuance and delivery of the Preferred
Shares or any other Documents or for the valid authorization, reservation,
issuance and delivery of the Reserved Shares.
3.4 CAPITALIZATION OF THE COMPANY.
(a) Immediately prior to consummation of the Closing, the authorized
capital stock of the Company shall consist of:
(i) 25,000,000 shares of preferred stock ("Preferred Stock") of
which (1) 8,400,000 shares will be designated Series A Preferred Stock,
$.001 par value, (the "Series A Preferred Stock"), of which 8,284,000
shares of Series A Preferred Stock will be outstanding, fully paid and
nonassessable, with no liability attaching to the ownership thereof and
(2) 8,700,000 shares shall be designated Series B Preferred Stock, of
which up to 8,700,000 shares of Series B Preferred Stock will be reserved
for issuance to the Purchasers at the Closing and Subsequent Closings
hereunder; and
(ii) 45,000,000 shares of the Company's common stock ("Common
Stock"), of which (A) 7,233,890 shares will be issued and outstanding,
fully paid and nonassessable, (B) 4,000,000 shares will be reserved for
issuance pursuant to the Company's 1998 Stock Option Plan (the "Stock
Option Plan"), (C) 968,325 shares will be reserved for issuance upon
exercise of warrants to purchase Common Stock, and (D) 8,400,000 shares
will be reserved for issuance upon conversion of the Series A Preferred
Stock and 8,700,000 shares will be reserved for issuance upon conversion
of the Series B Preferred Stock.
(b) Except as contemplated by the Documents or otherwise set forth on
SCHEDULE 3.4, there are, and immediately after consummation of the Closing there
will be, no (i) outstanding warrants, options, agreements, convertible
securities or other commitments or instruments pursuant to which the Company is
or may become obligated to issue or sell any shares of its capital stock or
other securities, or (ii) preemptive or similar rights to purchase or otherwise
acquire shares of the capital stock or other securities of the Company pursuant
to any provision of Law, the Company's Fundamental Documents or any contract to
which the Company is a party.
3.5 EQUITY INVESTMENT AND ACQUISITIONS.
Except as set forth on SCHEDULE 3.5 hereto, the Company does not have any
Subsidiaries, nor does it own any capital stock or other proprietary interest,
directly or indirectly, in any Person.
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<PAGE>
3.6 FINANCIAL STATEMENTS.
SCHEDULE 3.6 sets forth the following financial statements (the "Financial
Statements"): (A) unaudited balance sheet and statements of income and changes
in stockholders' equity as of and for the fiscal year ended December 31, 1998
for the Company and (B) internally prepared unaudited consolidated balance sheet
(the "Latest Balance Sheet") and statements of income and changes in
stockholders' equity as of and for the six months ended June 30, 1999 for the
Company and its Subsidiaries. The Financial Statements: (i) present fairly the
financial position of the Company at the dates and for the periods indicated,
except that the Financial Statements are subject to normally recurring year-end
adjustments, (ii) are in accordance with the books and records of the Company
and (iii) have been prepared in accordance with GAAP consistently applied.
3.7 BANKRUPTCY, ETC.
The Company is not involved in any Proceeding by or against the Company as
a debtor before any Governmental Entity under Title 11 of the United States Code
or any other insolvency or debtors' relief act, whether state or Federal, or for
the appointment of a trustee, receiver, liquidator, assignee, sequestrator or
other similar official for any part of the property of the Company.
3.8 LEGAL COMPLIANCE.
The Company has not violated any provisions of its Fundamental Documents,
and has complied in all material respects with all applicable Laws, Orders and
Permits, and no Proceeding is pending or, to the knowledge of the Company,
threatened, alleging any failure to so comply. SCHEDULE 3.8 sets forth a list of
all Permits under which the Company is operating or bound, the failure of which
to have in effect is reasonably likely to cause a Material Adverse Effect on the
Company and its Subsidiaries, taken as a whole. The Company has furnished or
made available to the Purchasers true and complete copies of such Permits. Such
Permits (a) are in full force and effect, (b) have not been violated in any
material respect and (c) are not subject to any pending or, to the knowledge of
the Company, threatened Proceeding seeking their revocation or limitation.
3.9 INTELLECTUAL PROPERTY.
(a) SCHEDULE 3.9(A) identifies all material Intellectual Property used
by the Company in connection with the business of the Company. The Company has
sufficient title and ownership of all Intellectual Property necessary for its
business as currently conducted.
(b) Except as specifically set forth on SCHEDULE 3.9(B):
(i) the Company has not infringed upon or misappropriated any
Intellectual Property rights of third parties, and the Company has not
received any charge, complaint, claim, demand or notice alleging any such
infringement or misappropriation;
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<PAGE>
(ii) the Company has the right to use, sell, license and dispose of,
and has the right to bring actions for the infringement of, all
Intellectual Property owned by the Company and necessary or required for
the conduct of its business as currently conducted and as proposed to be
conducted;
(iii) no activity, service or procedure currently conducted or
proposed to be conducted by the Company violates or will violate any
agreement governing the use of Intellectual Property;
(iv) the Company is not aware of any infringement of its
Intellectual Property by any third party; and
(v) all of the Company's employees and consultants have executed and
delivered to the Company an agreement with respect to inventions and
nondisclosure of confidential information, standard forms of which have
been delivered to counsel for the Purchasers, as requested.
3.10 OFFERING EXEMPTION.
Based in part upon and assuming the accuracy of the representations of the
Purchasers in Article IV, the offering, sale and issuance of the Preferred
Shares have been, are, and will be, exempt from registration under the
Securities Act, and such offering, sale and issuance is also exempt from
registration under applicable state securities and "blue sky" laws. The Company
has made all requisite filings and has taken or will take all action necessary
to be taken to comply with such federal and state securities or "blue sky" laws.
The outstanding shares of Common Stock and Series A Preferred Stock are duly
authorized and issued, fully paid and non-assessable and were issued in
compliance with all applicable federal and state securities laws.
3.11 PROPERTIES.
To the knowledge of the Company, the Company has good and marketable title
to its material properties and assets, other than those for which the Company
has a lease. All leases pursuant to which the Company leases real or personal
property material to the business are, to its knowledge, valid and effective in
accordance with their respective terms and the Company has not received written
notification of the existence of any material default or occurrence or condition
which could result in a noncurable default under the provisions of any lease.
3.12 MATERIAL ADVERSE CHANGES.
Since the Latest Balance Sheet, there has not been any change in the
assets, liabilities, financial condition or operations of the Company, except
changes in the ordinary course of business which have not been, either
individually or in the aggregate, materially adverse to the Company or any
damage, destruction or loss, whether or not covered by insurance, materially and
adversely affecting the properties or business of the Company.
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<PAGE>
3.13 BROKERS.
SCHEDULE 3.13 sets forth a true and complete list of each agent, broker,
investment banker, Person or firm who or which has acted on behalf, or under the
authority, of the Company (or its predecessors) or any of its stockholders or
will be entitled to any fee or commission directly or indirectly from the
Company or any of its stockholders in connection with any of the transactions
contemplated hereby.
3.14 REGISTRATION RIGHTS.
Immediately following the Closing, except as contemplated by the
Documents, no Person has any right to cause the Company to effect the
registration under the Securities Act of any securities (including debt
securities) of the Company.
3.15 USE OF PROCEEDS.
The proceeds received by the Company from the sale of the Preferred Shares
shall be used by the Company for working capital and other general corporate
purposes.
3.16 YEAR 2000.
All of the Company's products, devices and programs are designed to be
used prior to, during and after the calendar year 2000 A.D., and such products,
devices and programs will operate during each such time period without error
relating to date data and date-dependent data, specifically including any error
relating to, or the program of, date data which represents or references
different centuries or more than one century, other than such errors which have
not had nor could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company's business as presently
conducted or as proposed to be conducted. Other than any of the following which
has not had nor could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate, on the Company's business as presently
conducted or as proposed to be conducted, without limiting the generality of the
foregoing:
(a) Each such product, device or program will not abnormally end or
provide invalid or incorrect results as a result of date data, specifically
including date data which represents or references different centuries or more
than one century; and
(b) Each such product, device or program has been designed to ensure
year 2000 compatibility, including, but not limited to, date data century
recognition, calculations which accommodate same century and multi-century
formulas and date values and date data interface values that reflect the
century.
3.17 SECTION 1202 COMPLIANCE.
The Preferred Shares issuable hereunder and the Common Stock issuable upon
conversion thereof will constitute "qualified small business stock" within the
meaning of Section 1202 of the Code, as of the date of issuance.
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3.18 NO ACTIONS.
There is no action, suit, investigation or proceeding (or any basis
therefor) pending against or, to the knowledge of the Company, threatened
against or affecting the Company or any of its properties before any court or
arbitrator or any governmental body, agency, official or authority.
3.19 DISCLOSURE.
To the Company's knowledge after reasonable investigation the information
provided to the Purchasers in the Private Placement Memorandum dated August 15,
1999 (the "Memoranda") and the Documents, taken as a whole, does not contain any
untrue statement of a material fact regarding the Company or its Subsidiary and
does not omit any material fact necessary to make the statements contained
herein or therein, in light of the circumstances in which they were made, not
misleading.
3.20 RELATED TRANSACTIONS.
Except as set forth on SCHEDULE 3.20, and except for compensation to
regular employees of the Company, since the formation of the Company, no current
or former director or officer of the Company or holder of any capital stock of
the Company or any of their respective affiliates has been (i) a party to any
transaction with the Company, or (ii) to the knowledge of the Company, the
direct or indirect owner of an interest (other than non-affiliated holdings in
publicly held companies) in any business organization that is or was a
competitor, supplier or customer of the Company.
3.21 AGREEMENTS.
Except as described or referred to in SCHEDULE 3.21 hereto or the
Financial Statements, there is no agreement to which the Company is a party or
by which the Company is bound which involves obligations (contingent or
otherwise) of, or payments to, the Company in excess of $250,000 per year (each,
a "Material Contract"). No default on the part of the Company exists under any
contract or agreement to which the Company is a party that would have a material
adverse effect on the Company. The Company is not a party to any employment
agreement or severance agreement, except as set forth on SCHEDULE 3.21.
3.22 TAX MATTERS.
The Company has filed all federal, state and local income, excise or
franchise tax returns, real estate and personal property tax returns, sales and
use tax returns and other tax returns required to be filed by it and has paid
all Taxes owed by it, except Taxes which have not yet accrued or otherwise
become due or for which adequate provision has been made in the Financial
Statements. The provision for Taxes on the Financial Statements is sufficient as
of its date for the payment of all accrued and unpaid federal, state, county and
local Taxes of any nature of the Company whether or not assessed or disputed.
All Taxes which the Company is required to withhold or collect have been
withheld and collected and have been paid over when due to the proper
governmental authorities. With regard to the income tax returns of the Company,
the Company has not received notice of any audit or of any proposed deficiencies
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<PAGE>
from any taxing authority and no controversy with respect to Taxes of any type
is pending or, to the knowledge of the Company, threatened. There are in effect
no waivers of applicable statutes of limitations with respect to any Taxes owed
by the Company for any year.
3.23 INSURANCE.
The Company maintains valid and effective insurance policies, issued by
reputable insurers, to insure it against all risks usually insured against by
Persons conducting businesses similar to that of the Company in the locality in
which such businesses are conducted. The Company has paid all due premiums with
respect to all policies of insurance currently maintained by the Company.
3.24 AMENDMENTS TO STOCKHOLDERS' AGREEMENT AND REGISTRATION RIGHTS AGREEMENT.
Amendment No. 1 to the Registration Rights Agreement ("Amendment No.
1") and Amendment No. 3 to the Stockholders' Agreement ("Amendment No. 3"),
each attached to the applicable agreement in the Exhibits hereto, have been
executed by the requisite parties on or before the date hereof. Upon
execution and delivery of this Agreement by the Purchasers and the Company,
such Purchasers shall be Investors (as such term is defined in the
Registration Rights Agreement, as amended by Amendment No. 1) for purposes of
the Registration Rights Agreement and shall be Investors and Stockholders (as
such terms are defined in the Stockholders' Agreement, as amended by
Amendment No. 3) for purposes of the Stockholders' Agreement, and in each
case such Purchasers shall be entitled to the rights thereunder of an
Investor or an Investor and Stockholder, respectively.
3.25 ERISA PLANS.
Except as set forth on SCHEDULE 3.25, the Company does not maintain nor is
it a party to (or ever maintained or was a party to) any "employee welfare
benefit plan," as defined in Section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or any other written, unwritten,
formal or informal plan or agreement involving direct or indirect compensation
other than workers' compensation, unemployment compensation and other government
programs, under which the Company has any present or future obligation or
liability. The Company does not maintain nor is it a party to (or has it or any
predecessor ever maintained or was it or any predecessor a party to) any
"employee pension benefit plan," as defined in Section 3(2) of ERISA which would
be subject to Title IV of ERISA, and the Company does not contribute to any
"multiemployer plan" as defined in Section 3(37) and Section 4001(a)(3) of
ERISA. The Company does not maintain a plan providing health or medical benefits
to retired employees of the Company or any predecessor or a welfare benefit fund
under Section 419 of the Internal Revenue Code.
3.26 ENVIRONMENTAL MATTERS.
The Company has not disposed of either hazardous substances (as defined
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended) or materials subject to regulation by the Nuclear
Regulatory Commission except in accordance with applicable law. The Company has
received no written inquiries from any governmental agency with respect to, and
to the best of the Company's knowledge, no governmental
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investigation with respect to the Company has been conducted for, the possible
storage or disposal of any such hazardous substances or any such material
subject to regulation by the Nuclear Regulatory Commission.
3.27 EMPLOYEES.
No officer or key employee of the Company has notified the Company that
such officer or key employee intends to terminate his or her employment with the
Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
As a material inducement to the Company to enter into and perform
its obligations under this Agreement, each Purchaser, severally and not jointly,
represents and warrants to the Company, as to itself only, as of the date
hereof, as follows:
4.1 EXPERIENCE.
Such Purchaser is an accredited investor within the meaning of Regulation
D promulgated by the Securities and Exchange Commission and, by virtue of its
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company, such Purchaser is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Such Purchaser has had access to the
Company's senior management and has had the opportunity to conduct such due
diligence review as it has deemed appropriate.
4.2 INVESTMENT.
Such Purchaser has not been formed solely for the purpose of making this
investment and such Purchaser is acquiring the Preferred Shares for investment
for its own account, not as a nominee or agent, and not with the view to, or for
resale in connection with, any distribution of any part thereof. Such Purchaser
understands that the Preferred Shares and the related Reserved Shares, as
applicable, to be acquired have not been registered under the Securities Act or
applicable state and other securities laws by reason of a specific exemption
from the registration provisions of the Securities Act and applicable state and
other securities laws, the availability of which depends upon, among other
things, the bona fide nature of the investment intent and the accuracy of the
respective Purchaser's representations as expressed herein.
4.3 RULE 144.
Such Purchaser acknowledges and understands that it must bear the economic
risk of this investment for an indefinite period of time because the Preferred
Shares must be held indefinitely unless subsequently registered under the
Securities Act and applicable state and other securities laws or unless an
exemption from such registration is available. Such Purchaser understands that
any transfer agent of the Company will issue stop-transfer instructions with
respect to the Preferred Shares and the related Reserved Shares, as applicable,
unless any transfer thereof is
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subsequently registered under the Securities Act and applicable state and other
securities laws or unless an exemption from such registration is available.
4.4 NO PUBLIC MARKET.
Such Purchaser understands that no public market now exists for any of the
securities issued by the Company and that there is no assurance that a public
market will ever exist for the securities of the Company.
4.5 BROKERS OR FINDERS.
Such Purchaser has not retained any investment banker, broker or finder in
connection with the purchase of the Preferred Shares. Such Purchaser will
severally and not jointly indemnify and hold the Company harmless against any
liability, settlement or expense arising out of, or in connection with, any such
claim.
4.6 ACCESS TO DATA.
Prior to the execution and delivery of this Agreement, such Purchaser
received from the Company and read the Memorandum. Such Purchaser has had an
opportunity to ask questions of, and receive answers from, Persons acting on
behalf of the Company concerning the terms and conditions of this investment,
and answers have been provided to all of such questions to the full satisfaction
of such Purchaser. No oral representations have been made or furnished to, or
relied on by, such Purchaser or his or its representatives in connection with
his or its investment in the Preferred Shares. Such Purchaser has such knowledge
and experience in financial and business matters that he, she or it is capable
of evaluating the risks and merits of his, her or its investment in the
Preferred Shares.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 AFFIRMATIVE COVENANTS OF THE COMPANY.
The Company agrees as follows:
(a) FINANCIAL INFORMATION. Until the consummation of a Qualified
Offering (as such term is defined in the Certificate), the Company will deliver
the following reports to each Qualified Purchaser:
(i) As soon as practicable after the end of each fiscal year, and in
any event within 120 days thereafter, consolidated balance sheets of the
Company, if any, as of the end of such fiscal year, and consolidated
statements of income and consolidated statements of changes in cash flow
of the Company and its Subsidiaries, if any, for such fiscal year,
prepared in accordance with GAAP and setting forth in each case in
comparative form the figures for the previous fiscal year and the budgeted
figures for the current fiscal year, all in reasonable detail and audited
by independent public accountants of national standing commonly known as
"Big 5" accountants selected by the Company,
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together with a certificate of the Company executed by the chief executive
officer or principal financial or accounting officer of the Company
certifying that all covenants to be complied with by the Company hereunder
have been complied with (or setting forth in reasonable detail any
covenants that have not been so complied with).
(ii) As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company and
in any event within 45 days thereafter, a consolidated balance sheet of
the Company and its Subsidiaries, if any, as of the end of each such
quarterly period, and consolidated statements of income and consolidated
statements of change in cash flow of the Company for such period and for
the current fiscal year to date, prepared in accordance with GAAP (other
than for accompanying notes), subject to changes resulting from normal
year-end audit adjustments, and setting forth in each case in comparative
form the figures for the same periods of the previous fiscal year and the
budgeted figures for the current periods, all in reasonable detail and
signed by the principal financial or accounting officer of the Company.
(b) GENERAL INFORMATION. The Company will deliver the following
information to each Qualified Purchaser:
(iii) Promptly after the commencement or threatened commencement
thereof, notice of all actions, suits, investigations, and proceedings
before any court or governmental department, arbitration panel,
commission, board, bureau, agency or instrumentality, domestic or foreign,
affecting the Company or any of its Subsidiaries other than ordinary and
routine litigation covered under the limits of existing insurance
policies.
(iv) Copies of all amendments to the Fundamental Documents of the
Company.
(c) ADDITIONAL INFORMATION. The Company will deliver or provide to each
Qualified Purchaser such other information and data, including access to books
and records of the Company as any such holder may from time to time reasonably
request.
(d) RIGHTS OF INSPECTION. Each Qualified Purchaser shall have the right
to visit and inspect any of the properties of the Company and to discuss its
affairs, finances and accounts with its officers and auditors, all at such
reasonable times during normal business hours and as often as may be reasonably
requested.
(e) KEY-MAN INSURANCE. The Company, at its own expense, shall maintain
term life insurance in adequate amounts on key management employees in
accordance with the directions of the Board.
(f) INSURANCE. The Company shall maintain such other insurance with
such coverages and in such amounts as shall be determined by the Board of the
Company, including such insurance as the Board of the Company shall deem
necessary to protect the assets of the Company.
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5.2 LEGAL EXISTENCE; COMPLIANCE, ETC.
(a) The Company shall maintain its existence as a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation.
(b) The Company shall conduct its business in compliance in all
material respects with all permits and licenses issued by, and all statutes,
rules, regulations and orders of, and all restrictions imposed by, all
governmental authorities, domestic or foreign, federal or state, applicable to
the conduct of its business and the ownership of its property (including,
without limitation, applicable statutes, rules, regulations, orders and
restrictions relating to environmental, safety and other similar standards or
controls).
(c) The Company shall conduct its business in compliance in all
material respects with all Permits, agreements and contracts to which it is a
party.
5.3 STOCKHOLDERS' AGREEMENT; REGISTRATION RIGHTS AGREEMENT.
Each Purchaser by his or its execution of this Agreement agrees to be
bound by and comply with the terms and provisions of the Stockholders' Agreement
and the Registration Rights Agreement, in each case as an Investor (as such term
is defined therein) and as a Stockholder under the Stockholders' Agreement (as
such term is defined therein).
5.4 PREEMPTIVE RIGHTS.
(a) Except in the case of any issuance of Excluded Stock (as defined
below), the Company shall not after the date hereof issue, sell or exchange,
agree to issue, sell or exchange, or reserve or set aside for issuance, sale or
exchange, any (i) Stock (as such term is defined in the Stockholders Agreement),
(ii) any other equity security of the Company, (iii) any debt security of the
Company which by its terms is convertible into or exchangeable for any equity
security of the Company or has any other equity feature, (iv) any security of
the Company that is a combination of a debt and equity security or (v) any
option, warrant or other right to subscribe for, purchase or otherwise acquire
any security of the Company specified in the foregoing clauses (i) through (iv),
unless in each case the Company shall have first offered to sell to such
securities (the "Offered Securities") to the Designated Investors (as defined
below). Each Designated Investor shall have the option of acquiring such
Designated Investor's Proportionate Percentage of the Offered Securities at a
price and on such other terms and conditions as shall have been specified by the
Company in writing (the "Offer") delivered to such Designated Investor, which
Offer by its terms shall remain open and irrevocable for a period of 10 business
days from the date it is delivered by the Company to the Designated Investor. As
used herein, the term "Designated Investor" means any holder of the Company's
securities that, together with its affiliates, has invested in excess of
$15,000,000 in the Company since the date of its formation through the purchase
of equity securities of the Company.
(b) The Company may specify in the Offer that all or a minimum amount
of the Offered Securities must be sold in such Offering (to the Designated
Investors and/or any third parties pursuant to paragraph (d) below), in which
case any Notice of Acceptance (as defined below) shall be deemed conditioned
upon (i) receipt of Notices of Acceptance of all or such minimum amount, as
applicable, of the Offered Securities and/or (ii) the sale of all or the
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remainder of such minimum amount, as applicable, of the Offered Securities
pursuant to paragraph (d) below.
(c) Notice of a Designated Investor's intention to accept, in whole or
in part, an Offer shall be evidenced by a writing signed by such Designated
Investor and delivered to the Company on or prior to the end of the 10-day
period of such Offer, setting forth such portion of the Offered Securities as
the Designated Investor elects to purchase (the "Notice of Acceptance").
(d) In the event that Notices of Acceptance are not given by the
Designated Investors in respect of all the Offered Securities, the Company shall
have 120 days from the expiration of the foregoing 10-day period to sell all or
any part of such Offered Securities as to which Notices of Acceptance have not
been given by the Designated Investors (the "Refused Securities") to any other
Person or Persons, but only upon terms and conditions in all material respects,
including, without limitation, unit price and interest rates, which are no more
favorable to such other Person or Persons and no less favorable to the Company
than those set forth in the Offer. Upon the closing, which shall include full
payment to the Company, of the sale to such other Person or Persons of all the
Refused Securities, the Designated Investors shall purchase from the Company,
and the Company shall sell to the Designated Investors, the Offered Securities
in respect of which Notices of Acceptance were delivered to the Company by the
Designated Investors, on the terms specified in the Offer.
(e) In each case, any Offered Securities not purchased by the
Designated Investors or any other Person or Persons in accordance with paragraph
(d) above may not be sold or otherwise disposed of until they are again offered
to the Designated Investors under the procedures specified in the Section 5.4,
subject to the provisions of paragraph (g) below.
(f) The rights of the Designated Investors under this Section 6 shall
not apply to the sale or issuance of any Excluded Stock. As used herein,
"Excluded Stock" means (i) up to 4,000,000 shares (as adjusted equitably for
stock dividends, stock splits, combinations, etc.) of Common Stock issuable upon
exercise of stock options granted to officers and employees of the Company or
its subsidiaries as approved by the Board (or a committee thereof), (ii) shares
of Common Stock issued upon conversion of shares of Series A Preferred Stock or
Series B Preferred Stock, including in the case of (i) and (ii) above and (viii)
below, any additional shares of Common Stock as may be issued by virtue of
antidilution provisions, if any, applicable to such options, warrants or shares,
as the case may be, (iii) shares of the Company's stock issued in connection
with acquisitions of any person or entity, (iv) equity kickers issued in
connection with bona fide debt offerings, joint ventures or technology licensing
arrangements, (v) shares of the Company's stock issued in connection with
equipment financing transactions, (vi) stock issued in connection with a
Qualified Offering, (vii) shares of the Company's stock issued upon stock splits
or other subdivisions or combination of shares of Stock, (viii) shares of Common
Stock issuable upon exercise of warrants and options outstanding as of the date
hereof and (ix) shares of Series B Preferred Stock issued by the Company in
Subsequent Closings.
(g) Notwithstanding anything contained herein to the contrary, in the
event any Designated Investor shall fail to purchase its respective
Proportionate Percentage of any Offered Securities pursuant to the terms of this
Section 5.4 (each such Designated Investor, a "Non-
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Participating Investor"), the provisions of this Section 5.4 shall thereafter be
null and void with respect to such Non-Participating Investor and such
Non-Participating Investor shall not have any rights under this Section 5.4 to
participate in any subsequent offering by the Company of its securities.
(h) The provisions of this Section 5.4 are intended to be for the
benefit of any Person that owns equity securities of the Company and that
qualifies as a Designated Investor, including any applicable Purchasers
hereunder.
5.5 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS, ETC.
All representations and warranties hereunder of the Company and the
Purchasers shall survive the Closing for a period of one year and shall in no
way be affected by any investigation of the subject matter hereof made by or on
behalf of the Purchasers or the Company. Except as otherwise provided herein,
all agreements and/or covenants contained herein shall survive indefinitely
until, by their respective terms, they are no longer operative.
5.6 TRANSACTION EXPENSES AND TAXES.
(a) The Company agrees to pay promptly up to an aggregate of $50,000 of
the reasonable out-of-pocket expenses, including reasonable attorneys' fees and
expenses, of the Purchasers arising in connection with the negotiation and
execution of this Agreement and the other Documents, the related due diligence
and the consummation of the transactions contemplated hereby and thereby.
(b) All sales, use, transfer, stamp (including documentary stamp taxes,
if any), excise, recording, income, capital gain, franchise and other similar
Taxes or governmental charges with respect to the securities issued pursuant
hereto shall be borne by the Company.
ARTICLE VI
MISCELLANEOUS
6.1 NO THIRD PARTY BENEFICIARIES.
Except as expressly provided herein, this Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns, personal representatives, heirs and estates,
as the case may be.
6.2 ENTIRE AGREEMENT.
This Agreement and the other Documents constitute the entire agreement
among the Parties and supersede any prior understandings, agreements or
representations by or among the Parties, written or oral, that may have related
in any way to the subject matter of any Document including, without limitation,
any letter of intent dated as of or prior to the date hereof, between the
Company and any Purchaser.
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6.3 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors and permitted assigns. No Party may
assign either this Agreement or any of its rights, interests, or obligations
hereunder without the prior written approval of the other Parties; PROVIDED,
HOWEVER, that each Purchaser may assign any of its rights under any of the
Documents to (i) any Affiliate of such Purchaser, (ii) any Person who shall
acquire substantially all of the assets of such Purchaser or a majority in
voting power of the capital stock of such Purchaser (whether pursuant to a
merger, consolidation, stock sale or otherwise), (iii) any lender of such
Purchaser (or any agent therefor) for security purposes and the assignment
thereof by any such lender or agent to any Purchaser in connection with the
exercise by any such lender or agent of all of its rights and remedies as a
secured creditor with respect thereto and (iv) any Person to whom such Purchaser
shall transfer any Preferred Shares in accordance with the terms of the
Documents.
6.4 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
6.5 NOTICES.
All notices, requests, demands, claims, and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally, telecopied, sent by nationally recognized overnight courier or
mailed by registered or certified mail (return receipt requested), postage
prepaid, to the Parties at the following addresses (or at such other address for
a Party as shall be specified by like notice) or by E-mail:
If to the Company, to:
OPUS360 Corporation
733 3rd Avenue, 17th Floor
New York, NY 10017
Telephone: 212-301-2212
Telecopy: 212-599-8481
Attention: Ari Horowitz
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, NY 10112
Telephone: 212-408-2400
Telecopy: 212-728-5950
Attention: John J. Suydam, Esq.
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If to a Purchaser, to its E-mail address shown on ANNEX I:
All such notices and other communications shall be deemed to have been
given and received (i) in the case of personal delivery, on the date of such
delivery, (ii) in the case of delivery by telecopy, on the date of such
delivery, (iii) in the case of delivery by nationally recognized overnight
courier, on the third business day following dispatch, (iv) in the case of
mailing, on the seventh business day following such mailing and (v) in the case
of E-mail, 24 hours after sending.
6.6 GOVERNING LAW.
THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF
LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK, OR ANY
OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF NEW YORK TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL
LAW OF THE STATE OF NEW YORK WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF
THIS AGREEMENT, EVEN IF UNDER SUCH JURISDICTION'S CHOICE OF LAW OR CONFLICT OF
LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY
APPLY.
6.7 CONSENT TO JURISDICTION.
Each of the Company and the Purchasers agrees that any action or
proceeding to enforce any right arising out of this Agreement, may be commenced
in the Supreme Court of New York in New York County or in the United States
District Court for the Southern District of New York, and each of the Company
and the Purchasers consents to such jurisdiction, agrees that venue will be
proper in such courts in any such matter, agrees that New York County is the
most convenient forum for litigation in any such suit, action or legal
proceeding, and agrees that a summons and complaint commencing an action or
proceeding in any such court shall be properly served and shall confer personal
jurisdiction if served by registered or certified mail to the Company or such
Purchaser, or as otherwise provided by the laws of the State of New York or the
United States. Each of the Company and the Purchasers agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
6.8 AMENDMENTS AND WAIVERS.
No amendment of any provision of this Agreement shall be valid unless the
same shall be in writing and signed by the Company and the holders of at least
51% of the then outstanding Preferred Shares or Common Stock issued upon
conversion of the Preferred Shares. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
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6.9 CERTAIN DEFINITIONS.
"AFFILIATE" means, with respect to any Person, any of (a) a
director, officer or stockholder holding 5% or more of the capital stock (on a
fully diluted basis) of such Person, (b) a spouse, parent, sibling or descendant
of such Person (or a spouse, parent, sibling or descendant of any director or
officer of such Person) and (c) any other Person that, directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, another Person. The term "control" includes, without
limitation, the possession, directly or indirectly, of the power to direct the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"CLOSING" shall have the meaning given in Article II.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"DOCUMENTS" means this Agreement, the Registration Rights
Agreement and the Stockholders' Agreement.
"FUNDAMENTAL DOCUMENTS" means the documents by which any Person
(other than an individual) establishes its legal existence or which govern its
internal affairs. For example, the "Fundamental Documents" of a Company would be
its charter and by-laws.
"GAAP" means United States Generally Accepted Accounting
Principles, consistently applied.
"GOVERNMENTAL ENTITY" means any court, administrative agency,
tribunal, department, bureau or commission or other governmental authority or
instrumentality, domestic or foreign, Federal, state or local.
"INTELLECTUAL PROPERTY" means all industrial and intellectual
property, including, without limitation, (i) patents, patent applications,
patent rights, trademarks, trademark applications, copyrights, copyright
applications, know-how, certificates of public convenience and necessity,
franchises, licenses, proprietary processes and formulae, layouts, processes,
inventions, and (ii) all proprietary rights pertaining to any product or service
manufactured, sold, distributed or marketed, or used, employed or exploited in
the development, manufacture, license, sale, distribution, marketing or
maintenance thereof, and all documentation and media constituting, describing or
relating to the foregoing.
"LAW" means any constitution, law, statute, treaty, rule, directive,
requirement or regulation or Order of any Governmental Entity.
"LIABILITY" means any liability or obligation, whether known or
unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued,
liquidated or unliquidated and whether due or to become due, regardless of when
asserted.
"LIEN" means any security interest, pledge, bailment (in the nature
of a pledge or for purposes of security), mortgage, deed of trust, the grant of
a power to confess judgment,
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conditional sale or title retention agreement (including any lease in the nature
thereof), charge, encumbrance, easement, reservation, restriction, cloud, right
of first refusal or first offer, option, or other similar arrangement or
interest in real or personal property.
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, a
material adverse effect on the business, operations, assets, condition
(financial or otherwise), operating results, liabilities or prospects of such
Person and its Subsidiaries, if any, taken as a whole.
"MEMORANDA" has the meaning given to such term in Section 3.19.
"ORDERS" means judgments, writs, decrees, injunctions, orders,
compliance agreements or settlement agreements of or with any Governmental
Entity or arbitrator.
"PARTY" or "PARTIES" means the signatories hereto.
"PERMITS" means all permits, licenses, authorizations,
registrations, franchises, approvals, consents, certificates, variances and
similar rights obtained, or required to be obtained, from Governmental Entities.
"PERSON" shall be construed broadly and shall include an individual,
a partnership, a Company, a limited liability company, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization, or a
Governmental Entity (or any department, agency, or political subdivision
thereof).
"PROCEEDING" means any action, suit, proceeding, complaint, charge,
hearing, inquiry or investigation before or by a Governmental Entity or an
arbitrator.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of December 24, 1998, as amended, among the Company and the
other parties thereto, a copy of which is attached hereto as EXHIBIT C.
"QUALIFIED PURCHASER" means any Person who acquires more than
$500,000 worth of Series B Preferred Stock pursuant to this Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"SUBSIDIARY" means any company, partnership, limited liability
company or other business entity, with respect to which the Company (or any
Subsidiary thereof) has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
"STOCKHOLDERS' AGREEMENT" means the Stockholders' Agreement dated as
of December 24, 1998, as amended, among the Company and the other parties
thereto, a copy of which is attached hereto as EXHIBIT D.
"TAX" as used in this Agreement, means any of the Taxes, and "Taxes"
means, with respect to any Person, (a) all income taxes (including any tax on or
based upon net income, gross income, income as specially defined, earnings,
profits or selected items of income,
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earnings or profits) and all gross receipts, sales, use, ad valorem, transfer,
franchise, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property or windfall profits taxes, alternative or add-on
minimum taxes, customs duties and other taxes, fees, assessments or charges of
any kind whatsoever, together with all interest and penalties, additions to tax
and other additional amounts imposed by any taxing authority (domestic or
foreign) on such Person (if any) and (b) any liability for the payment of any
amount of the type described in the clause (a) above as a result of being a
"transferee" (within the meaning of Section 6901 of the Code or any other
applicable Law) of another entity or a member of an affiliated or combined
group.
6.10 INCORPORATION OF SCHEDULES AND EXHIBITS.
The Schedules and Exhibits identified in this Agreement are incorporated
herein by reference and made a part hereof.
6.11 CONSTRUCTION.
Where specific language is used to clarify by example a general statement
contained herein, such specific language shall not be deemed to modify, limit or
restrict in any manner the construction of the general statement to which it
relates. The language used in this Agreement shall be deemed to be the language
chosen by the Parties to express their mutual intent, and no rule of strict
construction shall be applied against any Party.
6.12 INTERPRETATION.
Accounting terms used but not otherwise defined herein shall have the
meanings given to them under GAAP. As used in this Agreement (including all
Schedules, Exhibits and amendments hereto), the masculine, feminine and neuter
gender and the singular or plural number shall be deemed to include the others
whenever the context so requires. References to Articles and Sections refer to
articles and sections of this Agreement. Similarly, references to Schedules and
Exhibits refer to schedules and exhibits, respectively, attached to this
Agreement. Unless the content requires otherwise, words such as "hereby,"
"herein," "hereinafter," "hereof," "hereto," "hereunder" and words of like
import refer to this Agreement. The article and section headings contained in
this Agreement are inserted for convenience only and shall not affect in any way
the meaning or interpretation of this Agreement.
6.13 INDEPENDENCE OF COVENANTS AND REPRESENTATIONS AND WARRANTIES.
All covenants hereunder shall be given independent effect so that if a
certain action or condition constitutes a default under a certain covenant, the
fact that such action or condition is permitted by another covenant shall not
affect the occurrence of such default, unless expressly permitted under an
exception to such initial covenant. In addition, all representations and
warranties hereunder shall be given independent effect so that if a particular
representation or warranty proves to be incorrect or is breached, the fact that
another representation or warranty concerning the same or similar subject matter
is correct or is not breached will not affect the incorrectness of or a breach
of a representation and warranty hereunder.
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6.14 REMEDIES.
The Parties shall each have and retain all other rights and remedies
existing in their favor at Law or equity, including, without limitation, any
actions for specific performance and/or injunctive or other equitable relief
(including, without limitation, the remedy of rescission) to enforce or prevent
any violations of the provisions of this Agreement. Without limiting the
generality of the foregoing, the Company hereby agrees that in the event the
Company fails to convey any number of Preferred Shares or Reserved Shares, as
the case may be, to the Purchasers in accordance with the provisions of this
Agreement, the Purchasers' remedy at law may be inadequate. In such event, each
Purchaser shall have the right, in addition to all other rights and remedies it
may have, to specific performance of the obligations of the Company to convey
such number of Preferred Shares or Reserved Shares, as the case may be.
6.15 SEVERABILITY.
It is the desire and intent of the Parties that the provisions of this
Agreement be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
by a court of competent jurisdiction to be invalid, prohibited or unenforceable
for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
6.16 EXCHANGES: LOST, STOLEN OR MUTILATED CERTIFICATES.
Upon surrender by a holder of Series B Preferred Stock to the Company of
any certificate representing Series B Preferred Stock purchased or acquired
hereunder, the Company at its expense will issue in exchange therefor, and
deliver to the holder of Series B Preferred Stock, a new certificate or
certificates representing such shares, in such denominations as may be requested
by the holder of Series B Preferred Stock. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of any certificate
representing any Series B Preferred Stock purchased or acquired by a holder of
Series B Preferred Stock hereunder, and in case of any such loss, theft or
destruction, upon delivery of any indemnity agreement satisfactory to the
Company, or in case of any such mutilation, upon surrender and cancellation of
such certificate, the Company at its expense will issue and deliver to such
holder a new certificate for such Series B Preferred Stock of like tenor, in
lieu of such lost, stolen or mutilated certificate.
6.17 INDEMNITY.
The Company shall, for a period of one year, with respect to the
representations, warranties, covenants and agreements made by the Company herein
indemnify, defend and hold the Purchasers (and their respective shareholders,
directors, officers, employees, agents, affiliates and controlling parties)
(each, an "Indemnified Party") harmless from and against all liability,
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<PAGE>
loss or damage, together with all reasonable costs and expenses related thereto
(including legal and accounting fees and expenses), arising from the untruth,
inaccuracy or breach of any such representations, warranties, covenants or
agreements of the Company contained in this Agreement or the assertion of any
claims relating to the foregoing. Without limiting the generality of the
foregoing, each Indemnified Party shall be deemed to have suffered liability,
loss or damage as a result of the untruth, inaccuracy or breach of any such
representations, warranties, covenants or agreements if such liability, loss or
damage shall be suffered by the Indemnified Party as a result of, or in
connection with, such untruth, inaccuracy or breach or any facts or
circumstances constituting such untruth, inaccuracy or breach. The Company shall
indemnify and hold harmless each Indemnified Party against any losses, claims,
damages or liabilities, joint or several, to which any of the foregoing persons
may become subject, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any violations by the
Company of the Securities Act or state securities or "blue sky" laws applicable
to the Company relating to action or inaction required of the Company in
connection with the Securities Act or registration or qualification under such
state securities or blue sky laws; and shall reimburse each such Indemnified
Party for any legal or any other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability or action. In case any such action is brought against an Indemnified
Party, the Company will be entitled to participate in and assume the defense
thereof with counsel reasonably satisfactory to such Indemnified Party, and
after notice from the Company to such Indemnified Party of its election to
assume the defense thereof, the Company shall be responsible for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof, provided that if any Indemnified Party shall have reasonably
concluded that there may be one or more legal defenses available to such
Indemnified Party which conflict in any material respect with those available to
the Company, or that such claim or litigation involves or could have an effect
upon matters beyond the scope of the indemnity agreement provided in this
Section 6.17 the Company shall reimburse such Indemnified Party and shall not
have the right to assume the defense of such action on behalf of such
Indemnified Party and the Company shall reimburse such Indemnified Party and any
person controlling such Indemnified Party for that portion of the fees and
expenses of any counsel retained by the indemnified party which are reasonably,
related to the matters covered by the indemnity agreement provided in this
Section 6.17. The Company shall not make any settlement of any claims
indemnified against hereunder without the written consent of the Indemnified
Party or Parties, which consent shall not be unreasonably withheld.
6.18 WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OTHER DOCUMENT.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Securities
Purchase Agreement as of the date first above written.
OPUS360 CORPORATION
By: _____________________________________
Name: Ari Horowitz
Title: Chairman & CEO
CROSSPOINT VENTURE PARTNERS 1997, L.P.
By: _____________________________________
Name: Robert Hoff
Title: General Partner
SAFEGUARD 99 CAPITAL L.P.,
a Delaware limited partnership
By: Safeguard Delaware, Inc., its
general partner
By: _____________________________________
Name:
Title:
<PAGE>
COUNTERPART SIGNATURE PAGE
TO
SECURITIES PURCHASE AGREEMENT
CROSSPOINT VENTURE PARTNERS
LS 1999, L.P.
Date: September 3, 1999 By: _____________________________________
Name: Robert Hoff
Title: General Partner
<PAGE>
COUNTERPART SIGNATURE PAGE
TO
SECURITIES PURCHASE AGREEMENT
ARISTA CAPITAL PARTNERS, LP
By: Arista Capital Management LLC, a
Delaware limited liability company
Date: September __, 1999 By: _____________________________________
Name:
Title:
<PAGE>
Exhibit 10.14
================================================================================
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 27, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER...........................................................1
1.1 Merger................................................................1
1.2 Charter, By-Laws, Officers and Directors of Surviving Corporation.....1
1.3 Effective Time of the Merger..........................................2
1.4 Taking of Necessary Action; Further Assurances........................2
1.5 Authorization of the Merger Documents.................................2
1.6 Tax-Free Reorganization...............................................2
ARTICLE II EFFECT ON SHARES AND OPTIONS........................................3
2.1 Effect of the Merger on Capital Stock.................................3
2.2 Exchange of Certificates; Initial Shares..............................3
2.3 Escrow; Reserved Shares...............................................4
2.4 Additional Shares.....................................................4
2.5 Fractional Shares.....................................................4
2.6 No Further Ownership..................................................4
2.7 The Closing...........................................................5
ARTICLE III - Intentionally omitted............................................5
ARTICLE IV REPRESENTATIONS AND WARRANTIES About the COMPANY....................5
4.1 Organization; Good Standing; Qualification and Power..................5
4.2 Authorization.........................................................6
4.3 Non-contravention.....................................................6
4.4 Capitalization of the Company.........................................7
4.5 Equity Investments....................................................7
4.6 Bankruptcy, Etc.......................................................7
4.7 Financial Statements..................................................8
4.8 Events Subsequent to the Balance Sheet................................8
4.9 Liabilities...........................................................9
4.10 Legal Compliance......................................................9
4.11 Title to Properties..................................................10
4.12 Tax Matters..........................................................10
4.13 Intellectual Property................................................12
4.14 Contracts and Commitments............................................13
4.15 Insurance............................................................14
4.16 Litigation...........................................................15
4.17 Employees............................................................15
4.18 Employee Benefits....................................................15
4.19 Environment and Safety...............................................17
4.20 Related Party Transactions...........................................18
4.21 Directors and Officers...............................................18
4.22 Offering Exemption...................................................18
4.23 Accounts and Notes Receivable........................................18
<PAGE>
4.24 Brokers..............................................................18
4.25 Disclosure...........................................................19
4.26 Year 2000............................................................19
ARTICLE V REPRESENTATIONS AND WARRANTIES about THE SELLER.....................19
5.1 Title to the Merger Shares...........................................20
5.2 Authority; Noncontravention..........................................20
5.3 Legal Compliance.....................................................20
5.4 Brokers..............................................................21
5.5 Registration Rights..................................................21
5.6 No Security Interests................................................21
5.7 Compliance with Applicable Laws......................................21
5.8 Experience...........................................................21
5.9 Investment...........................................................22
5.10 Rule 144.............................................................22
5.11 No Public Market.....................................................22
5.12 Legend on Stock Certificates.........................................22
ARTICLE VI REPRESENTATIONS AND WARRANTIES ABOUT Parent And MergeCo............23
6.1 Organization; Good Standing; Qualification and Power.................23
6.2 Authorization........................................................23
6.3 Non-contravention....................................................24
6.4 Capitalization of Parent.............................................24
6.5 Capitalization of MergeCo............................................25
6.6 Subsidiaries.........................................................26
6.7 Bankruptcy, Etc......................................................26
6.8 Financial Statements.................................................26
6.9 Events Subsequent to the Balance Sheet...............................26
6.10 Legal Compliance.....................................................26
6.11 Tax Matters..........................................................27
6.12 Insurance............................................................28
6.13 Litigation...........................................................28
6.14 Employees............................................................28
6.15 Employee Benefits....................................................29
6.16 Environment and Safety...............................................29
6.17 Related Party Transactions...........................................29
6.18 Offering Exemption...................................................29
6.19 Brokers..............................................................30
6.20 Title to Properties..................................................30
6.21 Intellectual Property................................................30
6.22 Contracts and Commitments............................................31
6.23 Accounts and Notes Receivable........................................32
6.24 Disclosure...........................................................32
6.25 Year 2000............................................................32
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<PAGE>
ARTICLE VII Covenants.........................................................33
7.1 Conduct Pending Closing..............................................33
7.2 Efforts to Consummate................................................34
7.3 Exclusivity..........................................................35
7.4 Notice of Prospective Breach.........................................35
7.5 Access to Records and Properties of the Acquired Companies...........35
7.6 Structure of Transaction.............................................36
ARTICLE VIII Closing Conditions...............................................36
8.1 Conditions to Each Party's Obligations to Effect the Merger..........36
8.2 Conditions to Obligations of Parent and MergeCo......................37
8.3 Conditions to Obligations of the Company and the Seller..............39
ARTICLE IX Termination; Effect of Termination.................................40
9.1 Termination..........................................................40
9.2 Effect of Termination................................................41
ARTICLE X ADDITIONAL AGREEMENTS OF THE Seller.................................41
10.1 Lock-Up Agreement....................................................41
10.2 Stockholders' Agreement..............................................41
10.3 Non-Solicit..........................................................41
10.4 Non-Competition Agreement............................................42
10.5 Confidentiality......................................................42
10.6 Public Announcements.................................................43
10.7 Cooperation Regarding Tax Filings....................................43
10.8 Customer Relations...................................................43
10.9 Put Option...........................................................43
10.10 Call Option..........................................................44
10.11 Forfeiture of Shares.................................................45
ARTICLE XI Indemnification....................................................46
11.1 Indemnification Generally; Etc.......................................46
11.2 Assertion of Claims..................................................47
11.3 Notice and Defense of Third Party Claims.............................47
11.4 Survival of Certain Indemnification Claims...........................48
11.5 Limitations on Indemnification.......................................48
ARTICLE XII MISCELLANEOUS.....................................................49
12.1 Transaction Expenses.................................................49
12.2 No Third Party Beneficiaries.........................................49
12.3 Entire Agreement.....................................................49
12.4 Successors and Assigns...............................................49
12.5 Counterparts.........................................................50
12.6 Notices..............................................................50
12.7 Governing Law........................................................51
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12.8 Amendments and Waivers...............................................51
12.9 Certain Definitions..................................................52
12.10 Incorporation of Schedules and Exhibits..............................58
12.11 Construction.........................................................58
12.12 Interpretation.......................................................58
12.13 Independence of Covenants and Representations and Warranties.........59
12.14 Remedies.............................................................59
12.15 Severability.........................................................59
12.16 Waiver of Jury Trial.................................................59
ANNEXES
Annex I - Forfeited Shares for Performance
SCHEDULES
Schedule 4.4 - Agreements Relating to Capital Stock of Company
Schedule 4.5 - Equity Investments
Schedule 4.7 - Financial Statements
Schedule 4.8 - Events Subsequent to the Balance Sheet
Schedule 4.10 - Permits
Schedule 4.11 - Title to Properties
Schedule 4.12(a) - Tax Matters
Schedule 4.12(b) - Tax Matters Exceptions
Schedule 4.13(a) - Intellectual Property
Schedule 4.13(b) - Infringement of Intellectual Property
Schedule 4.13(c) - Intellectual Property Filings
Schedule 4.14 - Contracts and Commitments
Schedule 4.15(a) - Insurance
Schedule 4.16 - Litigation against the Company
Schedule 4.17 - Related Employee Matters
Schedule 4.18 - Employee Benefit Plans
Schedule 4.20 - Related Party Transactions
Schedule 4.21 - Directors and Officers
Schedule 4.23 - Accounts and Notes Receivable
Schedule 4.24 - Brokers
* * *
Schedule 6.4 - Capitalization of Parent
Schedule 6.8 - Parent Financial Statements
Schedule 6.10 Material Permits
Schedule 6.11 - Parent Tax Matters
Schedule 6.13 Litigation against the Parent or MergeCo
Schedule 6.15 - Parent Employee Plans
Schedule 6.17 - Related Party Transactions
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<PAGE>
Schedule 6.19 - Parent Brokers
Schedule 6.20 - Parent Property
Schedule 6.21 - Parent Intellectual Property
Schedule 6.22 - Parent Contracts and Commitments
Schedule 6.23 - Parent Accounts and Notes Receivable
EXHIBITS
Exhibit A - Form of Opinion of Company Counsel
Exhibit B-1 - Form of Employment Agreement with William Bahr
Exhibit B-2 - Form of Employment Agreement with Karina Bahr
Exhibit C - Stockholders' Agreement
Exhibit D - Form of Opinion of Parent Counsel
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<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of
May ___, 1999 among THE CHURCHILL BENEFIT
CORPORATION, a New Jersey corporation (the
"Company"), WILLIAM BAHR, an individual (the
"Seller"), and CHURCHILL ACQUISITION CORP., a
Delaware corporation ("MergeCo"), a wholly owned
subsidiary of OPUS360 CORPORATION, a Delaware
Corporation ("Parent").
WHEREAS, the Company and Parent have determined to engage in a business
combination transaction on the terms stated herein;
WHEREAS, the boards of directors of the Company and Parent have
approved and deemed it advisable and in the best interests of their respective
shareholders to consummate the transactions contemplated herein under which the
business of the Company and Parent would be combined by means of the merger of
MergeCo with and into the Company, as a result of which the Company will become
a wholly-owned subsidiary of Parent;
NOW THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
1.1 MERGER.
At the Effective Time (as defined in Section 1.3), MergeCo shall be
merged with and into the Company (the "Merger") in accordance with the terms of
this Agreement and the Delaware General Corporation Law (the "DGCL") and the New
Jersey Business Corporation Act (the "NJBCA"). The Company shall be the
surviving corporation in the Merger and shall continue its corporate existence
under the NJBCA. The effects and the consequences of the Merger shall be as set
forth in Section 1.3.
1.2 CHARTER, BY-LAWS, OFFICERS AND DIRECTORS OF SURVIVING CORPORATION.
From and after the Effective Time, (a) the certificate of incorporation
of the Company shall be the certificate of incorporation of the Surviving
Corporation until altered, amended or repealed as provided in the NJBCA, (b) the
By-laws of MergeCo shall be the By-laws of the Company unless and until altered,
amended or repealed as provided in the NJBCA, such By-laws or the certificate of
incorporation of the Company; and (c) the officers and directors of the Company
shall initially be designated by Parent, unless and until removed or until their
respective terms of office shall have expired in accordance with the NJBCA or
the Company's certificate of incorporation or By-laws, as applicable.
<PAGE>
1.3 EFFECTIVE TIME OF THE MERGER.
On the Closing Date (as defined in Section 2.7), with respect to the
Merger, a certificate of merger complying with the requirements of the DGCL
shall be filed with the Secretary of State of Delaware and a certificate of
merger complying with the requirements of the NJBCA shall be filed with the
Secretary of State of New Jersey. The Merger shall become effective when the
certificate of merger is filed with the Secretary of State of New Jersey (the
"Effective Time").
1.4 TAKING OF NECESSARY ACTION; FURTHER ASSURANCES.
Prior to the Effective Time, and subject to the terms and conditions
contained in this Agreement, the parties hereto shall take or cause to be taken
all such actions as may be necessary or appropriate in order to effectuate, as
expeditiously as reasonably practicable, the Merger.
1.5 AUTHORIZATION OF THE MERGER DOCUMENTS.
(a) Simultaneously with the execution and delivery of this Agreement,
the Seller, being the holder of all of the shares of the capital stock of the
Company, shall execute a written consent in lieu of a meeting, and Parent, as
the sole shareholder of MergeCo, shall execute a written consent in lieu of a
meeting, each of which written consents shall include resolutions approving and
adopting the Merger, this Agreement, the Related Documents and the consummation
of the transactions contemplated hereby, in each case as required by the DGCL
and the NJBCA.
(b) The Company shall take, and the Seller shall cause the Company to
take, as promptly as practicable, all such other actions as may be necessary or
advisable under the DGCL and the NJBCA and any other applicable Law or
regulation in connection with the Merger, this Agreement or the Related
Documents. Parent shall take, as promptly as practicable, all such actions as
may be necessary or advisable under the DGCL and the NJBCA and any other
applicable Law or regulation in connection with the Merger, this Agreement or
the Related Documents.
1.6 TAX-FREE REORGANIZATION.
(a) For Federal income tax purposes, the parties intend that the Merger
be treated as a tax-free reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "CODE"), by
reason of Section 368(a)(2)(E) of the Code. The parties shall not take a
position on any tax return inconsistent with this Section 1.6 except to the
extent that the Merger cannot be treated as a tax-free reorganization (as
determined by a final non-appealable Order or the Company or Parent after
receiving advice from its respective legal counsel or accountants that treating
the Merger as a tax-free reorganization may lead to interest charges, penalties
or other sanctions).
(b) Except as contemplated by this Agreement, none of the parties
hereto shall take any action or fail to take any action that would prevent the
Merger from qualifying as a tax-
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<PAGE>
free reorganization under Section 368(a)(1)(A) of the Code except to the extent
that the transactions contemplated hereby cannot be treated as a tax-free
reorganization (as determined by a final non-appealable Order or the Company or
Parent after receiving advice from its respective legal counsel or accountants
that treating the Merger as a tax-free reorganization may lead to interest
charges, penalties or other sanctions), either before or after the consummation
of the Merger.
ARTICLE II
EFFECT ON SHARES AND OPTIONS
2.1 EFFECT OF THE MERGER ON CAPITAL STOCK.
At the Effective Time, by virtue of the Merger and without any action
on the part of any holder of any capital stock of the Company or MergeCo:
(a) Each share of Common Stock, par value $.01 per share, of MergeCo
(the "MergeCo Common Stock") shall be converted into one share of Common Stock,
no par value, of the Company (the "Company Common Stock").
(b) Each share of Company Common Stock that is owned by the Company as
treasury stock and all shares of Company Common Stock that are owned, directly
or indirectly, by the Company or any of its respective wholly owned subsidiaries
shall be canceled and shall cease to exist and no stock of Parent or other
consideration shall be delivered in exchange therefor.
(c) The shares of Company Common Stock outstanding immediately prior to
the Effective Time (other than shares canceled pursuant to Section 2.1(b)) shall
be converted into the right to receive the Initial Shares, the Reserved Shares,
the Additional Shares and cash in lieu of any fractional shares otherwise
issuable hereunder. Upon such conversion, each holder of a certificate formerly
representing any such shares of Company Common Stock shall cease to have any
rights with respect thereto, except the right to receive the (i) the Initial
Shares, (ii) the Reserved Shares and (iii) the Additional Shares and any cash in
lieu of any fractional shares otherwise issuable hereunder, to be issued and/or
paid in consideration therefor.
2.2 EXCHANGE OF CERTIFICATES; INITIAL SHARES.
Upon surrender of a certificate (a "Certificate") of Company Common
Stock to Parent for cancellation, the holder of such Certificate shall be
entitled to receive in exchange for each share of Company Common Stock
represented thereby (a) a certificate representing that number of whole shares
of Parent Common Stock (the "Initial Shares") equal to (i) $1,750,000 divided by
(ii) the Parent Initial Share Price and (b) cash in lieu of fractional shares
which such holder has the right to receive pursuant to the provisions of Section
2.5.
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<PAGE>
2.3 ESCROW; RESERVED SHARES.
(a) Within thirty days after the Closing, Parent shall appoint an
entity reasonably acceptable to the Seller and Parent to act as escrow agent
(the "Escrow Agent") pursuant to the Escrow Agreement in connection with the
Merger and the other transactions contemplated hereby.
(b) Promptly after the execution and delivery of the Escrow Agreement,
Parent will deliver to the Escrow Agent, a number of whole shares of Parent
Common Stock (the "Reserved Shares") equal to the quotient obtained by dividing
(i) $750,000 by (ii) the Parent Initial Share Price.
(c) The Escrow Agreement shall provide that the Escrow Agent will
deliver certificates representing the Reserved Shares to Parent or the Seller in
accordance with the terms and conditions set forth therein.
2.4 ADDITIONAL SHARES.
On the Escrow Release Date, Parent shall deliver to the Seller (a) a
certificate registered in the name William Bahr, representing in the aggregate a
number of whole shares of Parent Common Stock (the "Additional Shares") equal to
(i) the quotient obtained by dividing (A) $1 million less the Transaction
Expenses by (B) the Parent Additional Share Price in effect on the business day
immediately preceding such date less (ii) the aggregate number of Additional
Shares (and/or Parent Shares derived from or issued in respect of Additional
Shares) forfeited pursuant to the William Bahr Employment Agreement and/or
SECTION 10.11, plus (b) cash in lieu of fractional shares which such holder has
the right to receive pursuant to the provisions of Section 2.5.
2.5 FRACTIONAL SHARES.
Notwithstanding any other provision of this Agreement, no certificates
or scrip representing fractional shares of Parent Common Stock shall be issued
and such fractional shares shall not entitle the owner thereof to vote or to any
other rights of a holder of Parent Common Stock. A holder of Company Common
Stock who would otherwise have been entitled to a fractional share of Parent
Common Stock shall be entitled to receive a cash payment in lieu of such
fractional share in an amount equal to the product of such fraction multiplied
by the Parent Initial Share Price.
2.6 NO FURTHER OWNERSHIP.
(a) Until surrendered as contemplated by Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender (i) the certificates representing the Initial
Shares, (ii) subject to the Escrow Agreement, the right to receive Reserved
Shares and (iii) subject to any forfeiture pursuant to either the William Bahr
Employment Agreement or Section 10.11, the Additional Shares and, in each case,
cash in lieu of any fractional shares.
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<PAGE>
(b) No dividends or other distributions declared or made after the
Effective Time with respect to shares of Parent Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to such shares and no cash payment in lieu of
fractional shares shall be paid to any such holder until the holder of record of
such Certificate shall surrender such Certificate. Subject to the effect of
unclaimed property, escheat and other applicable Laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of any
cash payable in lieu of a fractional share of Parent Common Stock to which such
holder is entitled and the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to shares of
Parent Common Stock issued to the holder on the Closing Date and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of Parent
Common Stock held by the holder as of the applicable record date.
(c) From and after the Effective Time the stock transfer books of the
Company shall be closed and no transfer of any capital stock thereof shall
thereafter be made. If, after the Effective Time, Certificates are presented to
the Company, they shall be canceled and exchanged for certificates representing
the appropriate number of Shares of Parent Common Stock as provided herein.
(d) Parent shall not be liable to any person for such shares or funds delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
2.7 THE CLOSING.
The closing hereunder (the "CLOSING") shall take place at 10:00 a.m.
EST at the offices of O'Sullivan Graev & Karabell, LLP, 30 Rockefeller Plaza,
New York, New York 10112, as soon as practicable after the conditions set forth
in Article VII shall have been satisfied or waived or such other date as
mutually agreed upon by the parties (such closing date, the "CLOSING DATE").
ARTICLE III - INTENTIONALLY OMITTED
ARTICLE IV
REPRESENTATIONS AND WARRANTIES ABOUT THE COMPANY
As a material inducement to Parent and MergeCo to enter into and
perform their obligations under this Agreement, the Company and Seller,
represent and warrant, jointly and severally, to Parent and MergeCo as follows:
4.1 ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER.
The Company is duly organized, validly existing and in good standing
under the Laws of its jurisdiction of formation, has all requisite power to own,
lease and operate its Assets and to
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<PAGE>
carry on its business as presently being conducted, and is qualified to do
business and is in good standing in every jurisdiction in which the failure to
so qualify or be in good standing has had or could reasonably be expected to
have a Material Adverse Effect on the Company. The Company has delivered to
Parent true and complete copies of its Fundamental Documents as in effect on the
date hereof.
4.2 AUTHORIZATION.
(a) The Company has all requisite power and authority to execute and
deliver this Agreement and each Related Document to which it is a party and any
and all instruments necessary or appropriate in order to effectuate fully the
terms and conditions of each this Agreement and each such Related Document and
all related transactions and to perform its obligations hereunder and
thereunder. This Agreement and each Related Document to which the Company is a
party has been duly authorized by all necessary action (corporate or otherwise)
on the part of the Company and its shareholders, and this Agreement and each
Related Document (other than the Escrow Agreement) to which the Company is a
party has been duly executed and delivered by the Company, and this Agreement
and each Related Document to which the Company is a party (other than the Escrow
Agreement) constitutes (and, upon its execution and delivery by the parties
thereto, the Escrow Agreement will constitute) the valid and legally binding
obligation of the Company, as the case may be, enforceable in accordance with
its terms and conditions, except as enforceability thereof may be limited by any
applicable bankruptcy, reorganization, insolvency or other Laws affecting
creditors' rights generally or by general principles of equity.
(b) The authorization, issuance, sale and delivery of the Company
Common Stock and the Merger has been duly authorized by all requisite action of
the Company's Board and shareholders. As of the Closing, the Company Common
Stock will be validly issued and outstanding, will be fully paid and
nonassessable, with no personal liability attaching to the ownership thereof,
free and clear of any Liens whatsoever and with no restrictions on the voting
rights thereof and other incidents of record and beneficial ownership pertaining
thereto, in each case other than pursuant to this Agreement or the Related
Documents.
4.3 NON-CONTRAVENTION.
The execution, delivery and performance by the Company of this
Agreement and the Related Documents to which it is a party, the consummation of
the transactions contemplated thereby and compliance with the provisions
thereof, including the issuance, sale and delivery of the Company Common Stock
have not and shall not, (a) violate any Law to which the Company or any of its
Assets is subject, (b) violate any provision of the Fundamental Documents of the
Company, (c) conflict with, result in a breach of, constitute a default under
(with or without due notice or lapse of time, or both), result in the
acceleration of, create in any party the right to accelerate, terminate, modify
or cancel, or require any notice under any contract to which the Company is a
party or by which any of the Assets of the Company is bound or (d) result in the
imposition of any Lien upon any of the Assets of the Company. Other than state
blue sky securities filings, the Company has not been or is not required to give
any notice to, make any
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filing with, or obtain any authorization, consent or approval of any
Governmental Entity or any other Person for the valid authorization, issuance
and delivery of the Company Common Stock, this Agreement or any Related
Document.
4.4 CAPITALIZATION OF THE COMPANY.
(a) The authorized capital stock of the Company consists of:
(i) 1,000 shares of the Company's common stock, all of which
are issued and outstanding, fully paid and nonassessable.
(b) Except as contemplated by hereby or by the Related Documents or
otherwise set forth on SCHEDULE 4.4, there are, and immediately after
consummation of the Closing there will be, no (i) outstanding warrants, options,
agreements, convertible securities or other commitments or instruments pursuant
to which the Company is or may become obligated to issue or sell any shares of
its capital stock or other securities, or (ii) preemptive or similar rights to
purchase or otherwise acquire shares of the capital stock or other securities of
the Company pursuant to any provision of Law, the Company's Fundamental
Documents or any contract to which the Company, or to the best Knowledge of the
Company, any shareholder thereof is a party; and, except as contemplated by the
this Agreement or the Related Documents or otherwise set forth on SCHEDULE 4.4,
there is, and, immediately after the consummation of the Closing there will be,
no Lien (such as a right of first refusal, right of first offer, proxy, voting
trust, voting agreement, etc.) with respect to the sale or voting of shares of
capital or securities of the Company (whether outstanding or issuable).
(c) All shares of the capital stock and other securities issued by the
Company have been issued in transactions in accordance with applicable Laws
governing the sale and purchase of securities.
4.5 EQUITY INVESTMENTS.
The Company does not have any Subsidiaries. Except as set forth on
SCHEDULE 4.5, the Company does not own, directly or indirectly, any capital
stock, partnership interest or joint venture interest in, or any security issued
by, any other Person. SCHEDULE 4.5 sets forth the amount and description of any
capital stock, partnership interest or joint venture interest held by the
Company.
4.6 BANKRUPTCY, ETC.
The Company is not involved in any Proceeding by or against the Company
as a debtor before any Governmental Entity under Title 11 of the United States
Code or any other insolvency or debtors' relief act, whether state or Federal,
or for the appointment of a trustee, receiver, liquidation, assignee,
sequestrator or other similar official for any part of the property of the
Company.
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4.7 FINANCIAL STATEMENTS.
(a) SCHEDULE 4.7 contains the following financial statements
(collectively, the "Financial Statements"):
(i) the unaudited balance sheet of the Company as of March 31,
1999 (the "Interim Balance Sheet") and the related unaudited statements
of income and cash flow for the three month period then ended
(collectively, the "Interim Financial Statements");
(ii) the audited balance sheet of the Company as of December
31, 1998 (the "Latest Balance Sheet") and the related statements of
income and cash flows for the year then ended, together with the
accompanying supplementary information and reports of the auditors; and
(iii) the unaudited balance sheets of the Company as of
December 31, 1997 and 1996 and the related statements of income and
cash flows for the two years then ended.
(b) Each of the Financial Statements (i) has been prepared in
accordance with the books and records of the Company (which are true and
complete in all material respects), (ii) fairly presents the financial condition
and results of operations which it purports to present as of the dates thereof
and for the periods indicated thereon (except, with respect to the Interim
Financial Statements, for the lack of footnotes and for year end adjustments
which will not be material individually or in the aggregate) and (iii) except
with respect to the unaudited financial statements referred to in Section
4.7(a)(iii), has been prepared in accordance with GAAP consistently applied
throughout the periods covered thereby, subject, in the case of the Interim
Financial Statements, to the lack of footnotes and other presentation items.
Since the date of the Latest Balance Sheet, except as required by applicable Law
or GAAP, there has been no change in any accounting principle, procedure or
practice followed by the Company or in the method of applying any such
principle, procedure or practice. The Company has no outstanding Funded
Indebtedness.
4.8 EVENTS SUBSEQUENT TO THE BALANCE SHEET.
Since the date of the Latest Balance Sheet, the Company has operated
its business in the ordinary course consistent with past practice, and the
Company has not suffered any Material Adverse Change. Since that date, except as
set forth on SCHEDULE 4.8:
(a) the Company has not sold, leased, transferred or assigned any
Asset, other than inventory in the ordinary course of business, consistent with
past practice;
(b) no Person has accelerated, terminated, modified or canceled any
contract (or series of related contracts) involving more than $25,000 to which
the Company is a party or by which the Company is bound and, to the best
Knowledge of the Company, no Person has notified the Company that it intends to
take any such action;
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(c) the Company has not experienced any material damage, destruction or
loss (whether or not covered by insurance) to any of its respective material
Assets;
(d) the Company has not paid any dividends, made any redemptions of or
distributions in respect of the capital stock of the Company;
(e) the Company has not paid any fee, interest, dividend, royalty or
any other payment of any kind to any Affiliate thereof, other than the payment
to the officers and directors of the Company of their current salaries (if any);
(f) the Company has not increased the compensation of any employee,
officer or director of the Company or made any contributions to any Plan other
than in the ordinary course of business;
(g) the Company has not incurred any indebtedness or any increase in
the amount payable by the Company under any credit or loan agreement to which
the Company is a party;
(h) no Person has accelerated any Funded Indebtedness and no party has
made any payment in respect of Funded Indebtedness prior to the date such
payment is due and payable;
(i) the Company has not incurred any single capital expenditure in
excess of $10,000 and the Company has not incurred capital expenditures in the
aggregate in excess of $50,000; and
(j) the Company has not committed to do any of the foregoing.
4.9 LIABILITIES.
The Company has no liability or obligation, absolute or contingent
(individually or in the aggregate), including, without limitation, any Tax
liability due and payable, which is not reflected on the Interim Balance Sheets
or incurred after the date thereof in the ordinary course of business. There
were no "loss contingencies" (as such term is used in Statement of Financial
Accounting Standards No. 5 issued by the Financial Accounting Standards Board in
March 1975) that were not adequately provided for on the Interim Balance Sheets.
4.10 LEGAL COMPLIANCE.
The Company has complied with, and the business of the Company is being
conducted in material compliance with, all applicable Laws, Orders and Permits,
and no Proceeding is pending or, to the best Knowledge of the Company,
threatened, alleging any failure to so comply. SCHEDULE 4.10 sets forth a list
of all material Permits under which the Company is operating or bound. The
Company has furnished to Parent true and complete copies of such Permits. The
Company's Permits (a) constitute all Permits used or required in the conduct of
the business of the Company as presently conducted, (b) are in full force and
effect, (c) have not been violated in
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any material respect and (d) are not subject to any pending or, to the best
Knowledge of the Company, threatened Proceeding seeking their revocation or
limitation.
4.11 TITLE TO PROPERTIES.
(a) Except as set forth on SCHEDULE 4.11, (i) the Company owns good and
marketable title, free and clear of all Liens (other than Permitted Liens), to
all of the Assets owned by it and (ii) the Company is not obligated under any
contract, or subject to any restriction, that presently has, has had, or
reasonably could be expected to have a Material Adverse Effect on the Company.
The Company owns or leases under valid leases all facilities, machinery,
equipment and other Assets necessary for the conduct of its business as
conducted as of the date hereof and as of the date of the Latest Balance Sheet.
(b) The Company does not own any real property. SCHEDULE 4.11 contains
a list and brief description of all real property leased by the Company pursuant
to one or more leases (the "Company Real Property"), and sets forth the names of
the lessor and the lessee and the basic terms thereof. The Company Real Property
constitutes all real property used or occupied by the Company in connection with
the business of the Company.
4.12 TAX MATTERS.
(a) Except as specifically set forth on SCHEDULE 4.12(A), the Company
and each other corporation included in any consolidated or combined Tax Return
and part of an affiliated group, within the meaning of Section 1504 of the Code,
of which the Company is or has been a member, (i) has timely paid all Taxes
required to be paid by it through the date hereof (including any Taxes shown due
on any material Tax Return) and (ii) has filed or caused to be filed in a timely
manner (within any applicable extension periods) all Tax Returns required to be
filed by it with the appropriate Governmental Entities in all jurisdictions in
which such Tax Returns are required to be filed, and all such Tax Returns are
true and complete in all material respects. All Taxes shown to be due on each of
the Tax Returns filed by the Company have been timely paid in full.
(b) Except as set forth in SCHEDULE 4.12(B),
(i) no Liens (other than Permitted Liens) have been filed and
the Company has not been notified by the Internal Revenue Service or
any other taxing authority that any issues have been raised (and are
currently pending) by the Internal Revenue Service or any other taxing
authority in connection with any Tax Return of the Company, and no
waivers of statutes of limitations have been given or requested with
respect to the Company;
(ii) there are no pending Tax audits of any Tax Returns of the
Company;
(iii) no unresolved deficiencies or additions to Taxes have
been proposed, asserted or assessed against the Company or any member
of any affiliated or combined group of which the Company was or is a
member;
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(iv) full and adequate accrual has been made in accordance
with GAAP (A) on the Latest Balance Sheet, and the books and records of
the Company and for all Taxes currently due and all deferred Taxes not
yet due and payable by the Company, for all periods ending on or prior
to the Latest Balance Sheet Date, and (B) on the books and records of
the Company for all Taxes payable by the Company, for all periods
beginning after the Latest Balance Sheet Date; the Company has not
incurred any Liability for Taxes from and after the Latest Balance
Sheet Date other than Taxes incurred in the ordinary course of business
and consistent with past practices;
(v) the Company has not and no one on behalf of the Company
has made an election to be treated as a "consenting corporation" under
Section 341(f) of the Code and the Company is not and has not been a
"personal holding company" within the meaning of Section 542 of the
Code;
(vi) the Company has complied in all material respects with
all applicable Laws relating to the collection or withholding of Taxes
(such as sales Taxes or withholding of Taxes from the wages of
employees) and the Company has not been and is not liable for any Taxes
for failure to comply with such Laws;
(vii) the Company is not and has not been a party to any Tax
sharing agreement;
(viii) the Company has not incurred any obligation to make any
payments that (A) will be non-deductible under, or would otherwise
constitute a "parachute payment" within the meaning of, Section 280G of
the Code (or any corresponding provision of state, local or foreign
income Tax law) or (B) are or may be subject to the imposition of an
excise tax under Section 4999 of the Code;
(ix) the Company has not agreed to and is not required to make
any adjustments or changes to its accounting methods pursuant to
Section 481 of the Code, and the Internal Revenue Service has not
proposed any such adjustments or changes in the accounting methods of
the Company.
(x) no claim has been made within the last three years by any
taxing authority in a jurisdiction in which the Company does not file
Tax Returns that the Company is or may be subject to taxation by that
jurisdiction; and
(xi) the Company has timely filed elections to be treated as
an S corporation in accordance with the provisions of Section 1362(a)
of the Code as in effect on such filing date (and has received
confirmations of such elections from the Internal Revenue Service) and
in accordance with similar state laws, effective for the taxable year
beginning on the date of the organization of the Company in the State
of New Jersey, and has qualified and continues to qualify as an S
corporation for all years and periods thereafter up to the Closing.
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4.13 INTELLECTUAL PROPERTY.
(a) SCHEDULE 4.13(a) identifies (i) all Intellectual Property used by
the Company in connection with the business of the Company, (ii) each license,
agreement or other permission which the Company has granted to any Person with
respect to any Intellectual Property used by the Company in connection with the
business of the Company and (iii) each item of Intellectual Property that any
Person owns and that the Company uses in connection with its business pursuant
to license, sublicense, agreement or permission ("Licensed Intellectual
Property").
(b) Except as specifically set forth on SCHEDULE 4.13(B):
(i) to the Company's Knowledge, the Company has not infringed
upon or misappropriated any Intellectual Property rights of third
parties, and the Company has not received any charge, complaint, claim,
demand or notice alleging any such infringement or misappropriation;
(ii) to the Company's Knowledge, the Company has the right to
use, sell, license and dispose of, and have the right to bring actions
for the infringement of, and, where necessary, have made timely and
proper application for the registration and patenting of all
Intellectual Property (other than the Licensed Intellectual Property)
necessary or required for the conduct of their business as currently
conducted and as proposed to be conducted and such rights to use, sell,
license, dispose of and bring actions are exclusive with respect to
such Intellectual Property;
(iii) the Company has the right to use all Intellectual
Property necessary or required for the conduct of its business as
currently conducted and proposed to be conducted;
(iv) there are no royalties, honoraria, fees or other payments
payable by the Company to any Person by reason of the ownership, use,
license, sale or disposition of the Intellectual Property, other than
in connection with Licensed Intellectual Property;
(v) no activity, service or procedure currently conducted or
proposed to be conducted by the Company violates or will violate any
agreement governing the use of Licensed Intellectual Property;
(vi) the Company has taken reasonable and practicable steps
(including, without limitation, entering into confidentiality and
nondisclosure agreements with all officers, directors and employees of
and consultants to the Company with access to or Knowledge of the
Intellectual Property) designed to safeguard and maintain the secrecy
and confidentiality of, and its proprietary rights in, all Intellectual
Property; and
(vii) the Company has not sent to any third party or otherwise
communicated to another Person in the past five years any charge,
complaint, claim, demand or notice asserting infringement or
misappropriation of, or other conflict with, any Intellectual Property
right of the Company by such other Person or any acts of unfair
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competition by such other Person, nor to the best Knowledge of the
Company is any such infringement, misappropriation, conflict or act of
unfair competition occurring or threatened.
(c) SCHEDULE 4.13(c) contains a true and complete list of all
applications and filings made or taken pursuant to Federal, state, local and
foreign Laws by the Company to perfect or protect its interest in the
Intellectual Property, including, without limitation, all patents, patent
applications, trademarks, trademark applications, service marks and servicemark
applications.
4.14 CONTRACTS AND COMMITMENTS.
Except as set forth on SCHEDULE 4.14, the Company is not a party to any
written or oral:
(a) contract for the employment of any officer, individual employee, or
other Person on a full-time, part-time, consulting or other basis;
(b) contract relating to Funded Indebtedness or to the mortgaging,
pledging or otherwise placing a Lien on any Asset or group of Assets of the
Company;
(c) contract involving the sale of the accounts receivable of the
Company to any other Person at a discount;
(d) guarantee of any obligation for borrowed money or otherwise;
(e) contract with respect to the lending or investing of funds;
(f) contract under which the Company is the lessee of or the holder or
operator of any real or personal property owned by any other Person;
(g) contract under which the Company is the lessor of or permits any
third Person to hold or operate any real or personal property owned or
controlled by the Company;
(h) assignment, license, indemnification or agreement with respect to
any form of intangible property, including, without limitation, any Intellectual
Property or confidential information;
(i) contract or group of related contracts with the same Person for the
sale of assets or services which generate in excess of $100,000 in revenues in
any 12-month period;
(j) contract which prohibits the Company from freely engaging in
business anywhere in the world;
(k) contract relating to the purchase, distribution, marketing or sales
of the Company's or any other Person's products (other than purchase and sales
orders entered into in the ordinary course of business consistent with past
practices and the performance of which by
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the parties thereto is reasonably expected to be substantially completed within
30 days of the execution thereof);
(l) contract with any Affiliate; or
(m) other contract material to the business of the Company.
Except as specifically disclosed in SCHEDULE 4.14, the Company has
performed in all material respects all obligations required to be performed by
it and is not in default under or in breach of nor in receipt of any claim of
default or breach under any such contract to which it is a party or by which any
of its Assets may be bound; and to the Company's Knowledge no event has occurred
which with the passage of time or the giving of notice or both would result in
such a default or breach under any such contract. To the Company's Knowledge, no
other party to any contract to which the Company is a party or by which its
Assets may be bound is in default under or in breach of such contract and no
event has occurred which with the passage of time or giving of notice or both
would result in a default or breach under any such contract. There has been made
available to Parent (i) a true and complete copy of each of the contracts listed
on SCHEDULE 4.14, together with all amendments, waivers or other changes
thereto, and (ii) a complete description of all oral contracts to which the
Company is a party or by which any of their Assets may be bound.
4.15 INSURANCE.
(a) SCHEDULE 4.15 contains a true and complete list of all policies of
liability, theft, fidelity, life, fire, product liability, workmen's
compensation, health and other forms of insurance held by the Company and/or
known by the Company to be held by Seller for the benefit of the Company
(specifying the insurer, amount of coverage, type of insurance, policy number
and any pending claims thereunder). The Company has maintained such insurance
coverage at all times during the course of the operation of the business, and
such insurance coverage has been maintained on an occurrence basis. The Company
is insured against all risks usually insured against by Persons conducting
similar businesses and operating similar properties in the localities where the
business is conducted and the properties of the Company are located, under
policies of such types and in such amounts as are customarily carried by such
Persons.
(b) Except as set forth on SCHEDULE 4.15, with respect to each policy
of insurance listed on SCHEDULE 4.15: (i) all premiums with respect thereto are
currently paid and are not subject to adjustment, and no Person is in default in
any respect with respect to its obligations under such policy, and no basis
exists that would give any insurer under any such policy the right to cancel or
unilaterally reduce or limit the stated coverages contained in such policy; (ii)
there are no outstanding claims currently pending under such policy that could
be expected to cause a material increase in the insurance rates of the Company,
and no facts or circumstances exist that might reasonably be expected to relieve
the insurer under such policy of its obligations to satisfy in full any claim
thereunder; and (iii) the Company has not received any notice that such policy
has been or shall be canceled or terminated or will not be renewed on
substantially the same
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terms as are now in effect or the premium on such policy shall be materially
increased on the renewal thereof.
4.16 LITIGATION.
Except as set forth on SCHEDULE 4.16, (i) there is no Proceeding
pending or, to the best Knowledge of the Company, threatened by or against, or
affecting the Assets of, the Company (or any of its predecessors), and (ii) the
Company is not bound by any Order. SCHEDULE 4.16 sets forth all Proceedings
involving the Company.
4.17 EMPLOYEES.
(a) The Company has complied in all material respects with all Laws
relating to the hiring of employees, the retention of independent contractors
and the employment of labor, including provisions thereof relating to wages,
hours, equal opportunity, collective bargaining and the payment of social
security and other Taxes. The Company does not have Knowledge of any labor
relations problems being experienced by it (including, without limitation, any
union organization activities, threatened or actual strikes or work stoppages or
material grievances).
(b) Except as set forth on SCHEDULE 4.17, (i) the Company is not
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
them to date or amounts required to be reimbursed to such employees and upon any
termination of the employment of any such employees, (ii) there is no unfair
labor practice complaint against the Company pending before the National Labor
Relations Board or any other Governmental Entity, (iii) there is no labor
strike, material dispute, slowdown or stoppage actually pending or, to the best
Knowledge of the Company, threatened against or involving the Company, (iv) no
labor union currently represents the employees of the Company, and (v) to the
best Knowledge of the Company, no labor union has taken any action with respect
to organizing the employees of the Company. The Company is not a party to or
bound by any collective bargaining agreement or union contract.
4.18 EMPLOYEE BENEFITS.
(a) SCHEDULE 4.18 contains a true, complete and correct list of all
Employee Benefit Plans (collectively, the "PLANS") (i) that cover any employees,
contract employees or former employees of the Company or any spouses, family
members or beneficiaries thereof (A) that are maintained, sponsored or
contributed to by the Company or (B) with respect to which the Company is
obligated to contribute or has any actual or potential Liability, or (ii) with
respect to which the Company has any actual or potential Liability or obligation
on account of the maintenance or sponsorship thereof or contribution thereto by
any present or former ERISA Affiliate of the Company.
(b) ADMINISTRATION AND COMPLIANCE. Except as set forth on SCHEDULE
4.18, with respect to each Employee Plan:
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(i) such Employee Plan has been established, maintained,
operated and administered in accordance with its terms and in
compliance in all material respects with ERISA, the Code, and other
applicable Laws (including with respect to reporting and disclosure);
(ii) all required, declared or discretionary (in accordance
with historical practices) payments, premiums, contributions,
reimbursements or accruals for all periods ending prior to or as of the
date hereof have been made or properly accrued on the Latest Balance
Sheet, or with respect to accruals properly made after the date of the
Latest Balance Sheet, on the books and records of the Company and all
amounts withheld from employees have been timely deposited into the
appropriate trust or account;
(iii) there is no unfunded actual or potential Liability
relating to such Employee Plan which is not reflected on the Latest
Balance Sheet, or with respect to accruals properly made after the date
of the Latest Balance Sheet, on the books and records of the Company;
(iv) Neither the Company nor any of its respective ERISA
Affiliates or any other "DISQUALIFIED PERSON" or "PARTY IN INTEREST"
(as such terms are defined in Section 4975 of the Code and Section
3(14) of ERISA, respectively) with respect to such Plan, have breached
the fiduciary rules of ERISA or engaged in a prohibited transaction
that could subject any of the foregoing Persons to any tax or penalty
imposed under Section 4975 of the Code of Section 502(i), (j) or (l) of
ERISA;
(v) no Proceedings (other than routine claims for benefits)
are pending or, to the Knowledge of the Seller, threatened against or
relating to any Plan or any fiduciary thereof, and there is, to the
Knowledge of the Seller, no basis for any such Proceeding against any
Plan;
(vi) such Plan, if intended to be "QUALIFIED," within the
meaning of Section 401(a) of the Code, has been determined by the
Internal Revenue Service to be so qualified and the related trusts are
exempt from Tax under Section 501(a) of the Code, and nothing has
occurred that has or could reasonably be expected to adversely affect
such qualification or exemption;
(vii) except as may be required under Laws of general
application, such Plan does not obligate the Company to provide any
employee or former employee, or their spouses, family members or
beneficiaries, any post-employment or post-retirement health or life
insurance, accident or other "WELFARE-TYPE" benefits;
(viii) if such Plan is a "GROUP HEALTH PLAN" within the
meaning of Section 5000 of the Code, such Plan has been maintained in
compliance with Section 4980B of the Code and Title I, Subtitle B, Part
6 of ERISA and no tax payable on account of Section 4980B of the Code
has been or is expected to be incurred;
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(ix) the Company has never maintained or been obligated to
contribute to a Multi-employer Plan (as defined in Section 3(37) of
ERISA), a Multiple Employer Plan (as defined in Section 413 of the
Code) or a Defined Benefit Pension Plan (as defined in Section 3(35) of
ERISA);
(x) all reporting and disclosure obligations imposed under
ERISA and the Code have been satisfied with respect to each Plan; and
(xi) no benefit payable or which becomes payable by the
Company or any ERISA Affiliate thereof pursuant to any Plan shall
constitute an "EXCESS PARACHUTE PAYMENT," within the meaning of Section
280G of the Code, which is or may be subject to the imposition of an
excise tax under Section 4999 of the Code or which would not be
deductible by reason of Section 280G of the Code.
(c) Parent has been provided with true and complete copies, to the
extent applicable, of all documents pursuant to which such Plan is maintained
and administered, the two most recent annual reports (Form 5500 and attachments)
and financial statements therefor, all governmental rulings, determinations, and
opinions (and pending requests therefor), and, if such Plan provides
post-employment or post-retirement health and life insurance, accident or other
"WELFARE-TYPE" benefits, the most recent valuation of the present and future
obligations under such Plan; and the foregoing documents accurately reflect all
of the terms of such Plan (including, without limitation, any agreement or
provision which would limit the ability of the Company to make any prospective
amendments or terminate such Plan).
4.19 ENVIRONMENT AND SAFETY.
The Company has complied in all material respects with, and is in
compliance with, all Environmental and Safety Requirements, and there are no
material Proceedings pending or, to the best Knowledge of the Company,
threatened against the Company alleging any failure to so comply or involving
any of its past operations or any real property currently used by the Company.
The Company has not received any written or oral notice or report with respect
to it or its facilities regarding any (i) actual or alleged violation of
Environmental and Safety Requirements or (ii) actual or potential Liability
arising under Environmental Safety Requirements, including, without limitation,
any investigatory, remedial or corrective obligation. The Company has not
expressly assumed or undertaken any Liability of any other Person under any
Environmental and Safety Requirements. The Company has not treated, stored,
disposed of, arranged for or permitted the disposal of, transported, handled or
released any substance, or owned or operated any real property in a manner that
has given rise to any material Liabilities pursuant to CERCLA, SWDA or any other
Environmental and Safety Requirement, including any material Liability for
response costs, corrective action costs, personal injury, property damage,
natural resources damage or attorney fees, or any investigative, corrective or
remedial obligations.
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4.20 RELATED PARTY TRANSACTIONS.
Except as set forth on SCHEDULE 4.20, and except for compensation to
regular employees of the Company, no current or former Affiliate of the Company,
is now, or has been during the last five fiscal years, (i) a party to any
transaction or contract with the Company, (ii) indebted to the Company, or (iii)
the direct or indirect owner of an interest in any Person which is a present or
potential competitor, supplier or customer of the Company (other than
non-affiliated holdings in publicly held companies), nor does any such Person
receive income from any source other than the Company which should properly
accrue to the Company. Except as set forth on SCHEDULE 4.20, no current or
former Affiliate of the Company or any Associate thereof is a guarantor or
otherwise liable for any Liability (including indebtedness) of the Company.
4.21 DIRECTORS AND OFFICERS.
SCHEDULE 4.21 lists all of the current directors and officers of the
Company and each Subsidiary, their accrued 1999 compensation through the date
hereof, their current compensation levels and the dates on which they assumed
their respective offices.
4.22 OFFERING EXEMPTION.
Based in part upon and assuming the accuracy of the representations and
warranties of Parent and MergeCo in Article VI, the offering, sale and issuance
of the Company Common Stock has been, is, and will be, exempt from registration
under the Securities Act, and such offering, sale and issuance is also exempt
from registration under applicable state securities and "blue sky" laws. The
Company has made all requisite filings and has taken or will take all action
necessary to be taken to comply with such state securities or "blue sky" laws.
4.23 ACCOUNTS AND NOTES RECEIVABLE.
All the accounts receivable and notes receivable owing to the Company
as of the date hereof constitute, and as of the Closing shall constitute, valid
and enforceable claims arising from bona fide transactions in the ordinary
course of business, and there are no known or asserted claims, refusals to pay
or other rights of set-off against any thereof. Except as set forth on SCHEDULE
4.23, (i) all accounts and notes receivable are good and collectible in the
ordinary course of business consistent with past practice at the aggregate
recorded amounts thereof, (ii) no account debtor or note debtor is delinquent
for payments in excess of $20,000 and for more than 90 days and, (iii) no
account debtor or note debtor has refused or, to the Knowledge of the Seller,
threatened to refuse to pay its obligations to the Company for any reason, or
has otherwise made a claim of set-off or similar claim and (iv) no account
debtor or note debtor is insolvent or bankrupt.
4.24 BROKERS.
SCHEDULE 4.24 sets forth a true and complete list of each agent,
broker, investment banker, Person or firm who or which has acted on behalf, or
under the authority, of the Company (or its predecessors) or any of its
shareholders or will be entitled to any fee or commission directly or
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indirectly from the Company or any of its shareholders. Parent will not, have
and from and after the Closing, the Company will not have, any Liability or
obligation to any such agents, brokers, investment bankers Persons or Firms in
connection with any of the transactions contemplated hereby, except for the
obligation of the Company to pay $100,000 of the fee payable to The Geneva
Companies.
4.25 DISCLOSURE.
Neither this Agreement nor any of the Schedules or Exhibits, any of the
Related Documents nor any other written material, when viewed separately or
together, delivered to Parent or any of its directors, officers, partners,
employees, representatives or agents contains any untrue statement of a material
fact or omits a material fact necessary to make the statements contained herein
or therein, in light of the circumstances in which they were made, not
misleading as of the date hereof.
4.26 YEAR 2000.
All of the Company's products, devices and programs are designed to be
used prior to, during and after the calendar year 2000 A.D., and such products,
devices and programs will operate during each such time period without error
relating to date data and date-dependent data, specifically including any error
relating to, or the program of, date data which represents or references
different centuries or more than one century, other than such errors which have
not had nor could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company's business as presently
conducted or as proposed to be conducted. Other than any of the following which
has not had nor could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate, on the Company's business as presently
conducted or as proposed to be conducted, without limiting the generality of the
foregoing:
(a) Each such product, device or program will not abnormally end or
provide invalid or incorrect results as a result of date data, specifically
including date data which represents or references different centuries or more
than one century; and
(b) Each such product, device or program has been designed to ensure
Year 2000 compatibility, including, but not limited to, date data century
recognition, calculations which accommodate same century and multi-century
formulas and date values and date data interface values that reflect the
century.
ARTICLE V
REPRESENTATIONS AND WARRANTIES ABOUT THE SELLER
As a material inducement to Parent and MergeCo to enter into and
perform their obligations under this Agreement, Seller represents and warrants
to Parent and MergeCo as follows:
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5.1 TITLE TO THE MERGER SHARES.
Seller is the lawful owner, of record and beneficially, of all of the
shares of Company Common Stock and has good and marketable title to such shares,
free and clear of any Encumbrances whatsoever and with no restriction on the
voting rights and other incidents of record and beneficial ownership pertaining
thereto. Except for this Agreement or as set forth on SCHEDULE 4.4, there are no
agreements or understandings between Seller and any other Person with respect to
the acquisition, disposition or voting of or any other matters pertaining to any
of the capital stock of the Company. Seller acquired his shares of capital stock
of the Company in one or more transactions exempt from registration under the
Securities Act, and in compliance with applicable state securities Laws. Except
as set forth on SCHEDULE 4.4, Seller has no right whatsoever to receive or
acquire any additional shares of capital stock of the Company.
5.2 AUTHORITY; NONCONTRAVENTION.
(a) Seller has full and absolute legal right, capacity, power and
authority to enter into this Agreement and the Related Documents to which he is
a party.
(b) This Agreement and the Related Documents to which Seller is a party
are the valid and binding obligations of Seller, enforceable against Seller in
accordance with their respective terms, subject to (i) applicable bankruptcy,
insolvency, moratorium and other similar laws affecting creditors' rights
generally and (ii) general principles of equity, including without limitation,
the doctrines of good faith, fair dealing, unconscionability, reasonableness and
materiality and the discretion of courts in granting equitable remedies,
including, without limitation, specific performance.
(c) Neither the execution, delivery and performance of this Agreement
or the Related Documents to which Seller is a party nor the consummation of the
transactions contemplated hereby and thereby nor compliance by Seller with any
of the provisions hereof or thereof will (i) conflict with, or result in any
violations of, or cause a default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, amendment, cancellation or
acceleration of any material obligation contained in or the loss of any material
benefit under, any term, condition or provision of any contract to which Seller
is a party, or by which Seller or any of its properties may be bound or (ii)
violate any Law applicable to Seller or any of his properties, which conflict or
violation would prevent the consummation of the transactions contemplated by
this Agreement or any of the Related Documents to which Seller is a party or
result in an Encumbrance on or against any material assets, rights or properties
of the Company or on or against any capital stock of the Company or give rise to
any material claim against Seller, the Company, Parent, MergeCo or any their
respective Affiliates.
5.3 LEGAL COMPLIANCE.
No consent, approval, Permit, Order, notification or authorization of,
or any exemption from or registration, declaration or filing with, any
Governmental Entity or any third Person is required in connection with the
execution, delivery and performance by Seller of this Agreement
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or any Related Document to which he is or will be a party or the consummation by
Seller of the transactions contemplated hereby or thereby.
5.4 BROKERS.
After the Closing, neither Parent nor the Company will be required to
pay any fee or commission to any agent, broker, investment banker, Person or
firm as a result of the transactions contemplated hereby.
5.5 REGISTRATION RIGHTS.
Immediately following the Closing, except as contemplated by the
Related Documents, no person has any right to cause the Company to effect the
registration under the Securities Act of any securities (including debt
securities) of the Company owned by Seller.
5.6 NO SECURITY INTERESTS.
Except as contemplated by this Agreement or the Related Documents,
there are, and immediately after consummation of the Closing there will be, no
(i) outstanding warrants, options, agreements, convertible securities or other
commitments or instruments pursuant to which Seller is or may become obligated
to sell any shares of Company Common Stock or any Parent Shares. There is, and,
immediately after the consummation of the Closing there will be, no Lien or any
right of first refusal, right of first offer, proxy, voting trust, voting
agreement or other arrangement or agreement with respect to the sale or voting
of or otherwise relating to any share of Company Common Stock or Parent Shares
(whether outstanding or issuable).
5.7 COMPLIANCE WITH APPLICABLE LAWS
All shares of the capital stock and other securities being transferred
by Seller have been issued in transactions in accordance with applicable Laws
governing the sale and purchase of securities.
5.8 EXPERIENCE.
(a) Seller understands that none of the shares of Parent Common Stock
transferred in the Merger or the shares issuable upon exercise of any such
options have been, and will not be (in the case of the shares, upon issuance),
registered or qualified under the Securities Act, or any applicable state
securities laws. Such options and/or shares must be held indefinitely unless a
subsequent disposition thereof is registered or qualified under the Securities
Act or is exempt from such registration or qualification. Seller understands
that there is no public market for the Parent Shares or the underlying shares
and that the transferability thereof is restricted.
(b) Seller (i) has been furnished with or has had access to the
information that Seller has requested from Parent, (ii) has had an opportunity
to discuss with management of Parent the intended business and financial affairs
of Parent and (iii) has generally such knowledge and experience in business and
financial matters so as to enable Seller to understand
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and evaluate the risks of and form an investment decision with respect to the
matters set forth in this Agreement. Without limiting the foregoing, Seller has
reviewed and understands this Agreement and the Related Documents, including,
without limitation, this Agreement.
(c) Seller does not need liquidity in his investment in the Parent
Shares and is able to bear the economic risk of its investment and the complete
loss of all of such investment. Seller recognizes that an investment in Parent
involves certain risks, and has taken full cognizance of, and understands all
of, the risk factors related to its execution and delivery of this Agreement.
5.9 INVESTMENT.
Seller is acquiring the Parent Shares for investment for his own
account, not as a nominee or agent, and not with the view to, or for resale in
connection with, any distribution of any part thereof. Seller understands that
the Parent Shares, to be acquired have not been registered under the Securities
Act or applicable state and other securities laws by reason of a specific
exemption from the registration provisions of the Securities Act and applicable
state and other securities laws, the availability of which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
Seller's representations as expressed herein.
5.10 RULE 144.
Seller acknowledges and understands that he must bear the economic risk
of the ownership of the Parent Shares for an indefinite period of time because
the Parent Shares must be held indefinitely unless subsequently registered under
the Securities Act and applicable state and other securities laws or unless an
exemption from such registration is available. Seller also understands that
there are contractual restrictions contained in this Agreement and the Related
Documents which affect the transferability of the Parent Common Stock. Seller
understands that any transfer agent of Parent will issue stop-transfer
instructions with respect to the Parent Shares unless any transfer thereof is
subsequently registered under the Securities Act and applicable state and other
securities laws or unless an exemption from such registration is available.
5.11 NO PUBLIC MARKET.
Seller understands that no public market now exists for the Parent
Common Stock and that there is no assurance that a public market will ever exist
for such stock.
5.12 LEGEND ON STOCK CERTIFICATES.
Seller understands that each certificate representing Parent Shares
shall bear a legend containing the following words (in addition to any other
legend required by law or applicable agreement):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE RESOLD UNLESS REGISTERED
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PURSUANT THERETO OR AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A STOCKHOLDERS' AGREEMENT DATED AS OF
DECEMBER 24, 1998, AMONG OPUS360 CORPORATION AND CERTAIN
HOLDERS OF THE OUTSTANDING CAPITAL STOCK OF SUCH CORPORATION.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO
THE SECRETARY OF SUCH CORPORATION."
ARTICLE VI
REPRESENTATIONS AND WARRANTIES ABOUT PARENT AND MERGECO
As a material inducement to the Company to enter into and perform its
obligations under this Agreement, MergeCo represents and warrants to the Seller
as of the date hereof, as follows:
6.1 ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER.
Parent and MergeCo are duly organized, validly existing and in good
standing under the Laws of their jurisdiction of formation, have all requisite
power to own, lease and operate their Assets and to carry on their business as
presently being conducted, and are qualified to do business and are in good
standing in every jurisdiction in which the failure to so qualify or be in good
standing would have a Material Adverse Effect. Parent and MergeCo have made
available to the Company true and complete copies of their Fundamental Documents
as in effect on the date hereof.
6.2 AUTHORIZATION.
(a) Parent and MergeCo have all requisite power and authority to
execute and deliver this Agreement and each Related Document to which they are a
party and any and all instruments necessary or appropriate in order to
effectuate fully the terms and conditions of each this Agreement and each such
Related Document and all related transactions and to perform their obligations
under this Agreement and each such Related Document. This Agreement and each
Related Document to which Parent or MergeCo is a party has been duly authorized
by all necessary action (corporate or otherwise) on the part of Parent or
MergeCo, and this Agreement and each Related Document (other than the Escrow
Agreement) to which Parent or MergeCo is a party has been duly executed and
delivered by Parent or MergeCo, and this Agreement and each Related Document
(other than the Escrow Agreement) constitutes (and, upon its execution and
delivery by the parties thereto, the Escrow Agreement will constitute) the valid
and legally binding obligation of Parent or MergeCo enforceable in accordance
with its terms and conditions, except as enforceability thereof may be limited
by any applicable bankruptcy,
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reorganization, insolvency or other Laws affecting creditors' rights generally
or by general principles of equity.
(b) The authorization, issuance, sale and delivery of the Initial
Shares, the Reserved Shares and the Additional Shares in connection with the
Merger has been duly authorized by all requisite action of Parent's Board of
Directors and shareholders. As of the Closing, the Initial Shares will be
validly issued and outstanding, will be fully paid and nonassessable, with no
personal liability attaching to the ownership thereof, free and clear of any
Liens whatsoever and with no restrictions on the voting rights thereof and other
incidents of record and beneficial ownership pertaining thereto, in each case
other than pursuant to this Agreement and the Related Documents.
6.3 NON-CONTRAVENTION.
The execution, delivery and performance by Parent and MergeCo of this
Agreement and the Related Documents to which they are a party, the consummation
of the transactions contemplated thereby and compliance with the provisions
thereof, including the issuance, sale and delivery of the Initial Shares, the
Reserved Shares and the Additional Shares in connection with the Merger have not
and shall not, (a) violate any Law to which Parent or MergeCo or any of their
respective Assets is subject, (b) violate any provision of the Fundamental
Documents of Parent or MergeCo, (c) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or require any notice
under any material contract to which Parent or MergeCo is a party or by which
any of the Assets of Parent or MergeCo is bound or (d) result in the imposition
of any Lien upon any of the material Assets of Parent or MergeCo. Other than
state blue sky securities filings, neither Parent nor MergeCo has been or is
required to give any notice to, make any filing with, or obtain any
authorization, consent or approval of any Governmental Entity or any other
Person for the valid authorization, issuance and delivery of this Agreement or
the Related Documents.
6.4 CAPITALIZATION OF PARENT.
(a) As of the date hereof, the total number of shares of all classes of
stock which Parent has authority to issue is 32,000,000, consisting of:
(i) 23,000,000 shares of Common Stock, par value $.001 per
share, 18,028,086 of which are issued and outstanding, fully paid and
nonassessable, or reserved for issuance in connection with the
conversion of the Series A Convertible Preferred Stock or the exercise
of outstanding warrants or options to purchase shares of Parent Common
Stock;
(ii) 9,000,000 shares of Preferred Stock, par value $.001 per
share, consisting of 8,400,000 shares of Series A Convertible Preferred
Stock, par value $.001 per share, 8,284,000 of which are issued and
outstanding, fully paid and nonassessable; and
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(iii) 600,000 shares of Preferred Stock are reserved for
issuance in the discretion of the Board of Directors of Parent, none of
which are issued and outstanding.
(b) Except as contemplated by this Agreement and the Related Documents
or otherwise set forth on Schedule 6.4, as of the date hereof, there are no (i)
outstanding warrants, options, agreements, convertible securities or other
commitments or instruments pursuant to which Parent is or may become obligated
to issue or sell any shares of its capital stock or other securities (other than
shares which are reserved for issuance as set forth in Section 6.4(a)(i)), or
(ii) preemptive or similar rights to purchase or otherwise acquire shares of the
capital stock or other securities of Parent pursuant to any provision of Law,
such Person's Fundamental Documents or any contract to which such Person, or to
the best Knowledge of Parent, any shareholder thereof is a party; and, except as
contemplated by this Agreement and the Related Documents or otherwise set forth
on SCHEDULE 6.4, as of the date hereof, there is no Lien (such as a right of
first refusal, right of first offer, proxy, voting trust, voting agreement,
etc.) with respect to the sale or voting of shares of capital stock or
securities of Parent (whether outstanding or issuable).
(c) All shares of the capital stock and other securities issued by
Parent have been issued in transactions in accordance with applicable Laws
governing the sale and purchase of securities.
6.5 CAPITALIZATION OF MERGECO.
(a) Immediately upon consummation of the Closing the total number of
shares of all classes of stock which MergeCo has authority to issue is 1,000,
consisting of 1,000 shares of Common Stock, par value $.001 per share, 100 of
which are issued and outstanding, fully paid and nonassessable.
(b) Except as contemplated by this Agreement and the Related Documents,
immediately after consummation of the Closing there will be, no (i) outstanding
warrants, options, agreements, convertible securities or other commitments or
instruments pursuant to which MergeCo is or may become obligated to issue or
sell any shares of its capital stock or other securities, or (ii) preemptive or
similar rights to purchase or otherwise acquire shares of the capital stock or
other securities of MergeCo pursuant to any provision of Law, such Person's
Fundamental Documents or any contract to which such Person, or to the best
Knowledge of MergeCo, any shareholder thereof is a party; except as contemplated
by this Agreement and the Related Documents, there is, and, immediately after
the consummation of the Closing there will be, no Lien (such as a right of first
refusal, right of first offer, proxy, voting trust, voting agreement, etc.) with
respect to the sale or voting of shares of capital or securities of MergeCo
(whether outstanding or issuable).
(c) All shares of the capital stock and other securities issued by
MergeCo have been issued in transactions in accordance with applicable Laws
governing the sale and purchase of securities.
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6.6 SUBSIDIARIES.
As of the date hereof, Parent does not have any Subsidiaries except
MergeCo. MergeCo does not have any Subsidiaries.
6.7 BANKRUPTCY, ETC.
Parent is not involved in any Proceeding by or against Parent as a
debtor before any Governmental Entity under Title 11 of the United States Code
or any other insolvency or debtors' relief act, whether state or Federal, or for
the appointment of a trustee, receiver, liquidation, assignee, sequestrator or
other similar official for any part of the property of Parent.
6.8 FINANCIAL STATEMENTS.
(a) SCHEDULE 6.8 contains the unaudited consolidated balance sheet of
Parent as of the end of March 31, 1999 (the "Parent Balance Sheet") and the
related unaudited consolidated statements of income and cash flow for the three
month period then ended (collectively, the "Parent Financial Statements"); and
(b) Each of the Parent Financial Statements (i) has been prepared in
accordance with the books and records of Parent (which are true and complete in
all material respects), (ii) fairly presents the financial condition and results
of operations which it purports to present as of the dates thereof and for the
periods indicated thereon (except, for the lack of footnotes and for year end
adjustments) and (iii) has been prepared in accordance with GAAP consistently
applied throughout the periods covered thereby, subject to the lack of footnotes
and other presentation items. Since the date of the Parent Balance Sheet, except
as required by applicable Law or GAAP, as of the date hereof, there has been no
change in any accounting principle, procedure or practice followed by Parent or
in the method of applying any such principle, procedure or practice.
6.9 EVENTS SUBSEQUENT TO THE BALANCE SHEET.
Since the date of the Parent Balance Sheet, Parent has operated its
business in the ordinary course consistent with past practice, and, as of the
date hereof, Parent has not suffered any Material Adverse Change.
6.10 LEGAL COMPLIANCE.
Parent has complied with, and the business of Parent is being conducted
in material compliance with, all applicable Laws, Orders and Permits, and no
Proceeding is pending or, to the best Knowledge of Parent, threatened, alleging
any failure to so comply. SCHEDULE 6.10 sets forth a list of all material
Permits. All Permits used or required in the conduct of the business of Parent
as presently conducted are in full force and effect, have not been violated in
any material respect and are not subject to any pending or, to the best
Knowledge of Parent, threatened Proceeding seeking their revocation.
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6.11 TAX MATTERS.
(a) Except as specifically set forth on SCHEDULE 6.11, the Parent and
each other corporation included in any consolidated or combined Tax Return and
part of an affiliated group, within the meaning of Section 1504 of the Code, of
which the Parent is or has been a member, (i) has timely paid all Taxes required
to be paid by it through the date hereof (including any Taxes shown due on any
material Tax Return) and (ii) has filed or caused to be filed in a timely manner
(within any applicable extension periods) all Tax Returns required to be filed
by it with the appropriate Governmental Entities in all jurisdictions in which
such Tax Returns are required to be filed, and all such Tax Returns are true and
complete in all material respects. All Taxes shown to be due on each of the Tax
Returns filed by the Parent have been timely paid in full.
(b) Except as set forth in SCHEDULE 6.11:
(i) no Liens (other than Permitted Liens) have been filed and
the Parent has not been notified by the Internal Revenue Service or any
other taxing authority that any issues have been raised (and are
currently pending) by the Internal Revenue Service or any other taxing
authority in connection with any Tax Return of the Parent, and no
waivers of statutes of limitations have been given or requested with
respect to the Parent;
(ii) there are no pending Tax audits of any Tax Returns of the
Parent;
(iii) no unresolved deficiencies or additions to Taxes have
been proposed, asserted or assessed against the Parent or any member of
any affiliated or combined group of which the Parent was or is a
member;
(iv) full and adequate accrual has been made in accordance
with GAAP (A) on the books and records of the Parent and for all Taxes
currently due and all deferred Taxes not yet due and payable by the
Parent, for all periods ending on or prior to the Closing Date;
(v) Parent has not and no one on behalf of the Parent has made
an election to be treated as a "consenting corporation" under Section
341(f) of the Code and the Parent is not and has not been a "personal
holding company" within the meaning of Section 542 of the Code;
(vi) Parent has complied in all material respects with all
applicable Laws relating to the collection or withholding of Taxes
(such as sales Taxes or withholding of Taxes from the wages of
employees) and the Parent has not been and is not liable for any Taxes
for failure to comply with such Laws;
(vii) Parent is not and has not been a party to any Tax
sharing agreement;
(viii) Parent has not agreed to and is not required to make
any adjustments or changes to its accounting methods pursuant to
Section 481 of the Code (excluding any such adjustments which may
result from consummation of the transactions contemplated
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herein), and the Internal Revenue Service has not proposed any such
adjustments or changes in the accounting methods of the Parent.
(ix) no claim has been made within the last three years by any
taxing authority in a jurisdiction in which Parent does not file Tax
Returns that the Parent is or may be subject to taxation by that
jurisdiction.
6.12 INSURANCE.
(a) Parent has maintained its insurance coverage at all times during
the course of the operation of its business, and such insurance coverage has
been maintained on an occurrence basis. Parent is insured against all risks
usually insured against by Persons conducting similar businesses and operating
similar properties in the localities where the business is conducted and the
properties of the Parent are located, under policies of such types and in such
amounts as are customarily carried by such Persons.
(b) With respect to each policy of insurance: (i) all premiums with
respect thereto are currently paid and are not subject to adjustment, and no
Person is in default in any respect with respect to its obligations under such
policy, and no basis exists that would give any insurer under any such policy
the right to cancel or unilaterally reduce or limit the stated coverages
contained in such policy; (ii) there are no outstanding claims currently pending
under such policy that could be expected to cause a material increase in the
insurance rates of the Parent, and no facts or circumstances exist that might
reasonably be expected to relieve the insurer under such policy of its
obligations to satisfy in full any claim thereunder; and (iii) the Parent has
not received any notice that such policy has been or shall be canceled or
terminated or will not be renewed on substantially the same terms as are now in
effect or the premium on such policy shall be materially increased on the
renewal thereof.
6.13 LITIGATION.
Except as set forth on SCHEDULE 6.13, as of the date hereof, (i) there
is no Proceeding pending or, to the best Knowledge of Parent, threatened by or
against, or affecting the Assets of, Parent or MergeCo (or any of its
predecessors), and (ii) neither Parent nor MergeCo is bound by any Order.
6.14 EMPLOYEES.
Parent has complied in all material respects with all Laws relating to
the hiring of employees and the employment of labor, including provisions
thereof relating to wages, hours, equal opportunity, collective bargaining and
the payment of social security and other Taxes. Parent does not have Knowledge
of any labor relations problems being experienced by it (including, without
limitation, any union organization activities, threatened or actual strikes or
work stoppages or material grievances).
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6.15 EMPLOYEE BENEFITS.
SCHEDULE 6.15 sets forth a true and complete list of all Plans as of
the date hereof (i) that cover any employees of Parent (A) that are maintained,
sponsored or contributed to by Parent or (B) with respect to which Parent is
obligated to contribute or has any Liability or potential Liability, whether
direct or indirect or (ii) with respect to which Parent has any Liability or
potential Liability on account of the maintenance or sponsorship thereof or
contribution thereto by any present or former ERISA Affiliate of Parent. As of
the date hereof, neither Parent nor any of its ERISA Affiliates are, and have
never maintained or been, obligated to contribute to a Multiple Employer Plan, a
Multi-Employer Plan or a Defined Benefit Pension Plan.
6.16 ENVIRONMENT AND SAFETY.
Parent has complied in all material respects with, and is in compliance
with, all Environmental and Safety Requirements, and there are no material
Proceedings pending or, to the best Knowledge of Parent, threatened against
Parent alleging any failure to so comply or involving any of its past operations
or any real property currently used by Parent. Parent has not received any
written or oral notice or report with respect to it or its facilities regarding
any (i) material actual or alleged violation of Environmental and Safety
Requirements or (ii) material actual or potential Liability arising under
Environmental Safety Requirements, including, without limitation, any
investigatory, remedial or corrective obligation. As of the date hereof, Parent
has not treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled or released any substance, or owned or operated any real
property in a manner that has given rise to Liabilities pursuant to CERCLA, SWDA
or any other Environmental and Safety Requirement, including any Liability for
response costs, corrective action costs, personal injury, property damage,
natural resources damage or attorney fees, or any investigative, corrective or
remedial obligations.
6.17 RELATED PARTY TRANSACTIONS.
Except as set forth on SCHEDULE 6.17, and except for compensation to
regular employees of Parent, no current or former Affiliate of Parent, is now,
or has been during the last five fiscal years, (i) a party to any material
transaction or contract with Parent, (ii) indebted to Parent, or (iii) the
direct or indirect owner of an interest in any Person which is a present or
potential competitor, supplier or customer of Parent (other than non-affiliated
holdings in publicly held companies), nor does any such Person receive income
from any source other than Parent which should properly accrue to Parent. Except
as set forth on SCHEDULE 6.17, no current or former Affiliate of Parent or any
Associate thereof is a guarantor or otherwise liable for any Liability
(including indebtedness) of Parent, in each case that has had a Material Adverse
Effect on Parent.
6.18 OFFERING EXEMPTION.
Based in part upon and assuming the accuracy of the representations of
the Seller in Article V, the offering, sale and issuance of the Initial Shares,
the Reserved Shares and the Additional Shares has been, is, and will be, exempt
from registration under the Securities Act,
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and such offering, sale and issuance is also exempt from registration under
applicable state securities and "blue sky" laws. Parent has made all requisite
filings and has taken or will take all action necessary to be taken to comply
with such state securities or "blue sky" laws.
6.19 BROKERS.
SCHEDULE 6.19 sets forth a true and complete list of each agent,
broker, investment banker, Person or firm who or which has acted on behalf, or
under the authority, of Parent (or its predecessors) or any of its shareholders
or will be entitled to any fee or commission directly or indirectly from the
Company or any of its shareholders or Parent in connection with any of the
transactions contemplated hereby.
6.20 TITLE TO PROPERTIES.
(a) Except as set forth on SCHEDULE 6.20, (i) Parent owns good and
marketable title, free and clear of all Liens (other than Permitted Liens), to
all of the Assets owned by it and (ii) Parent is not obligated under any
contract, or subject to any restriction, that presently has, has had, or
reasonably could be expected to have a Material Adverse Effect on the Parent.
The Company owns or leases under valid leases all facilities, machinery,
equipment and other Assets necessary for the conduct of its business as
conducted as of the date hereof.
(b) Parent does not own any real property. SCHEDULE 6.20 contains a
list and brief description of all real property leased by the Parent as of the
date hereof pursuant to one or more leases (the "Parent Real Property"), and
sets forth the names of the lessor and the lessee and the basic terms thereof.
The Parent Real Property constitute all real property used or occupied by the
Parent as of the date hereof in connection with the business of the Parent.
6.21 INTELLECTUAL PROPERTY.
(a) SCHEDULE 6.21 identifies (i) all material Intellectual Property
used by Parent in connection with the business of the Parent, (ii) each license,
agreement or other permission which the Parent has granted to any Person with
respect to any Intellectual Property used by the Parent in connection with the
business of the Parent and (iii) each material item of Intellectual Property
that any Person owns and that the Parent uses in connection with its business
pursuant to license, sublicense, agreement or permission, in each case, as of
the date hereof ("Parent Licensed Intellectual Property").
(b) Except as specifically set forth on SCHEDULE 6.21:
(i) to Parent's Knowledge, Parent has not infringed upon or
misappropriated any Intellectual Property rights of third parties, and
the Parent has not received any charge, complaint, claim, demand or
notice alleging any such infringement or misappropriation;
(ii) to Parent's Knowledge, Parent has the right to use, sell,
license and dispose of, and has the right to bring actions for the
infringement of, and, where
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necessary, have made timely and proper application for the registration
and patenting of all Intellectual Property (other than the Parent
Licensed Intellectual Property) necessary or required for the conduct
of its business as currently conducted and as proposed to be conducted
and such rights to use, sell, license, dispose of and bring actions are
exclusive with respect to such Intellectual Property;
(iii) Parent has the right to use all Intellectual Property
necessary or required for the conduct of its business as currently
conducted and proposed to be conducted;
(iv) there are no royalties, honoraria, fees or other payments
payable by the Parent to any Person by reason of the ownership, use,
license, sale or disposition of the Intellectual Property, other than
in connection with Parent Licensed Intellectual Property;
(v) no activity, service or procedure currently conducted or
proposed to be conducted by the Parent violates or will violate any
material agreement governing the use of Parent Licensed Intellectual
Property;
(vi) Parent has taken reasonable and practicable steps
(including, without limitation, entering into confidentiality and
nondisclosure agreements with all officers, directors and employees of
and consultants to the Parent with access to or Knowledge of the
Intellectual Property) designed to safeguard and maintain the secrecy
and confidentiality of, and its proprietary rights in, all Intellectual
Property; and
(vii) Parent has not sent to any third party or otherwise
communicated to another Person in the past five years any charge,
complaint, claim, demand or notice asserting infringement or
misappropriation of, or other conflict with, any Intellectual Property
right of the Parent by such other Person or any acts of unfair
competition by such other Person, nor to the best Knowledge of the
Parent is any such infringement, misappropriation, conflict or act of
unfair competition occurring or threatened.
(c) SCHEDULE 6.21 contains a true and complete list of all applications
and filings made or taken pursuant to Federal, state, local and foreign Laws by
the Parent to perfect or protect its interest in the material Intellectual
Property, including, without limitation, all patents, patent applications,
trademarks, trademark applications, service marks and servicemark applications.
6.22 CONTRACTS AND COMMITMENTS.
(a) Except as set forth on SCHEDULE 6.22, as of the date hereof, the
Parent is not a party to any written or oral contract which would be required to
be filed as an exhibit to a registration statement filed on a Form S-1 under the
Securities Act.
(b) Except as specifically disclosed in SCHEDULE 6.22, Parent has
performed in all material respects all obligations required to be performed by
it and is not in default under or in breach of nor in receipt of any claim of
default or breach under any such contract to which it is a
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party or by which any of its Assets may be bound; and to the Parent's Knowledge
no event has occurred which with the passage of time or the giving of notice or
both would result in such a default or breach under any such contract. To
Parent's Knowledge, no other party to any contract to which Parent is a party or
by which its Assets may be bound is in default under or in breach of such
contract and no event has occurred which with the passage of time or giving of
notice or both would result in a default or breach under any such contract.
There has been made available to the Company (i) a true and complete copy of
each of the contracts listed on SCHEDULE 6.22, together with all amendments,
waivers or other changes thereto, and (ii) a complete description of all oral
contracts to which the Parent is a party or by which any of its Assets may be
bound.
6.23 ACCOUNTS AND NOTES RECEIVABLE.
All the accounts receivable and notes receivable owing to the Parent as
of the date hereof constitute, and as of the Closing shall constitute, valid and
enforceable claims arising from bona fide transactions in the ordinary course of
business, and there are no known or asserted claims, refusals to pay or other
rights of set-off against any thereof. Except as set forth on SCHEDULE 6.23, as
of the date hereof, (i) all accounts and notes receivable are good and
collectible in the ordinary course of business consistent with past practice at
the aggregate recorded amounts thereof, (ii) no account debtor or note debtor is
delinquent for payments in excess of $20,000 and for more than 90 days and,
(iii) no account debtor or note debtor has refused or, to the Knowledge of the
Parent, threatened to refuse to pay its obligations to the Parent for any
reason, or has otherwise made a claim of set-off or similar claim and (iv) no
account debtor or note debtor is insolvent or bankrupt.
6.24 DISCLOSURE.
Neither this Agreement nor any of the Schedules or Exhibits, any of the
Related Documents nor any other written material, when viewed separately or
together, delivered to the Company or any of its directors, officers, partners,
employees, representatives or agents contains any untrue statement of a material
fact or omits a material fact necessary to make the statements contained herein
or therein, in light of the circumstances in which they were made, not
misleading as of the date hereof.
6.25 YEAR 2000.
All of Parent 's products, devices and programs are designed to be used
prior to, during and after the calendar year 2000 A.D., and such products,
devices and programs will operate during each such time period without error
relating to date data and date-dependent data, specifically including any error
relating to, or the program of, date data which represents or references
different centuries or more than one century, other than such errors which have
not had nor could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Parent's business as presently
conducted or as proposed to be conducted. Other than any of the following which
has not had nor could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate, on the Parent's business as presently
conducted or as proposed to be conducted, without limiting the generality of the
foregoing:
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(a) Each such product, device or program will not abnormally end or
provide invalid or incorrect results as a result of date data, specifically
including date data which represents or references different centuries or more
than one century; and
(b) Each such product, device or program has been designed to ensure
Year 2000 compatibility, including, but not limited to, date data century
recognition, calculations which accommodate same century and multi-century
formulas and date values and date data interface values that reflect the
century.
ARTICLE VII
COVENANTS
7.1 CONDUCT PENDING CLOSING.
From and after the date hereof until the Closing or the earlier
termination of this Agreement pursuant to ARTICLE IX, except as otherwise
consented to in writing by Parent and MergeCo or pursuant to any action taken by
Parent in accordance with ARTICLE III, the Seller shall cause the Company to:
(a) conduct its business substantially as presently conducted and only
in the ordinary course consistent with past practice;
(b) not form any Subsidiary;
(c) not sell, lease, license or otherwise dispose of any material
assets, except sales of inventories or other assets in the ordinary course of
business;
(d) use commercially reasonable efforts to (i) maintain its business,
assets, relations with present employees, customers, suppliers, partners,
licensees and operations as an ongoing business and preserve its goodwill, in
accordance with past custom and practice and (ii) to satisfy each of the closing
conditions set forth in ARTICLE VIII;
(e) not issue or sell any capital stock or issue or sell any securities
convertible into, exercisable or exchangeable for or options or warrants to
purchase or rights to subscribe for, any capital stock;
(f) not declare or pay a distribution on any Equity, not change the
number of authorized shares of its capital stock or reclassify, combine, split,
subdivide or redeem or otherwise repurchase any of its capital stock, or issue,
deliver, pledge or encumber any additional capital stock or other securities
equivalent to or exchangeable for capital stock or enter into any contract or
arrangement to do any of the foregoing;
(g) not incur any Funded Indebtedness or issue any securities
evidencing any Funded Indebtedness;
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(h) not enter into, or amend, alter, modify, supplement, restate or
waive any material terms or conditions of, any material contract, agreement or
arrangement;
(i) not enter into any employment or termination agreement or effect
any increase in the rate or terms of compensation payable or to become payable
to directors, officers, employees, partners and Persons having business
relations with the Company, or increase the rate or terms of any bonus, pension
or other Employee Plan covering any Person;
(j) not knowingly create or suffer to exist any Encumbrance on any of
its assets or properties;
(k) not change its accounting principles or policies;
(l) not make any material Tax election or compromise any Tax Liability;
(m) not delay or postpone the payment of accounts payable and other
obligations and liabilities or accelerate the collection of accounts receivable,
other than in the ordinary course of business consistent with historical and
customary practice;
(n) not amend any of its Fundamental Documents;
(o) not enter into any transaction other than in the ordinary course of
business, or any transaction which is not at arms-length with unaffiliated third
Persons;
(p) not take or omit to take any action which would result in the
representations and warranties contained in this Agreement and the Related
Documents being untrue on the Closing Date, other than such action as shall have
been previously agreed to in writing by the parties hereto;
(q) maintain in good standing all Permits held by it on a timely basis;
(r) continue the historic and customary maintenance capital expenditure
levels of the Company;
(s) not make any capital expenditures for improvements or upgrades; and
(t) not agree or otherwise commit to take any of the actions set forth
above.
7.2 EFFORTS TO CONSUMMATE.
(a) Subject to the terms and conditions of this Agreement, each party
shall use commercially reasonable efforts to take or cause to be taken all
actions and do or cause to be done all things required under all applicable
Laws, in order to consummate the transactions contemplated hereby.
(b) Without limiting the generality of the foregoing, Seller shall use
its best efforts to cause the Company to receive as promptly as practicable
after the date hereof a
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certificate from the Secretary of State of the State of New Jersey stating that
the Corporation is in good standing under the laws of such State and is not
delinquent in paying its franchise taxes.
7.3 EXCLUSIVITY.
(a) From and after the date hereof until the earlier of the Closing or
the termination of this Agreement pursuant to ARTICLE IX, Seller shall not and
Seller shall cause the Company not to, directly or indirectly, (i) take any
action to solicit or initiate any Acquisition Proposal, (ii) continue, initiate
or engage in negotiations or discussions relating to an Acquisition Proposal
with, or disclose or provide any non-public information or Confidential
Information, to any Person other than the parties hereto and their respective
representatives or (iii) enter into any written or oral agreement or
understanding with any Person (other than Parent or MergeCo) regarding an
Acquisition Proposal. If Seller or the Company receives any unsolicited offer or
proposal to enter into negotiations relating to any Acquisition Proposal, the
Seller shall promptly notify Parent and MergeCo of such offer or proposal and
the general economic terms of such offer or proposal and shall furnish a copy of
any written offer or proposal thereto.
(b) The parties recognize and acknowledge that a breach of this SECTION
7.3 will cause irreparable and material loss and damage to the non-breaching
party as to which it will not have an adequate remedy at law or in equity.
Accordingly, each party acknowledges and agrees that the issuance of an
injunction or other equitable remedy is an appropriate remedy for any such
breach.
7.4 NOTICE OF PROSPECTIVE BREACH.
Each party shall immediately notify the other parties in writing upon
the occurrence, or failure to occur, of any event, which occurrence or failure
to occur would be reasonably likely to cause any representation or warranty of
such party that is contained in this Agreement or any Related Document to be
untrue or inaccurate in any material respect at any time from the date of this
Agreement to the Closing as if such representation and warranty were made at
such time.
7.5 ACCESS TO RECORDS AND PROPERTIES OF THE ACQUIRED COMPANIES.
From and after the date hereof until the earlier of the Closing or the
termination of this Agreement pursuant to ARTICLE IX, the Seller shall cause the
Company to afford, (a) to Parent, and its prospective sources of financing and
Affiliates and each of their respective authorized representatives, including
accountants, consultants and attorneys, free and full access at all reasonable
times to the assets, business, facilities, properties, books, records (including
tax returns filed and in preparation), customers, consultants, and key employees
of or relating to the Company in order that Parent shall have the full
opportunity to make such investigation as it shall reasonably desire to make of
the affairs of the Company, and the Seller shall cause the Company to cooperate
fully in connection therewith, and (ii) to the respective independent certified
public accountants of Parent, free and full access at all reasonable times to
the records of the independent certified public accountants of the Company. The
investigation contemplated by this SECTION 7.5 shall not affect or otherwise
diminish or obviate in any respect any of the representations and warranties or
the indemnification rights of the Parent Indemnified Persons
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contained in this Agreement. The parties hereto agree to use their reasonable
efforts to minimize any disruption to any other party's business in connection
with the conduct of the due diligence process contemplated herein.
7.6 STRUCTURE OF TRANSACTION.
Parent shall have the right to cause the transactions contemplated
hereby to be consummated as an exchange of all of the shares of the Company's
Common Stock immediately prior to the Closing for the right to receive the
Initial Shares, the Reserved Shares and/or the Additional Shares in lieu of but
on the same terms and conditions as if the transactions contemplated hereby were
consummated pursuant to the Merger.
ARTICLE VIII
CLOSING CONDITIONS
8.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger and the
related transactions herein are subject to the satisfaction prior to or at the
Closing Date of the following conditions unless waived (to the extent such
conditions can be waived) by the Company and the Seller on the one hand and
Parent and MergeCo on the other hand.
(a) APPROVALS. The authorizations, consents, Orders or approvals of, or
declarations or filings with, or expiration of waiting periods of any
Governmental Entity required to consummate the transactions contemplated hereby
shall have been obtained or made.
(b) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other Order issued by any court or
Governmental Entity of competent jurisdiction nor other legal restraint or
prohibition preventing the consummation of the transactions contemplated hereby
shall be in effect.
(c) ACTIONS AND STATUTES. No Proceeding shall have been taken or
threatened, and no Law or Order shall have been enacted, promulgated or issued
or deemed applicable to the transactions contemplated by this Agreement or the
Related Documents by any Governmental Entity that would (i) make the
consummation of the transactions contemplated hereby or thereby illegal or
substantially delay the consummation of any material aspect of the transactions
contemplated hereby or thereby, (ii) compel the Company, the Surviving
Corporation or Parent to dispose or hold separate all or a material portion of
the business of the Company or Parent as a result of the consummation of the
transactions contemplated hereby or thereby or (iii) render any party unable to
consummate the transactions contemplated hereby or thereby.
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8.2 CONDITIONS TO OBLIGATIONS OF PARENT AND MERGECO.
The obligations of Parent and MergeCo to consummate the Merger and the
related transactions herein are subject to the satisfaction prior to or at the
Closing of the following conditions unless waived (to the extent such conditions
can be waived) by Parent and MergeCo:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by the Company and the Seller in this Agreement and the Related
Documents shall be true and correct in all material respects (except for such
representations and warranties which are qualified by their terms by a reference
to materiality, which representations and warranties as so qualified shall be
true in all respects) at and as of the Effective Time with the same effect as if
such representations and warranties had been made at and as of the Effective
Time.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY AND THE SELLER. The
Company and the Seller shall have performed in all material respects all
obligations and covenants required to have been performed by them under this
Agreement and the Related Documents, as of the Effective Time.
(c) OPINION OF COUNSEL FOR THE COMPANY AND THE SELLER. Parent and
MergeCo shall have received an opinion of Blank Rome Comisky & McCauley LLP,
counsel for the Company and the Seller, dated the Closing Date, in substantially
the form of EXHIBIT A attached hereto.
(d) CONSENTS AND APPROVALS. Parent and MergeCo shall have received duly
executed copies of all consents and approvals required for or in connection with
the execution and delivery by the Company and the Seller of this Agreement and
each of the Related Documents to which any of them may be a party, and the
consummation of the transactions contemplated hereby and thereby, and the
continued conduct of the business as previously conducted, in form and substance
reasonably satisfactory to Parent and MergeCo and their counsel.
(e) RELATED DOCUMENTS. Each of the following documents (together with
the Escrow Agreement, the "RELATED DOCUMENTS") shall have been executed and
delivered by the parties thereto and the transactions contemplated thereby to be
completed at or prior to the Closing substantially consummated or effected, as
the case may be, in accordance with the terms thereof:
(i) EMPLOYMENT AGREEMENTS. William Bahr shall have executed
and delivered an employment agreement (the "William Bahr Employment
Agreement") in substantially the form attached hereto as EXHIBITS B-1
and Karina Bahr shall have executed and delivered an employment
agreement in substantially the form attached hereto as EXHIBIT B-2
(collectively with the William Bahr Employment Agreement, the
"Employment Agreements"); and
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(ii) STOCKHOLDERS AGREEMENT. The Stockholders Agreement shall
be executed and delivered by all the parties thereto (other than the
Company).
(f) STOCK CERTIFICATES. MergeCo shall have received certificates
representing all of the outstanding shares of capital stock of the Company, duly
endorsed for transfer to MergeCo or in blank (at MergeCo's request).
(g) CLOSING CERTIFICATES. Each of the following certificates shall have
been executed and/or delivered, as the case may be, by the Person who or which
is the subject thereof:
(i) a certificate of the President or Secretary of the
Company, dated as of the Closing Date, certifying (i) that true and
complete copies of the Fundamental Documents of the Company as in
effect on the Closing Date are attached thereto, (ii) as to the
incumbency and genuineness of the signatures of each Person executing
this Agreement and the Related Documents on behalf of the Company;
(iii) the genuineness of the resolutions (attached thereto) of the
board of directors or similar governing body of the Company authorizing
the execution, delivery and performance of this Agreement and the
Related Documents and the consummation of the transactions contemplated
hereby and thereby;
(ii) certificates of the secretaries of state of the states
(or other applicable office) in which the Company is organized and
qualified to do business, dated within five days prior to the Closing
Date, certifying as to the good standing and non-delinquent franchise
tax status of the Company;
(iii) a certificate signed by the President of the Company,
dated as of the Closing Date, and certifying on behalf of the Company)
as to (A) the accuracy of the representations and warranties of the
Company contained herein, as contemplated by SECTION 8.2(A), and (B)
the performance of the covenants of the Company contained herein, as
contemplated by SECTION 8.2(B);
(iv) a certificate signed by the Seller, dated as of the
Closing Date, and certifying as to (A) the accuracy of the
representations and warranties of the Seller contained herein, as
contemplated by SECTION 8.2(A), and (B) the performance of the
covenants of the Seller contained herein, as contemplated by SECTION
8.2(B); and
(v) a certificate from Seller certifying that Seller is not a
foreign person within the meaning of Treasury Regulation Section
1.1445-2(b), which certificate complies in all respects with Section
1.1445-2(b)(2) of such rules and regulations.
(h) RESIGNATION OF OFFICERS, DIRECTORS AND EMPLOYEES. Parent and
MergeCo shall have received (i) letters from such Persons as Parent shall have
previously notified the Company in writing of, no less than five Business Days
prior to the Closing Date, resigning their respective positions as directors of
the Company, immediately upon the Closing and (ii) releases effective upon
consummation of the Closing, in a form satisfactory to the Company, from Seller
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and Karina Bahr pertaining to claims relating to their positions with the
Company (other than claims for salaries, benefits and expense reimbursements
that remain unpaid).
8.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE SELLER.
The obligations of the Company to consummate the Closing and the
related transactions herein are subject to the satisfaction of the following
additional conditions unless waived (to the extent such conditions can be
waived) by the Company and the Seller:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by Parent and MergeCo in this Agreement and the Related
Documents shall be true and correct in all material respects (except for such
representations and warranties which are qualified by their terms by a reference
to materiality, which representations and warranties as so qualified shall be
true in all respects) at and as of the Effective Time with the same effect as if
such representations and warranties had been made at and as of the Effective
Time.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND MERGECO. Parent and
MergeCo shall each have performed in all material respects all obligations and
covenants required to have been performed by them under this Agreement and the
Related Documents prior, as of the Effective Time.
(c) CONSENTS AND APPROVALS. The Seller shall have received duly
executed copies of all consents and approvals required for or in connection with
the execution and delivery by Parent and MergeCo of this Agreement and each of
the Related Documents to which either of them may be a party and the
consummation of the transactions contemplated hereby and thereby, in form and
substance reasonably satisfactory to the Seller and his counsel.
(d) RELATED DOCUMENTS. Each of the Related Documents shall have been
executed and/or delivered by the parties thereto (other than the Seller and the
Company) and the transactions contemplated thereby to be completed at or prior
to the Effective Time shall have been substantially consummated or effected, as
the case may be, in accordance with the terms thereof.
(e) STOCK CERTIFICATES. The Seller shall have received certificates
representing the Initial Shares.
(f) LEGAL OPINION. The Company shall have received an opinion from
O'Sullivan Graev & Karabell, LLP, counsel for Parent and MergeCo, in
substantially the form set forth in EXHIBIT D.
(g) CLOSING CERTIFICATES. Each of the following certificates shall have
been executed and/or delivered to the Seller, as the case may be, by the Person
who or which is the subject thereof:
(i) a certificate of the President or secretary of Parent and
MergeCo, dated as of the Closing Date, certifying (i) that true and
complete copies of the Fundamental
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Documents of Parent and MergeCo as in effect on the Closing Date are
attached thereto, (ii) as to the incumbency and genuineness of the
signatures of each officer of such Person executing this Agreement and
the Related Documents on behalf of Parent and MergeCo; and (iii) the
genuineness of the resolutions (attached thereto) of the board of
directors or similar governing body of Parent and MergeCo authorizing
the execution, delivery and performance of this Agreement and the
Related Documents to which Parent and MergeCo are a party and the
consummation of the transactions contemplated hereby and thereby and of
Parent, as sole shareholder of Acquisition Sub, approving the Merger;
(ii) certificates dated within five days of the Closing Date
of the secretaries of state of the states in which Parent and MergeCo
are organized, certifying as to the good standing and non-delinquent
franchise tax status of Parent and MergeCo; and
(iii) a certificate signed by a principal executive officer of
Parent and MergeCo, dated as of the Closing Date, and certifying as to
(A) the accuracy of the representations and warranties of Parent and
MergeCo contained herein, as contemplated by SECTION 8.3(A) and (B) the
performance of the covenants of Parent and MergeCo contained herein, as
contemplated in SECTION 8.3(B).
ARTICLE IX
TERMINATION; EFFECT OF TERMINATION
9.1 TERMINATION.
This Agreement may be terminated at any time prior to the consummation
of the Closing by:
(a) the mutual written consent of Parent, MergeCo, the Company and the
Seller; or
(b) Parent or MergeCo in the event of a breach by the Company or Seller
of any representation, warranty, covenant or other agreement contained in this
Agreement which is material; or
(c) the Company or the Seller, in the event of a breach by Parent or
MergeCo of any representation, warranty, covenant or other agreement contained
in this Agreement which is material; or
(d) Parent or MergeCo, if the conditions set forth in SECTION 8.1 or
SECTION 8.2 shall not have been (or cannot be) satisfied or waived by September
30, 1999;
(e) Parent, MergeCo, the Company or the Seller, if any permanent
injunction or other Order of a court or other competent authority preventing the
Closing shall have become final and nonappealable;
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Any termination pursuant to the foregoing provisions of this SECTION 9.1 (other
than a termination pursuant to SECTION 9.1(A)) shall be effected by written
notice from the party or parties so terminating to the other parties hereto,
which notice shall specify the subsection of this SECTION 9.1 pursuant to which
this Agreement is being terminated.
9.2 EFFECT OF TERMINATION.
In the event of the termination of this Agreement as provided in
SECTION 9.1, this Agreement shall be of no further force or effect, except for
SECTION 10.1, 10.6, 10.7 and ARTICLE XI, each of which shall survive the
termination of this Agreement; PROVIDED, HOWEVER, that if this Agreement is
terminated otherwise than pursuant to SECTION 9.1(A), the Liability of any party
for any intentional, willful or knowing breach by such party of the
representations, warranties, covenants or agreements of such party contained
herein occurring prior to the termination of this Agreement shall survive the
termination of this Agreement and, in addition, in the event of any action for
breach of contract in the event of a termination of this Agreement, the
prevailing party shall be reimbursed by the other party to the action for
reasonable attorneys' fees and expenses relating to such action.
ARTICLE X
ADDITIONAL AGREEMENTS OF THE SELLER
10.1 LOCK-UP AGREEMENT.
If Parent at any time shall register shares of Parent Common Stock
under the Securities Act for sale to the public, the Seller shall not sell
publicly, make any short sale of, grant any option for the purchase of, or
otherwise dispose publicly of, any capital stock of Parent (other than those
shares of Common Stock included in such registration) without the prior written
consent of Parent, for a period designated by Parent in writing to the Seller,
which period shall begin not more than 10 days prior to the effectiveness of the
registration statement pursuant to which such public offering shall be made and
shall not last more than 180 days after the effective date of such registration
statement and shall not be more restrictive than similar provisions contained in
agreement with the officers of Parent as of the date hereof.
10.2 STOCKHOLDERS' AGREEMENT.
Seller and Karina Bahr each agree to be bound by and receive the
benefits of, the Stockholders' Agreement (as an Outside Stockholder, as defined
therein) as if signatory thereto.
10.3 NON-SOLICIT.
In event that the Seller exercises his rights pursuant to Section 10.10
Parent and the Company agree that, for a period of one year following such
exercise, neither Parent nor the Company will directly or indirectly through
another Person (i) solicit any of the other Person's employees to leave such
employ, (ii) hire any individual who was an employee of Parent or the Company,
as the case may be, or any Affiliate until six months after such individual's
employment relationship has been terminated or (iii) induce any customer,
supplier or licensee
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with a business relationship with Parent or the Company, as the case may be, to
cease doing business with Parent or the Company, as the case may be to cease
doing business with Parent or the Company, as the case may be.
10.4 NON-COMPETITION AGREEMENT.
For three (3) years following the Closing Date (unless the Seller
exercises his rights pursuant to Section 10.10), Seller shall not in any manner,
directly or indirectly, as an employee, employer, consultant, agent, principal,
partner, manager, shareholder, officer, director, or in any other individual or
representative capacity, engage in or become interested in the business of
providing network consulting services, or any business that is competitive with
the business of Parent, in those places where Parent is doing business.
Notwithstanding the foregoing, Seller may, in the aggregate, own less than one
percent (1%) of the issued and outstanding capital stock of any publicly traded
company.
10.5 CONFIDENTIALITY.
(a) The Seller will not disclose or use at any time, any Confidential
Information of which he is or becomes aware, whether or not such information is
developed by him, except to the extent that such disclosure or use is related to
and required by Seller (i) in the performance in good faith of duties assigned
to him by Parent, (ii) in the performance of duties or the exercise of rights in
good faith as an employee, officer, director or shareholder of Parent or any
Affiliate, or (iii) in the performance of duties or exercise of rights under any
agreement with Parent or any Affiliate. Seller will take all reasonable and
appropriate steps to safeguard Confidential Information and to protect it
against disclosure, misuse, espionage, loss and theft.
(b) As used in this Agreement, the term "CONFIDENTIAL INFORMATION"
means information that is not generally known or available to the public and
that is used, developed or obtained by Parent in connection with its business,
including but not limited to (i) information, observations and data obtained by
Seller while employed by Parent (including those obtained prior to the date of
this Agreement) concerning the business or affairs of Parent, (ii) products or
services, (iii) fees, costs and pricing structures, (iv) designs, (v) analyses,
(vi) drawings, photographs and reports, (vii) computer software, including
operating systems, applications and program listings, (viii) flow charts,
manuals and documentation, (ix) data bases, (x) accounting and business methods,
(xi) inventions, devices, new developments, methods and processes, whether
patentable or unpatentable and whether or not reduced to practice, (xii)
customers and clients and customer or client lists, (xiii) other copyrightable
works, (xiv) all production methods, processes, technology and trade secrets,
and (xv) all similar and related information in whatever form.
(c) Notwithstanding the provisions of this Agreement to the contrary,
Seller shall have no liability to Parent for disclosure of Confidential
Information if the Confidential Information:
(i) is known to the receiving party at the time of disclosure
of such Confidential Information other than as the result of a breach
of this Section by Seller;
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(ii) becomes publicly known or is disclosed by Parent other
than as the result of a breach of this Section by Seller;
(iii) is received by Seller after the date of this Agreement
from a third party that is not under an obligation of confidentiality
to Parent; or
(iv) is required to be disclosed by law, court order, or
similar compulsion or in connection with any legal proceeding, provided
that such disclosure shall be limited to the extent so required and,
except to the extent prohibited by law, Seller shall give Parent notice
of its intent to so disclose such Confidential Information and shall
reasonably cooperate with Parent in seeking suitable confidentiality
protections.
10.6 PUBLIC ANNOUNCEMENTS.
Parent and the Seller agree that, except (i) as otherwise required by
Law or Order and (ii) for disclosure to its respective directors, officers,
employees, financial advisors, potential financing sources, legal counsel,
independent certified public accountants or other agents, advisors or
representatives on a need-to-know basis and with whom such party has a
confidential relationship, they will not issue any reports, statements or
releases, in each case pertaining to this Agreement or any Related Document to
which it is a party or the transactions contemplated hereby or thereby, without
the prior written consent of the other, which consent shall not unreasonably be
withheld or delayed.
10.7 COOPERATION REGARDING TAX FILINGS.
After the Closing, Parent, the Company and the Seller shall act in good
faith and cooperate with one another for the purpose of filing all Tax Returns
and reports required to be filed by any of them. Each party shall report the
Merger for federal income tax purposes as a sale of stock by the Seller.
10.8 CUSTOMER RELATIONS.
The Seller will devote his reasonable best efforts to assist Parent and
the Company in maintaining the customer relationships of the Company.
10.9 PUT OPTION.
(a) If Parent shall not have consummated a Qualified Offering prior to the third
anniversary of the Closing Date, then the Seller shall have the right and
option, upon 90 days written notice (the "Put Notice") at any time after the
third anniversary of the Closing Date and prior to the 30th day thereafter, to
put all (but not less than all) of the outstanding Parent Shares, in each case
received in connection with the Merger, to Parent in exchange for (i) $3,000,000
MINUS (ii) the Transaction Expenses MINUS (iii) the product of the Parent
Initial Share Price multiplied by the number of Reserved Shares (and/or Parent
Shares derived from or issued in respect of Reserved Shares) that have been
forfeited pursuant to the William Bahr Employment Agreement, Section 10.11
and/or the Escrow Agreement MINUS (iv) the product of the Parent
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Additional Share Price multiplied by the number of Additional Shares (or Parent
Shares derived from or issued in respect of Additional Shares) that have been
forfeited pursuant to either the William Bahr Employment Agreement and/or
Section 10.11 (the "Put/Call Repurchase Price").
(b) Not more than 30 days after receipt of the Put Notice, Seller shall
deliver all Certificates representing the outstanding Parent Shares to Parent.
Such outstanding Parent Shares shall be delivered free and clear of all Liens.
(c) Upon receipt by Parent of all certificates representing the
outstanding Parent Shares (including a validly executed stock power) and other
consideration referred to in Section 10.9(b), Parent shall deliver the Put
Consideration to the Seller.
(d) Upon completion of the acts described in Sections 10.10(b) and
10.10(c), all outstanding Parent Shares shall be canceled and shall cease to
exist and no stock of Parent or other consideration shall be delivered in
exchange therefor.
10.10 CALL OPTION.
(a) If in one or more transactions Parent receives gross proceeds of at
least $15,000,000 in consideration for newly issued shares of its capital stock
or any security convertible into or exchangeable or exercisable for Parent's
capital stock in a transaction exempt from registration under the Securities Act
(a "Qualified Private Offering"), then Parent may deliver to the Seller a notice
(a "Call Notice") at any time during the period commencing on the later of the
date of consummation of the last of such transactions and the first anniversary
of the Closing Date and ending on the 90th day after the third anniversary of
the Closing Date. If the Seller receives a Call Notice, then the Seller shall,
within ten days after receipt of the Call Notice, either (i) sell to Parent all
outstanding Parent Shares for the Put/Call Repurchase Price, by delivering to
Parent (within ten days after receipt of the Call Notice), stock certificates
and appropriate stock powers with respect to Seller's Parent Shares free and
clear of any Liens; or (ii) send written notice to Parent permanently waiving
the Seller's rights set forth in Section 10.9.
(b) Promptly after receipt by Parent of all certificates representing
Parent Shares, Parent shall pay to the Seller an aggregate amount in cash equal
to the Put/Call Repurchase Price. Upon completion of the acts described in
Section 10.10(a) (other than the waiver of the Seller's rights set forth in
Section 10.10), all outstanding Parent Shares shall be canceled and shall cease
to exist and no stock of Parent or other consideration shall be delivered in
exchange therefor.
(c) Notwithstanding any other provision of this Section 10.10, Parent's
rights to purchase Parent Shares pursuant to this Section 10.10 shall expire
upon the expiration or termination of the Seller's put rights pursuant to
Section 10.9.
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10.11 FORFEITURE OF SHARES.
(a) On the Escrow Release Date, the Seller shall forfeit, in accordance
with ANNEX I, Reserved Shares and Additional Shares, in each case, without any
consideration being paid therefor.
(b) On and after the Escrow Release Date, any payment in respect of
Parent Losses that are subject to indemnification pursuant to Article XI shall
be paid as follows:
(i) first, by forfeiting to Parent in accordance with the
Escrow Agreement, without any consideration being paid therefor, a
number of outstanding Reserved Shares equal to the quotient obtained by
dividing (A) the Pro Rata Reserved Share Forfeiture Percentage of the
aggregate amount of such Parent Losses by (B) the Parent Initial Share
Price; and
(ii) second, by forfeiting to Parent, without any
consideration being paid therefor, a number of Additional Shares equal
to the quotient obtained by dividing (x) the Pro Rata Additional Share
Forfeiture Percentage of the aggregate amount of such Parent Losses by
(y) the Parent Additional Share Price.
(iii) the number of Reserved Shares and Additional Shares
shall include the respective Parent Shares that have been derived from
or issued in respect of such shares and the Parent Initial Share Price
and the Parent Additional Share Price shall be decreased in proportion
to any adjustment of such Initial Shares, Reserved Shares and
Additional Shares pursuant to the definition of Parent Shares;
(c) In the case of any forfeiture of shares of Opus Common Stock
pursuant to this Section 10.11, the following shall apply:
(i) Additional Shares (and Parent Shares that have been
derived from or issued in respect of such shares) which are vested
pursuant to the William Bahr Employment Agreement shall be deemed to be
forfeited prior to any forfeiture of such shares which are not so
vested; and
(ii) Reserved Shares (and Parent Shares that have been derived
from or issued in respect of such shares) which are vested pursuant to
the William Bahr Employment Agreement shall be deemed to be forfeited
prior to any forfeiture of Reserved Shares which are not so vested.
(d) Upon the forfeiture of any shares of Parent Common Stock pursuant
to the terms of this Section, Seller shall deliver all certificates representing
the Parent Shares held by Seller, and Parent shall deliver a new certificate
representing the shares represented by such certificates which are not
forfeited. Any forfeiture pursuant to this Section shall occur automatically
without any action on the part of Parent, the Company or Seller. Without
limiting the foregoing, Parent shall have the right, without further action by
any other party, to cancel only such forfeited shares on its books.
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(e) Nothing contained herein shall limit the Parent Indemnified Persons
from pursuing all rights and remedies available to them under applicable Law as
a result of Parent Losses notwithstanding that all outstanding Reserved Shares
and all outstanding Additional Shares (and all Parent Shares derived therefrom
or issued in respect thereof) have been forfeited pursuant to this Article X.
ARTICLE XI
INDEMNIFICATION
11.1 INDEMNIFICATION GENERALLY; ETC.
(a) Subject to the further terms of this Article XI, the Seller
Indemnifying Persons agree, jointly and severally, to indemnify the Parent
Indemnified Persons for, and hold them harmless from and against, any and all
Parent Losses arising from or in connection with any of the following (without
regard to any qualification as to materiality):
(i) the untruth, inaccuracy or breach of any representation or
warranty of the Company and/or Seller contained in ARTICLE IV OR
ARTICLE V or in any certificate delivered by the Company or Seller
delivered in connection herewith at or before the Effective Time (or
any facts or circumstances constituting any such untruth, inaccuracy or
breach); or
(ii) the breach of any agreement or covenant of the Company or
Seller contained in this Agreement or the Escrow Agreement;
(iii) any Liability of the Company incurred prior to the
Closing or arising out of any transaction consummated, action taken or
action required to be taken but not so taken prior to the Closing or
conditions existing prior to the Closing; or
(b) Subject to the further terms of this Article XI, the Parent
Indemnifying Persons agree, jointly and severally, to indemnify the Seller
Indemnified Persons for, and hold them harmless from and against, any and all
Seller Losses arising from or in connection with any of the following (without
regard to any qualification as to materiality):
(i) the untruth, inaccuracy or breach of any representation or
warranty of Parent and MergeCo contained in ARTICLE VI or any
certificate delivered by Parent and MergeCo in connection herewith at
or before the Effective Time (or any facts or circumstances
constituting any such untruth, inaccuracy or breach); or
(ii) the breach of any agreement or covenant of Parent and
MergeCo contained in this Agreement or the Escrow Agreement.
(iii) any Liability of Parent incurred prior to the Closing or
arising out of any transaction consummated, action taken or action
required to be taken but not so taken prior to the Closing or
conditions existing prior to the Closing; PROVIDED that for these
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purposes, the term Losses shall include only out-of-pocket expenses
incurred by the Seller to third parties.
11.2 ASSERTION OF CLAIMS.
No claim shall be brought under SECTION 11.1 unless the Indemnified
Persons, or any of them, at any time prior to the applicable Survival Date (as
defined in Section 11.4), give the Indemnifying Persons (a) written notice of
the existence of any such claim, specifying the nature and basis of such claim
and the amount thereof, to the extent known, and (b) written notice pursuant to
SECTION 11.3 of any Third Party Claim (as defined below), the existence of which
might give rise to such a claim. Upon the giving of such written notice as
aforesaid, the Indemnified Persons, or any of them, shall have the right to
commence legal proceedings subsequent to the Survival Date for the enforcement
of their rights under SECTION 11.1.
11.3 NOTICE AND DEFENSE OF THIRD PARTY CLAIMS.
The obligations and liabilities of an Indemnifying Person with respect
to Losses resulting from the assertion of liability by third parties (each, a
"THIRD PARTY CLAIM") shall be subject to the following terms and conditions:
(a) The Indemnified Persons shall promptly give written notice to the
Indemnifying Persons of any Third Party Claim which might give rise to any Loss
by the Indemnified Persons, stating the nature and basis of such Third Party
Claim, and the amount thereof to the extent known; PROVIDED, HOWEVER, that no
delay on the part of the Indemnified Persons in notifying any Indemnifying
Persons shall relieve the Indemnifying Persons from any liability or obligation
hereunder unless (and then solely to the extent) the Indemnifying Person thereby
is prejudiced by the delay. Such notice shall be accompanied by copies of all
relevant documentation with respect to such Third Party Claim, including any
summons, complaint or other pleading which may have been served, any written
demand or any other document or instrument.
(b) If the Indemnifying Persons shall acknowledge in a writing
delivered to the Indemnified Persons that such Third Party Claim is properly
subject to their indemnification obligations hereunder, then the Indemnifying
Persons shall have the right to assume the defense of any Third Party Claim at
their own expense and by their own counsel, which counsel shall be reasonably
satisfactory to the Indemnified Persons; PROVIDED, HOWEVER, that the
Indemnifying Persons shall not have the right to assume the defense of any Third
Party Claim, notwithstanding the giving of such written acknowledgment, if (i)
the Indemnified Persons shall have been advised by counsel that there are one or
more legal or equitable defenses available to them which are different from or
in addition to those available to the Indemnifying Persons, and, in the
reasonable opinion of the Indemnified Persons, counsel for the Indemnifying
Persons could not adequately represent the interests of the Indemnified Persons
because such interests could be in conflict with those of the Indemnifying
Persons, (ii) such action or proceeding involves, or could have a material
effect on, any material matter beyond the scope of the indemnification
obligation of the Indemnifying Persons or (iii) the Indemnifying Persons shall
not have assumed the defense of the Third Party Claim in a timely fashion.
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(c) If the Indemnifying Persons shall assume the defense of a Third
Party Claim (under circumstances in which the proviso to the first sentence of
SECTION 11.3(B) is not applicable), the Indemnifying Persons shall not be
responsible for any legal or other defense costs subsequently incurred by the
Indemnified Persons in connection with the defense thereof. If the Indemnifying
Persons do not exercise their right to assume the defense of a Third Party Claim
by giving the written acknowledgment referred to in SECTION 11.3(B), or are
otherwise restricted from so assuming by the proviso to the first sentence of
SECTION 11.3(B), the Indemnifying Persons shall nevertheless be entitled to
participate in such defense with their own counsel and at their own expense; and
in any such case, the Indemnified Persons may assume the defense of the Third
Party Claim, with counsel which shall be reasonably satisfactory to the
Indemnifying Persons, and shall act reasonably and in accordance with their good
faith business judgment and shall not effect any settlement without the consent
of the Indemnifying Persons, which consent shall not be unreasonably withheld or
delayed.
(d) If the Indemnifying Persons exercise their right to assume the
defense of a Third Party Claim, (i) the Indemnified Persons shall be entitled to
participate in such defense with their own counsel at their own expense and (ii)
the Indemnifying Persons shall not make any settlement of any claims without the
written consent of the Indemnified Persons, which consent shall not be
unreasonably withheld or delayed.
11.4 SURVIVAL OF CERTAIN INDEMNIFICATION CLAIMS.
(a) Subject to the further provisions of this SECTION 11.4, the
representations and warranties contained in this Agreement or in any certificate
or other writing delivered in connection with this Agreement shall survive the
Closing until the Escrow Release Date (the "GENERAL SURVIVAL DATE"); PROVIDED,
HOWEVER, that (i) the representations and warranties contained in SECTIONS 4.1,
4.2, 4.4, 4.5, 4.11, 4.19, 5.1, 5.2, 5.6, 5.8, 5.9, 5.10, 5.11 and 5.12 shall
survive indefinitely (the "SUBJECT REPS") and (ii) the representations and
warranties contained in SECTIONS 4.10, 4.12 and 4.18 shall survive the Closing
Date until the later of the General Survival Date and 60 days following
expiration of the respective statutes of limitations for Third Party Claims
applicable to the matters covered thereby. The covenants and other agreements of
the parties contained in this Agreement shall survive the Closing Date until
they are otherwise terminated by their terms.
(b) For convenience of reference, the date upon which any
representation or warranty contained herein shall terminate, if any, is referred
to herein as the "SURVIVAL DATE."
(c) From and after the Closing, the Seller shall have no recourse to
the Company or any Subsidiaries (if any) for any breach of any representation,
warranty, covenant or agreement of the Company, Parent or MergeCo set forth in
this Agreement or in any certificate or other writing delivered in connection
with this Agreement.
11.5 LIMITATIONS ON INDEMNIFICATION.
(a) INDEMNITY BASKETS. The Parent Indemnified Persons shall not have
the right to be indemnified pursuant to SECTION 11.1(A)(I) unless and until the
Parent Indemnified Persons
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shall have incurred on a cumulative basis aggregate Losses in an amount
exceeding the sum of $25,000, in which event the right to be indemnified shall
apply in respect of all Losses. The Seller Indemnified Persons shall not have
the right to be indemnified pursuant to SECTION 11.1(B)(I) unless and until the
Seller Indemnified Persons shall have incurred on a cumulative basis aggregate
Losses in an amount exceeding the sum of $25,000, in which event the right to be
indemnified shall apply in respect of all Losses.
(b) INDEMNITY LIMITATION AND RECOURSE. The sum of all Losses pursuant
to which indemnification is payable by the Seller Indemnifying Persons pursuant
to SECTION 11.1(A)(I) or the Parent Indemnifying Persons pursuant to SECTION
11.1(B)(I) shall not exceed $3,500,000; PROVIDED, HOWEVER, that in no event
shall the limitations set forth in this SECTION 11.5(B) apply with respect to
the Subject Reps.
ARTICLE XII
MISCELLANEOUS
12.1 TRANSACTION EXPENSES.
Each party shall bear its own expenses in connection with the
transactions contemplated by this Agreement and the Related Documents (it being
understood that the Seller shall pay on behalf of the Company all fees and
expenses of the Company or the Seller arising out of or relating to the
transactions contemplated hereby in excess of $175,000 and the Company shall pay
at or after the Closing all Transaction Expenses).
12.2 NO THIRD PARTY BENEFICIARIES.
Except as expressly provided herein, this Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns, personal representatives, heirs and
estates, as the case may be.
12.3 ENTIRE AGREEMENT.
This Agreement and the Related Documents constitute the entire
agreement among the Parties and supersede any prior understandings, agreements
or representations by or among the Parties, written or oral, that may have
related in any way to the subject matter of this Agreement or any Related
Document.
12.4 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors and permitted assigns. No Party may
assign either this Agreement or any of its rights, interests, or obligations
hereunder without the prior written approval of the other Parties; PROVIDED,
HOWEVER, that Parent or MergeCo may assign any of its rights under any of this
Agreement or any Related Document to (i) any Affiliate of Parent or MergeCo,
(ii) any Person who shall acquire substantially all of the assets of such Parent
or MergeCo or a majority in voting power of the capital stock of MergeCo
(whether pursuant to a merger, consolidation,
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stock sale or otherwise), (iii) any lender of Parent or MergeCo (or any agent
therefor) for security purposes and the assignment thereof by any such lender or
agent to any purchaser in connection with the exercise by any such lender or
agent of all of its rights and remedies as a secured creditor with respect
thereto and (iv) any Person to whom Parent or MergeCo shall transfer any shares
or Assets in accordance with the terms of this Agreement or any Related
Document.
12.5 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
12.6 NOTICES.
All notices, requests, demands, claims, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, telecopied, sent by nationally recognized overnight
courier or mailed by registered or certified mail (return receipt requested),
postage prepaid, to the Parties at the following addresses (or at such other
address for a Party as shall be specified by like notice):
If to the Company (prior to the Closing) or the Seller, to:
The Churchill Benefit Corporation
100 East Linton Boulevard
Delray Beach, Florida 33483
Telephone: (561) 278-1351
Telecopy: (561) 278-2526
Attention: Mr. William Bahr
with a copy to:
Blank Rome Comisky & McCauley LLP
1 200 Federal Highway, Suite 417
Boca Raton, Florida 33432
Telephone: 561-417-8100
Telecopy: 561-417-8101
Attention: Michael Leeds, Esq.
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If to Parent or the Company (after the Closing), to:
Opus360 Corporation
733 Third Avenue, 17th Floor
New York, New York 10017
Telephone: 212-301-2200
Telecopy: 212-301-2201
Attention: Mr. Ari B. Horowitz
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Telephone: 212-408-2471
Telecopy: 212-728-5950
Attention: John J. Suydam, Esq.
All such notices and other communications shall be deemed to have been
given and received (i) in the case of personal delivery, on the date of such
delivery, (ii) in the case of delivery by telecopy, on the date of such
delivery, (iii) in the case of delivery by nationally recognized overnight
courier, on the third business day following dispatch and (iv) in the case of
mailing, on the seventh business day following such mailing.
12.7 GOVERNING LAW.
THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
DOMESTIC LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OF
LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE STATE OF DELAWARE, OR ANY
OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF DELAWARE TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL
LAW OF THE STATE OF DELAWARE WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF
THIS AGREEMENT, EVEN IF UNDER SUCH JURISDICTION'S CHOICE OF LAW OR CONFLICT OF
LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY
APPLY.
12.8 AMENDMENTS AND WAIVERS.
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Company, the Seller and Parent.
No waiver by any Party of any default, misrepresentation, or breach of warranty
or covenant hereunder, whether intentional or not, shall be deemed to extend to
any prior or subsequent default, misrepresentation, or breach of
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warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
12.9 CERTAIN DEFINITIONS.
"ACQUISITION PROPOSAL" means any offer, proposal or indication of
interest in (a) the direct or indirect acquisition of all or any material part
of the Company, (b) a merger, consolidation or other business combination
directly or indirectly involving the Company or (c) the direct or indirect
acquisition of any capital stock of the Company.
"ADDITIONAL SHARES" shall have the meaning ascribed thereto in Section
2.4.
"AFFILIATE" means, with respect to any Person, any of (a) a shareholder
holding 5% or more of the capital stock (on a fully diluted basis), director or
officer of such Person, (b) a spouse, parent, sibling or descendant of such
Person (or a spouse, parent, sibling or descendant of any director or officer of
such Person) and (c) any other Person that, directly or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, another Person. The term "control" includes, without limitation,
the possession, directly or indirectly, of the power to direct the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"ASSETS" means, with respect to any Person, all of the assets, rights,
interests and other properties, real, personal and mixed, tangible and
intangible, owned by such Person.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act, as amended, and the rules and regulations promulgated
thereunder.
"CLOSING" shall have the meaning given to it in Section 2.8.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"DEFINED BENEFIT PENSION PLAN" shall have the meaning set forth in
Section 3(35) of ERISA.
"EMPLOYEE BENEFIT PLAN" means any (a) qualified or non-qualified
Employee Pension Benefit Plan (including any Multiple Employer Plans or
Multi-Employer Plans), (b) Employee Welfare Benefit Plan, or (c) employee
benefit, fringe benefit, compensation, incentive, bonus or other plan, program
or arrangement, whether or not subject to ERISA and whether or not funded.
"EMPLOYEE WELFARE BENEFIT PLAN" shall have the meaning set forth in
Section 3(1) of ERISA.
"ENVIRONMENTAL AND SAFETY REQUIREMENTS" means all Laws, Orders,
contractual obligations and all common law concerning public health and safety,
worker health and safety, and pollution or protection of the environment,
including, without limitation, all those relating to
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the presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
release, threatened release, control or cleanup of any hazardous materials,
substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation, including, but not limited to,
the SWDA, the Clean Air Act, as amended, 42 U.S.C. ss.ss. 7401 et seq., the
Federal Water Pollution Control Act, as amended, 33 U.S.C. ss.ss. 1251 et seq.,
the Emergency Planning and Community Right-to-Know Act, as amended, 42 U.S.C.
ss.ss. 11001 et seq., CERCLA, the Hazardous Materials Transportation Uniform
Safety Act, as amended, 49 U.S.C. ss.ss. 5101 et seq., the Occupational Safety
and Health Act of 1970, as amended, and the rules and regulations promulgated
thereunder.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA AFFILIATES" means, with respect to any Person, any other Person
that is a member of a "controlled group of corporations" with, or is under
"common control" with, or is a member of the same "affiliated service group"
with such Person as defined in Section 414(b), 414(c), or 414(m) or 414(o) of
the Code.
"ESCROW AGREEMENT" means the form of Escrow Agreement, to be entered
into between Parent and the Seller, in a form reasonably acceptable to Seller
and Parent.
"ESCROW RELEASE DATE" means the last day of the eighteenth month
following the Closing Date or if such day is not a business day, the next
business day following such date.
"FULLY DILUTED BASIS" means that all convertible securities have been
converted or exchanged and all options, warrants and other rights to purchase
shares of Parent Common Stock have been exercised.
"FUNDAMENTAL DOCUMENTS" means the documents by which any Person (other
than an individual) establishes its legal existence or which govern its internal
affairs. For example, the "Fundamental Documents" of a corporation would be its
charter and by-laws.
"FUNDED INDEBTEDNESS" means the aggregate amount (including the current
portions thereof) of all (i) indebtedness for money borrowed from others and
purchase money indebtedness (other than accounts payable in the ordinary
course); (ii) indebtedness of the type described in clause (i) above guaranteed,
directly or indirectly, in any manner through, or in effect guaranteed, directly
or indirectly, in any manner through an agreement, contingent or otherwise, to
supply funds to, or in any other manner invest in, the debtor, or to purchase
indebtedness, or to purchase and pay for property if not delivered or pay for
services if not performed, primarily for the purpose of enabling the debtor to
make payment of the indebtedness or to assure the owners of the indebtedness
against loss, but excluding endorsements of checks and other instruments in the
ordinary course; (iii) indebtedness of the type described in clause (i) above
secured by the Person upon property owned by a Person, even though a Lien has
not in any manner become liable for the payment of such indebtedness; (iv)
obligations of a Person
-53-
<PAGE>
under any lease of any property (whether real, personal or mixed) by such Person
which would, in accordance with GAAP, be required to be accounted for as a
capital lease on the balance sheet of such Person; (v) interest expense accrued
but unpaid, and all prepayment premiums, on or relating to any of such
indebtedness; and (vi) any indebtedness of a Person to any Affiliate thereof.
"GAAP" means United States Generally Accepted Accounting Principles,
consistently applied.
"GOVERNMENTAL ENTITY" means any court, administrative agency, tribunal,
department, bureau or commission or other governmental authority or
instrumentality, domestic or foreign, Federal, state or local or any arbitral
body.
"GUARANTY" means any obligation, contingent or otherwise, of any Person
guaranteeing or having the economic effect of guaranteeing any Funded
Indebtedness or other obligation of any other Person in any manner, whether
directly or indirectly, including any obligation of such Person, direct or
indirect, (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Funded Indebtedness or other obligation or to purchase (or to
advance or supply funds for the purchase of) any security for the payment of
such Funded Indebtedness or other obligation, (ii) to purchase property,
securities or services for the purpose of assuring the owner of such Funded
Indebtedness or other obligation of the payment hereof, (iii) to purchase or
otherwise pay for merchandise, materials, supplies, services or other property
under an arrangement which provides that payment for such merchandise,
materials, supplies, services or other property shall be made regardless of
whether delivery of such merchandise, materials, supplies, services or other
property is ever made or tendered, or (iv) to maintain the working capital,
equity capital or other financial statement condition of any primary obligor.
"INDEMNIFIED PERSONS" means and includes the Parent Indemnified Persons
and/or the Seller Indemnified Persons, as the case may be.
"INDEMNIFYING PERSONS" means and includes the Parent Indemnifying
Persons and/or the Seller Indemnifying Persons, as the case may be.
"INITIAL SHARES" shall have the meaning ascribed thereto in
Section 2.2.
"INTELLECTUAL PROPERTY" means all industrial and intellectual property,
including, without limitation, (i) patents, patent applications, patent rights,
trademarks, trademark applications, copyrights, copyright applications,
know-how, certificates of public convenience and necessity, franchises,
licenses, proprietary processes and formulae, layouts, processes, inventions,
and (ii) all proprietary rights pertaining to any product or service
manufactured, sold, distributed or marketed, or used, employed or exploited in
the development, manufacture, license, sale, distribution, marketing or
maintenance thereof, and all documentation and media constituting, describing or
relating to the foregoing.
"KNOWLEDGE" of any Person means (i) the actual knowledge of such Person
and (ii) that knowledge which should have been acquired by such Person after
making such due inquiry and
-54-
<PAGE>
exercising such due diligence as a prudent businessperson would have made or
exercised in the management of his or her business affairs, including due
inquiry of those officers, directors, key employees and professional advisers
(including attorneys, accountants and consultants) of the Person who could
reasonably be expected to have actual knowledge of the matters in question. When
used in the case of a Seller, the term "KNOWLEDGE" shall also include the
Knowledge of the Seller and the Company.
"LAW" means any constitution, law, statute, treaty, rule, directive,
requirement or regulation or Order of any Governmental Entity.
"LIABILITY" means any liability or obligation, whether known or
unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued,
liquidated or unliquidated and whether due or to become due, regardless of when
asserted.
"LIEN" means any security interest, pledge, bailment (in the nature of
a pledge or for purposes of security), mortgage, deed of trust, the grant of a
power to confess judgment, conditional sale or title retention agreement
(including any lease in the nature thereof), charge, encumbrance, easement,
reservation, restriction, cloud, right of first refusal or first offer, option,
or other similar arrangement or interest in real or personal property.
"LOSSES" means any and all losses (including, but without duplication,
a diminution in value of assets or Equity Interests), claims, shortages,
damages, Liabilities, expenses (including reasonable attorneys' and accountants'
and other professionals' fees), assessments, and Taxes (including interest or
penalties thereon) arising from or in connection with any such matter that is
the subject of indemnification under ARTICLE XI.
"MATERIAL ADVERSE CHANGE" means, with respect to any Person, any
material adverse change in the business, operations, assets, condition
(financial or otherwise), operating results, liabilities, or prospects of such
Person or its Subsidiaries, if any, or any material casualty loss or damage to
the assets of such Person, whether or not covered by insurance.
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, a material
adverse effect on the business, operations, assets, condition (financial or
otherwise), operating results, liabilities or prospects of such Person and its
Subsidiaries, if any, taken as a whole.
"MULTI-EMPLOYER PLAN" shall have the meaning set forth in Section 3(37)
of ERISA.
"MULTIPLE EMPLOYER PLAN" shall have the meaning set forth in Section
413 of the Code.
"ORDERS" means judgments, writs, decrees, injunctions, orders,
compliance agreements or settlement agreements of or with any Governmental
Entity or arbitrator.
"PARENT ADDITIONAL SHARE PRICE" means, as of the Escrow Release Date
(a) if shares of Common Stock are not then listed on the NASDAQ Stock Market,
the fair market value of Parent' Common Stock as determined by the Board of
Directors of Parent in good faith at such time; or (b) if shares of Parent'
Common Stock are then listed on the NASDAQ Stock Market,
-55-
<PAGE>
the average closing price per share of Parent' Common Stock as reported by the
NASDAQ Stock Market for the five trading days prior to the determination date
or, if there have been no sales on any such day, the average of the highest bid
and lowest asked prices as reported by the NASDAQ Stock Market at the end of
such day.
"PARENT COMMON STOCK" means the common stock, $.001 par value of
Parent.
"PARENT INDEMNIFIED PERSONS" means and includes (A) before the Closing,
Parent, MergeCo and their respective Affiliates, successors and assigns, and the
respective officers and directors of each of the foregoing and (B) after the
Closing, Parent, the Company and their respective Affiliates, successors and
assigns, and the respective officers and directors of each of the foregoing;
provided, however, that, after the Closing, any such person or entity who was,
prior to the Closing, an officer, director, employee, Affiliate, successor or
assign of any of the Company or the Seller shall not in such capacity, be a
Seller Indemnified Person with respect to a breach of this Agreement or any
Related Document based on facts or circumstances occurring, or actions taken by
such person or entity, at or prior to the Closing.
"PARENT INDEMNIFYING PERSONS" means and includes (A) before the
Closing, Parent and MergeCo and (B) after the Closing, the Company.
"PARENT INITIAL SHARE PRICE" means $50,000,000 divided by the number of
shares of Parent Common Stock outstanding on a Fully Diluted Basis immediately
prior to the Effective Time.
"PARENT LOSSES" means any and all Losses sustained, suffered or
incurred by any Parent Indemnified Person arising from or in connection with any
matter which is the subject of indemnification under Section 11.1(a) or (b).
"PARENT SHARES" means the Initial Shares, the Reserved Shares and the
Additional Shares, as the same may be adjusted pursuant to any stock dividend,
stock split, subdivision, split-up combination or similar adjustment or as the
same may be converted into another security pursuant to any reclassification,
recapitalization, consolidation or merger.
"PERMITS" means all permits, licenses, authorizations, registrations,
franchises, approvals, consents, certificates, variances and similar rights
obtained, or required to be obtained, from Governmental Entities.
"PERMITTED LIENS" means (i) Liens for Taxes not yet due and payable or
being contested in good faith by appropriate proceedings and for which there are
adequate reserves on the books of such Person, (ii) workers or unemployment
compensation liens arising in the ordinary course of business; (iii) mechanic's,
materialman's, supplier's, vendor's or similar liens arising in the ordinary
course of business securing amounts that are not delinquent or past due; and
(iv) zoning ordinances, easements and other restrictions of legal record
affecting real property which would be revealed by a survey and would not,
individually or in the aggregate, materially interfere with the value or
usefulness of such real property to the business.
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<PAGE>
"PERSON" shall be construed broadly and shall include an individual, a
partnership, a corporation, a limited liability company, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization, or a
Governmental Entity (or any department, agency, or political subdivision
thereof).
"PROCEEDING" means any action, suit, proceeding, complaint, charge,
hearing, inquiry or investigation before or by a Governmental Entity or an
arbitrator.
"PRO RATA RESERVED SHARE FORFEITURE PERCENTAGE" means an amount equal
to a fraction, the denominator of which is 1,750,000 less the transaction
expenses and the numerator of which is 750,000.
"QUALIFIED OFFERING" shall mean an underwritten public offering of
shares of Parent Common Stock registered pursuant to the Securities Act.
"RELATED DOCUMENTS" has the meaning ascribed thereto in Section 8.2.
"RESERVED SHARES" shall have the meaning ascribed thereto in
Section 2.3.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SELLER INDEMNIFIED PERSONS" means and includes the Seller, the Company
and their respective Affiliates, successors and assigns, heirs and estates and
the respective officers and directors of the foregoing.
"SELLER INDEMNIFYING PERSONS" means and includes the Seller, the
Company and their respective Affiliates, successors and assigns, heirs and
estates and the respective officers and directors of the foregoing.
"SELLER LOSSES" means any and all Losses sustained, suffered or
incurred by any Seller Indemnified Person arising from or in connection with any
matter which is the subject of indemnification under Section 11.1(c).
"STOCKHOLDERS AGREEMENT" means the Stockholders' Agreement dated as of
December 24, 1998, among the Company, Parent and the other parties thereto in
substantially the form attached hereto as EXHIBIT C.
"SUBSIDIARY" means any corporation, partnership, limited liability
company or other business entity, with respect to which such Person (or any
Subsidiary thereof) has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
"SWDA" means the Solid Waste Disposal Act, as amended, and the rules
and regulations promulgated thereunder.
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<PAGE>
"TAX" as used in this Agreement, means any of the Taxes, and "Taxes"
means, with respect to any Person, (a) all income taxes (including any tax on or
based upon net income, gross income, income as specially defined, earnings,
profits or selected items of income, earnings or profits) and all gross
receipts, sales, use, ad valorem, transfer, franchise, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property or
windfall profits taxes, alternative or add-on minimum taxes, customs duties and
other taxes, fees, assessments or charges of any kind whatsoever, together with
all interest and penalties, additions to tax and other additional amounts
imposed by any taxing authority (domestic or foreign) on such Person (if any)
and (b) any liability for the payment of any amount of the type described in the
clause (a) above as a result of (i) being a "transferee" (within the meaning of
Section 6901 of the Code or any other applicable Law) of another Person, (ii)
being a member of an affiliated, combined, or consolidated group, or (iii) a
contractual arrangement or otherwise.
"TAX RETURN" means any return declaration, report, claim for refund, or
information return or statement relations to Taxes, including any schedules or
attachments thereto, and amendment thereof.
"TRANSACTION EXPENSES" means up to $175,000 of the fees and expenses
that are incurred by or on behalf of the Company or the Seller (whether incurred
prior to, at or after the Closing) in connection with the preparation for, and
consummation of, the transactions contemplated hereby, by the other agreements
referred to herein or otherwise in connection with the sale of the Company,
including, without limitation, the fees and expenses payable to The Geneva
Companies and Blank Rome Comisky & McCauley LLP.
12.10 INCORPORATION OF SCHEDULES AND EXHIBITS.
The Schedules and Exhibits identified in this Agreement are
incorporated herein by reference and made a part hereof.
12.11 CONSTRUCTION.
Where specific language is used to clarify by example a general
statement contained herein, such specific language shall not be deemed to
modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement shall be
deemed to be the language chosen by the Parties to express their mutual intent,
and no rule of strict construction shall be applied against any Party.
12.12 INTERPRETATION.
Accounting terms used but not otherwise defined herein shall have the
meanings given to them under GAAP. As used in this Agreement (including all
Schedules, Exhibits and amendments hereto), the masculine, feminine and neuter
gender and the singular or plural number shall be deemed to include the others
whenever the context so requires. References to Articles and Sections refer to
articles and sections of this Agreement. Similarly, references to Schedules and
Exhibits refer to schedules and exhibits, respectively, attached to this
Agreement. Unless the content requires otherwise, words such as "hereby,"
"herein," "hereinafter," "hereof,"
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<PAGE>
"hereto," "hereunder" and words of like import refer to this Agreement. The
article and section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
12.13 INDEPENDENCE OF COVENANTS AND REPRESENTATIONS AND WARRANTIES.
All covenants hereunder shall be given independent effect so that if a
certain action or condition constitutes a default under a certain covenant, the
fact that such action or condition is permitted by another covenant shall not
affect the occurrence of such default, unless expressly permitted under an
exception to such initial covenant. In addition, all representations and
warranties hereunder shall be given independent effect so that if a particular
representation or warranty proves to be incorrect or is breached, the fact that
another representation or warranty concerning the same or similar subject matter
is correct or is not breached will not affect the incorrectness of or a breach
of a representation and warranty hereunder.
12.14 REMEDIES.
The Parties shall each have and retain all other rights and remedies
existing in their favor at Law or equity, including, without limitation, any
actions for specific performance and/or injunctive or other equitable relief
(including, without limitation, the remedy of rescission) to enforce or prevent
any violations of the provisions of this Agreement.
12.15 SEVERABILITY.
It is the desire and intent of the Parties that the provisions of this
Agreement be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
by a court of competent jurisdiction to be invalid, prohibited or unenforceable
for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
12.16 WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OTHER DOCUMENT.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement and Plan
of Merger as of the date first above written.
OPUS360 CORPORATION
By:
--------------------------------------
Name: Ari B. Horowitz
Title: Chief Executive Officer
CHURCHILL ACQUISITION CORP.
By:
--------------------------------------
Name: Ari B. Horowitz
Title:
<PAGE>
THE CHURCHILL BENEFIT CORPORATION
By:
--------------------------------------
Name:
Title:
SELLER:
------------------------------------------
William Bahr
FOR PURPOSES OF SECTION 10.2 ONLY (AND FOR
PURPOSES OF ANY SPOUSAL CONSENT WHICH MAY BE
REQUIRED UNDER APPLICABLE LAW FOR THE
TRANSACTIONS CONTEMPLATED HEREBY AND BY THE
RELATED DOCUMENTS):
------------------------------------------
Karina Bahr
<PAGE>
ANNEX I
TEST DATE NUMBER OF MONTH'S END CONSULTANTS
--------- ---------------------------------
First Anniversary 500
of Closing Date
On the Test Date, the target number of month end consultants shall
equal the number set forth opposite such Test Date above (the "Target Number").
The actual number of month end consultants on the Test Date (the "Actual
Number") shall equal the greater of (i) the number of consultants on the Test
Date and (ii) the average number of month end consultants for the prior 3
months.
If the Actual Number as of the Test Date is less than the Target
Number, such number of Reserved Shares and Additional Shares shall be forfeited
in accordance with the following formula:
# Reserved Shares Forfeited = (Pro Rata Reserved Share Forfeiture Percentage x
((1 - (Actual Number - 260)/(Target Number - 260))) * 3,500,000))/Parent Initial
Share Price
# Additional Shares Forfeited = (Pro Rata Additional Share Forfeiture Percentage
x ((1 - (Actual Number - 260)/(Target Number - 260))) * 3,500,000))/Parent
Additional Share Price
"CONSULTANTS" shall mean individuals for which the Company provides billing and
other management services but who are not directly providing services to or
otherwise employed by the Company. The Company must have either (i) billed for
the Consultant for the full month prior to the Test Date, or (ii) billed for the
Consultant for 2 of the past 3 full months prior to the Test Date.
<PAGE>
Exhibit 21.1
Subsidiaries of the Company
<TABLE>
<CAPTION>
State of
Name % Ownership Incorporation
- ---- ----------- -------------
<S> <C> <C>
The Churchill Benefit Corporation........................... 100% Delaware
</TABLE>
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors of
Opus360 Corporation:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
New York, New York
December 20, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
AND UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF OPUS360 CORPORATION AND
SUBSIDIARY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001099674
<NAME> OPUS360 CORPORATION
<S> <C> <C>
<PERIOD-TYPE> 4-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> AUG-17-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 5,817,926 3,549,505
<SECURITIES> 0 37,170,674
<RECEIVABLES> 12,000 1,625,114
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,832,358 43,986,395
<PP&E> 55,982 996,633
<DEPRECIATION> (1,555) (79,289)
<TOTAL-ASSETS> 5,886,785 46,846,702
<CURRENT-LIABILITIES> 632,887 6,384,990
<BONDS> 0 0
0 0
4,636 16,961
<COMMON> 6,332 6,963
<OTHER-SE> 5,242,930 39,212,788
<TOTAL-LIABILITY-AND-EQUITY> 5,886,785 46,846,702
<SALES> 0 0
<TOTAL-REVENUES> 0 241,269
<CGS> 0 0
<TOTAL-COSTS> 0 198,012
<OTHER-EXPENSES> 1,040,520 12,816,251
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,034,722) (12,495,025)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,034,722) (12,772,994)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,034,722) (12,495,025)
<EPS-BASIC> (.17) (1.89)
<EPS-DILUTED> (.17) (1.89)
</TABLE>
