<PAGE>
As filed with the Securities and Exchange Commission on March 2, 2000
Registration No. 333-93185
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
Amendment No. 2
to
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) 301-2250
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
Ari B. Horowitz
Chairman and Chief Executive Officer
Opus360 Corporation
733 Third Avenue, 17th Floor
New York, New York 10017
(212) 301-2250
(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>
Amount Proposed Maximum Proposed Maximum
Title of Each Class to be Offering Price Aggregate Offering Amount of
of Securities to be Registered Registered Per Unit Price(1) Registration Fee
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value............... 8,855,000 $11.00 $97,405,000 $25,715(2)
</TABLE>
(1) Includes 1,155,000 shares that the Underwriters have the option to purchase
from the Company solely to cover over-allotments, if any.
(2) $23,378 previously paid.
------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to such Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Explanatory Note
This Registration Statement contains two forms of prospectuses. One will be
used in connection with an offering of the registrant's common stock to the
general public and one will be used in connection with an offering of the
registrant's common stock in the Safeguard Subscription Program to certain
stockholders of Safeguard Scientifics, Inc. The general public prospectus and
the Safeguard Subscription Program prospectus will be identical except that a
letter to the stockholders of Safeguard Scientifics, Inc. detailing the
procedures for the Safeguard Subscription Program will be bound to the cover of
the prospectus to be used in that program. The letter to the stockholders of
Safeguard Scientifics, Inc. has been filed as Exhibit 99.1 to this Registration
Statement.
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 2, 2000
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]
7,700,000 SHARES
COMMON STOCK
Of the 7,700,000 shares being offered, Opus360 Corporation is offering
5,950,000 shares to the public generally and 1,050,000 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, in a subscription program. In addition,
Safeguard and CompuCom Systems, Inc., an affiliate of Safeguard, are offering up
to 700,000 shares to these Safeguard stockholders. We will not receive any
proceeds from the offering of the sale of the shares by Safeguard and CompuCom.
Safeguard or its designees will purchase any shares of common stock that we are
offering which are not purchased by Safeguard stockholders under the Safeguard
Subscription Program. Each of Safeguard and CompuCom is an underwriter with
respect to the shares offered to the stockholders of Safeguard. Neither
Safeguard nor CompuCom is an underwriter with respect to any other shares
offered hereby 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 have applied 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 $9.00 and $11.00 per share.
Concurrent with the closing of this offering, we will sell shares of our
common stock to Dell USA L.P., an affiliate of Dell Computer Corporation, for
$14.0 million at a price per share equal to the initial public offering price
less an amount equal to the per share underwriting discounts and commissions
received by the underwriters as set forth in the table below, except that the
purchase price to Dell USA shall in no event exceed $22.00 per share. Since
these shares will be sold in a private placement, Dell USA will not be able to
immediately resell the shares in the public market.
------------------------
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..................................... $ $
Proceeds to Safeguard and CompuCom...................... $ $
Concurrent Placement:....................................... $ $
Aggregate 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 1,155,000 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>
OPUS360 CORPORATION
REGISTRATION STATEMENT ON FORM S-1
DESCRIPTION OF PROSPECTUS GRAPHICS
TWO PAGE GATEFOLD GRAPHIC
Two-page, full color graphic with white text and color photos and illustrations
on black background.
Upper Left Corner
Circular Opus360 logo in white text.
Left Margin of Graphic
Two text blocks running down left margin of graphic. Top text block contains the
following text: "B2B e-Commerce Service for Procurement Across the Labor Supply
Chain." Bottom text block contains the following text: "Opus360 provides
Internet-based services that facilitate the process of putting people and
projects together."
Upper Half of Graphic
Left side of graphic features a large oval. Upper portion of oval contains a
monochrome picture of three profiles of one large city office building under the
caption "Fortune 1000." Lower portion of oval contains a monochrome picture of
small business storefronts above the caption "Small Businesses." To the right of
that oval is a circle which contains a color picture featuring three individuals
under the caption "Professional Services Firms." To the right of that circle is
another circle which contains a color picture featuring one individual under the
caption "Staffing Companies." Lastly, to the right of that circle is another
large oval which contains a sepia-toned picture featuring three individuals
under the caption of "Free Agents."
The Fortune 1000 oval has three arrows leading from it to each of the
Professional Services Firms circle, the Staffing Companies circle and the Free
Agents oval. The Professional Services Firms circle has two arrows leading from
it to each of the Free Agents oval and the Staffing Companies circle. The
Staffing Companies circle has one arrow leading from it to the Free Agents oval.
Positioned above each of the arrows leading from the Professional Services Firms
circle to the Free Agents oval and the Fortune 1000/Small Business oval to the
Free Agents oval is the text "Internet."
Lower Half of Graphic
Three boxes which are computer screen shots are featured. Each of the computer
screen shots has text which surrounds it. Text is on the left, bottom and right
of each of the three computer screen shots.
Computer screen shot featured on left side of graphic contains a screen shot
from the OPUSRM application. Text on left side of the OPUSRM screen shot box is
the OpusRM logo. The text on the bottom of the OPUSRM screen shot box contains
the following text: "OPUSRM provides an enterprise-wide view into resource and
project information, helping organizations manage and improve their utilization
of professional talent." To the right of that text box is the following text:
"Fortune 1000." The text on the right of the OPUSRM screen shot box contains the
following text: "The labor resource management service designed to centralize
resource and project information, enabling organizations to manage their
professional resources more efficiently."
Computer screen shot featured in center of graphic contains a screen shot from
the OPUS XCHANGE application. Text on left side of the OPUS XCHANGE screen shot
box is the Opus Xchange logo. The text on the bottom of the OPUS XCHANGE screen
shot box contains the following text: "The enhanced version of OPUS XCHANGE will
facilitate the additional steps in the labor procurement process online,
providing key performance metrics to both buyers and suppliers." To the right of
that text box is the following text: "Professional Services Firms." Text on
right side of the OPUS XCHANGE screen shot box contains the following text: "The
Internet business-to-business marketplace designed to enable corporations,
staffing companies, professional services firms and other buyers of professional
talent to quickly and easily procure these professionals in an online
environment."
<PAGE>
Computer screen shot featured on right side of graphic contains a screen shot of
a webpage from FREEAGENT.COM. Text on left side of the FREEAGENT.COM screen shot
box is the FREEAGENT.COM logo. Text on the bottom of the FreeAgent.com screen
shot box contains the following text: "FREEAGENT.COM enables free agents to
access many services, including an online marketplace which offers products and
services that help free agents manage their independent businesses." To the
right of that text box is the following text: "Free Agents." Text on the right
of the FREEAGENT.COM screen shot box contains the following text: "The website
that enables free agents to manage their independent careers by offering them
access to multiple project opportunities, FREEAGENT E.OFFICE and E.PORTFOLIO
services and a marketplace of corporate products and services."
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 subsidiaries, The Churchill
Benefit Corporation, and, as of January 20, 2000, Ithority Corporation and, as
of February 24, 2000, PeopleMover, Inc.
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...................................................... 26
Concurrent Placement........................................ 27
Use of Proceeds............................................. 28
Dividend Policy............................................. 28
Capitalization.............................................. 29
Dilution.................................................... 31
Unaudited Pro Forma Combined Financial Statements........... 33
Selected Financial Data..................................... 39
Management's Discussions and Analysis of Financial Condition
and Results of Operations................................. 40
Business.................................................... 53
Management.................................................. 70
Related Party Transactions.................................. 82
Principal and Selling Stockholders.......................... 86
Description of Capital Stock................................ 89
Shares Eligible for Future Sale............................. 93
Underwriting................................................ 96
Legal Matters............................................... 100
Experts..................................................... 100
Where You Can Find More Information......................... 100
Index to Financial Statements............................... F-1
</TABLE>
------------------------
FREEAGENT.COM, OPUS XCHANGE, OPUSRM, FREEAGENT E.OFFICE, E.PORTFOLIO,
PEOPLEMOVER/STAFFING AND our logos 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 Internet-based services for putting people and projects
together across the labor supply chain. Our business-to-business electronic
commerce services are designed 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 companies and other buyers requiring individuals with specific
professional skills to identify and procure free agents, such as independent
professionals, consultants and other persons with technology, creative,
strategic consulting and other expertise. As of February 29, 2000, over 76,800
free agents were registered with our FREEAGENT.COM service and there were
project assignments available from over 900 organizations. We incurred net
losses of $29.4 million in 1999 on revenues of $0.4 million and our accumulated
deficit at December 31, 1999 was $30.4 million.
Demand for External Professionals
The rapid growth of the Internet economy has fueled demand for professionals
with technology, creative, strategic consulting and other expertise who can
create and implement Internet, e-business or other technology-related
strategies. We believe that organizations will increasingly rely on external
professionals on a project-by-project basis to rapidly implement their
e-commerce strategies. 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 believe that an organization's
ability to easily and rapidly reach professionals with the skills needed for
these projects would be enhanced if an efficient service to connect the buyers
and suppliers of these professionals was available. Our services are designed to
address this need by providing an online marketplace for matching professionals
to projects.
Our Services
Our services are designed to optimize the procurement and management of
professionals. We believe our services will provide an efficient marketplace for
connecting organizations with the skilled professionals they seek for their
project assignments. Our three principal services, each of which is offered and
can be used as a stand-alone application and is also designed to be integrated
and used with our other services, are:
SERVING THE FREE AGENT COMMUNITY. FREEAGENT.COM is a website where free agents
can easily and rapidly access project opportunities from all sources across the
labor supply chain and procure benefits and services to help them cost
effectively manage their independent careers by offering:
- Professionals an opportunity to create an E.PORTFOLIO, an online
multimedia, easily updatable and searchable resume of skills,
accomplishments, experience, references, work samples, attached graphics
and publications to market themselves to potential clients, to search a
database of multiple project opportunities and to interact with other free
agents to share knowledge. With an E.PORTFOLIO professionals can include
in one standardized, machine-readable and easily searchable format
information that would in a paper-based format include numerous pages and
attachments. In addition, it allows professionals to include pictures,
videos and sound clips and to link the professionals' E.PORTFOLIOS to
other websites that would further supplement their information or
demonstrate their skills and accomplishments.
- FREEAGENT E.OFFICE services, available for a monthly fee, that include a
broad range of back office and administrative services, such as project
invoicing and expense reporting, as well as corporate-level
3
<PAGE>
benefits, such as group health insurance, a 401(k) plan and Opus360 stock
options, with some of these services and benefits being provided or
administered by third parties.
- an online marketplace where we offer products and services that help free
agents manage their independent businesses.
MATCHING BUYERS WITH PROFESSIONALS FOR PROJECTS. OPUS XCHANGE is an Internet
service that is designed to enable buyers requiring individuals with specific
professional skills to quickly and easily procure those professionals in an
online environment by:
- using search technologies that match the skills and expertise required by
an organization for a project with the appropriate professionals based on
their E.PORTFOLIOS and availability.
Our enhanced version of OPUS XCHANGE designed for large corporate customers
allows organizations to procure professionals for projects from all sources
across the labor supply chain and will enable professional services firms,
staffing companies and other suppliers of professional resources to procure
professionals from each other. It will also provide an efficient procurement
process, by using advanced vendor management, performance tracking, and
sophisticated matching capabilities that are designed to:
- automate the requisition, approval and engagement processes; and
- capture key performance information in an easily searchable database to
help these buyers evaluate the efficiency, cost-competitiveness and
quality of their professionals and suppliers of professionals.
MANAGING LABOR RESOURCES. OPUSRM is a labor resource management service designed
to centralize resource and project information and to integrate with OPUS
XCHANGE to enable corporations, staffing vendors, professional service
organizations and other buyers of individual professional talent to more
efficiently manage their internal and external professionals 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 of 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 commercially release OPUSRM and our enhanced
version of OPUS XCHANGE during the first half of 2000.
Historical Sources of Revenues
We have a limited operating history and have never been profitable. We had
no revenues prior to our acquisition of The Churchill Benefit Corporation and
through December 31, 1999, over 95% of our revenues consisted of the fees
charged for our FREEAGENT E.OFFICE services, consisting of an initial sign-up
fee and monthly fees thereafter. The remaining portion of our revenues
principally consisted of FREEAGENT.COM advertising revenue. We operate in a
highly competitive market and expect to incur net losses for the foreseeable
future.
In January 2000, we began charging fees to organizations that list projects
on OPUS XCHANGE and, during the first quarter of 2000, will begin charging
organizations project placement fees. During the first quarter of 2000, we began
to receive revenues for integration and customization services related to OPUSRM
and the enhanced version of OPUS XCHANGE and, during the first half of 2000, we
expect to begin receiving subscription fee revenue for each employee managed
within each of our client's installed OPUSRM database. We had not previously
charged clients for any of these services.
4
<PAGE>
Our Strategy
Our goal is to be the premier service for putting people and projects
together across the labor supply chain by:
- building FREEAGENT.COM into the largest online free agent community;
- attracting large buyers of professionals to our enhanced version of OPUS
XCHANGE;
- capturing pertinent data on professionals and organizations to improve the
efficiency of the labor procurement process; and
- pursuing strategic acquisitions and investments in complementary
businesses, products and technologies.
Our History
We were incorporated in Delaware in August 1998 as Enterspect Corporation
and 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
distribution, co-branding and other similar arrangements with organizations
whose sales and marketing staffs will further the distribution of our services
to their customer base. On May 27, 1999, we acquired all of the outstanding
stock of The Churchill Benefit Corporation. 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.
In January 2000, we acquired Ithority Corporation, which provides a
knowledge marketplace for expert advice on a variety of subjects, such as
technology, software development, strategic consulting, graphic design and
finance, and INDUSTRYINSITE.COM, a network of approximately 63,000 professionals
who work full time or as free agents in a variety of professional industries,
such as management consulting, information technology management, computer
software and marketing. In February 2000, we acquired PeopleMover, Inc. which
provides a service similar to OPUSRM specifically to the staffing industry.
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) 301-2250. Our
principal 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 us in underwritten
public offering......................... 5,950,000 shares
Common stock offered in Safeguard
Subscription Program to stockholders of
Safeguard:
by us................................. 1,050,000 shares
by Safeguard and CompuCom............. 700,000 shares
Total in Safeguard Subscription
Program......................... 1,750,000 shares
Common stock to be outstanding after this
offering................................ 49,173,897 shares
Use of proceeds........................... General purposes, including working capital, capital
expenditures, sales and marketing, product and
technology development 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 December 31, 1999, after
giving effect to:
- the issuance of 426,073 shares of our common stock in the Ithority
acquisition;
- the issuance of 2,633,359 shares of our common stock in the PeopleMover
acquisition;
- the issuance of 1,505,376 shares of common stock to Dell USA in the
concurrent placement assuming an initial public offering price of $10.00
per share;
- the issuance of 840,000 shares of our common stock in January 2000 upon
exercise of warrants; and
- the assumed issuance of 450,000 shares of our common stock prior to the
closing of this offering upon the exercise of a warrant held by
Greenhill & Co., LLC, which acts as a financial advisor to us.
The common stock to be outstanding after this offering excludes:
- 405,631 shares of our common stock held in escrow, together with
additional shares of our common stock, issuable to the former stockholder
of Churchill as described under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Unaudited Pro Forma
Combined Financial Statements;"
- 5,340,000 shares of our common stock issuable at a weighted average
exercise price of $1.09 per share upon the exercise of stock options
outstanding at December 31, 1999, 1,401,000 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, and of which 122,750, have been exercised;
- options to purchase 4,129,700 shares of our common stock issued subsequent
to December 31, 1999 to officers, directors and employees, including our
Chairman and Chief Executive Officer and new President and Chief Operating
Officer, at a weighted average exercise price of $8.17 per share;
- options to purchase 1,189,078 shares of our common stock held by employees
of PeopleMover, at a weighted average exercise price of $4.35 per share,
assumed by us in the PeopleMover acquisition;
- 9,029,884 shares of our common stock reserved for future grant under our
stock option and employee stock purchase plans;
6
<PAGE>
- 105,547 shares of our common stock issuable at a weighted average exercise
price of $1.73 per share upon the exercise of warrants outstanding at
January 31, 2000;
- 9,120 shares of our common stock issuable at an exercise price of $0.01
per share upon the exercise of warrants issued in February 2000 as
compensation to a provider of advertising services;
- 450,000 shares of our common stock issuable upon the exercise of a warrant
having an exercise price of $8.15 per share issued in January 2000 to
Greenhill & Co., LLC under its financial advisory agreement with us as a
result of the consummation of the INDUSTRYINSITE.COM and Ithority
acquisitions;
- 450,000 shares of our common stock issuable upon the exercise of an
additional warrant which may be issued to Greenhill under its financial
advisory agreement with us 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;
- 225,000 shares of our common stock issuable upon exercise of a warrant
having an exercise price of $3.33 per share issued in February 2000 to
Lucent Technologies Inc. in connection with their agreeing to use our
OPUSRM and OPUS XCHANGE services, assist us in the further development of
our services and to direct free agents who provide services to Lucent's
NetCare Division to FREEAGENT.COM; and
- shares of our common stock issuable upon the exercise of an additional
warrant issued to Lucent in February 2000 in connection with the
establishment of the foregoing arrangements, and which is exercisable for
that number of shares of our common stock, having a fair value no greater
than $2,655,000 using the Black-Scholes option-pricing model, at an
exercise price and on a specified effective beginning date, in each case
as described in greater detail under "Related Party Transactions--Lucent
Agreement."
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 25,441,091 shares of our common stock on the closing of this
offering;
- the declaration of a 3-for-2 common stock split to be effected before the
completion of this offering;
- the underwriters do not exercise their over-allotment option; and
- all of the shares offered by us and by Safeguard and CompuCom in the
Safeguard Subscription Program are purchased by stockholders of Safeguard.
SAFEGUARD SUBSCRIPTION PROGRAM
As a part of this offering, we, Safeguard and CompuCom 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."
CONCURRENT PLACEMENT
Concurrently with the closing of this offering, we will sell shares of our
common stock to Dell USA L.P., an affiliate of Dell Computer Corporation, for
$14.0 million at a price per share equal to the initial public offering price
per share less an amount equal to the per share underwriting discounts and
commissions received by the underwriters in this offering, except that the
purchase price to Dell USA shall in no event exceed $22.00 per share. This
private placement is described in greater detail under the heading "Concurrent
Placement."
7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table presents our summary historical and pro forma financial
information. The pro forma data gives effect to the acquisitions of Churchill
and PeopleMover, as if the acquisitions had occurred on January 1, 1999. You
should read the information set forth below in conjunction with "Unaudited Pro
Forma Combined Financial Statements," "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements of Opus360, Churchill and PeopleMover and the notes to
those financial statements included elsewhere in this prospectus. Under
applicable SEC rules, the historical audited financial statements of Ithority
and pro forma financial statements for us reflecting the Ithority acquisition
are not required to be included in this prospectus. However, those audited and
pro forma financial statements will be filed with the SEC within 75 days of
consummation of the Ithority acquisition.
<TABLE>
<CAPTION>
Period from August 17,
1998 (inception)
through December 31, Year Ended
1998 December 31, 1999
---------------------- --------------------
Actual Pro Forma
-------- ---------
(in thousands, except per share data)
<S> <C> <C> <C>
Statement of Operations Data:
Total revenues.................................... $ -- $ 419 $ 2,019
Gross profit...................................... -- 158 790
Total operating expenses.......................... 1,041 30,293 51,736
Loss from operations.............................. (1,041) (30,135) (50,946)
Net loss.......................................... $(1,035) $(29,390) $ (50,274)
Basic and diluted net loss per share.............. $ (0.11) $ (2.91) $ (3.91)
Weighted average number of shares used in
calculating basic and diluted net loss per
share........................................... 9,120 10,084 12,868 (1)
Pro forma basic and diluted net loss per
share(2)........................................ $ (1.12) $ (1.73)
Pro forma weighted average number of shares used
in calculating basic and diluted net loss per
share(2)...................................... 26,324 29,108 (1)
</TABLE>
- ------------------------
(1) Reflects the issuance of shares of our common stock in the Churchill and
PeopleMover acquisitions as if the shares were outstanding for the entire
period presented.
(2) Reflects the automatic conversion of each outstanding share of preferred
stock into 1.5 shares of our common stock on the consummation of this
offering as if these shares were outstanding from their respective dates of
issuance.
The following table presents our consolidated balance sheet data as of
December 31, 1999 on an actual basis; on a pro forma basis to give effect to our
acquisition of PeopleMover as if the acquisition had occurred on December 31,
1999 and 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 estimated net proceeds from the
sale of 7,000,000 shares of common stock in this offering at an assumed initial
public offering price of $10.00 per share, after deducting underwriting
discounts and commissions and estimated offering expenses payable by us, and the
sale of 1,505,376 shares of our common stock to Dell USA in the concurrent
placement at a price equal to the foregoing assumed initial public offering
price less an amount equal to the estimated underwriting discounts and
commissions payable to the underwriters in this offering.
<TABLE>
<CAPTION>
As of December 31, 1999
----------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable securities............ $28,463 $28,404 $106,219
Working capital............................................. 21,638 18,340 96,155
Total assets................................................ 40,716 73,877 151,692
Convertible preferred stock................................. 17 -- --
Total stockholders' equity.................................. $27,727 $56,482 $134,297
</TABLE>
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. Until May 27, 1999, we focused on
development of our strategy and services and the establishment of distribution,
co-branding and other similar arrangements for our services. On May 27, 1999, we
acquired Churchill and commenced formal operations. Our limited operating
history will make it difficult to forecast our future operating results. For
example, our ability to forecast operating expenses and revenues based on our
historical results will be difficult because we have only recently begun sales
of our OPUS XCHANGE and OPUSRM services and have recently consummated the
acquisitions of Ithority, INDUSTRYINSITE.COM and PeopleMover. 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. Our principal risks are that:
- we may not be able to increase usage of our services and derive revenue
from these services;
- we may not be able to enter into additional distribution, co-branding and
other similar arrangements with organizations that will provide us access
to their user base;
- our marketing and sales efforts may not be successful;
- we may not be able to effectively respond to competitive developments;
- we may not be able to integrate the business, products, services and
technology of our recent acquisitions and possible future acquisitions;
and
- we may not be able to manage our anticipated growth.
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
had no revenues and incurred net losses of $1.0 million for the period from
August 17, 1998 (our inception) to December 31, 1998, and had net losses of
$29.4 million for the year ended December 31, 1999, which were 7350% greater
than our revenues of $0.4 million for the year. As of December 31, 1999, we had
an accumulated deficit of $30.4 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. On a pro forma basis to give effect to the
acquisitions of Churchill and PeopleMover as if these acquisitions had occurred
as of January 1, 1999 for statement of operations purposes and, in the case of
the PeopleMover acquisition, December 31, 1999 for balance sheet purposes, our
revenues and net losses for 1999 would have been $2.0 million and
$50.3 million, respectively, and we would have had an accumulated deficit of
$30.4 million. On a pro forma basis, our net losses were 2515% greater than our
revenues. See "Unaudited Pro Forma Combined Financial Statements." Neither
PeopleMover nor Ithority have ever been profitable.
Our sales and marketing, service and product development and general and
administrative expenses are expected to increase substantially in future periods
as we continue to grow our business and as a result of our three recent
acquisitions. For example, we currently expect to use an estimated $15 to
$20 million of the net
9
<PAGE>
proceeds of this offering for sales and marketing, as compared to our actual
sales and marketing expenses of $11.1 million in 1999, and another $15 to
$20 million of the net proceeds of this offering for product and technology
development, as compared to our actual product development expense of
$9.0 million in 1999. See "Use of Proceeds." However, since our management may
allocate the net proceeds from this offering for the foregoing purposes in
different amounts, or for purposes not currently contemplated, our future
expenditures for sales and marketing and product development may be greater or
less than these amounts.
In addition, as a result of our acquisitions of Ithority, INDUSTRYINSITE.COM
and PeopleMover, we expect to record for the quarter ending March 31, 2000
substantial amounts of goodwill and other intangible assets which will result in
non-cash charges as these assets are amortized over the next three years, as
well as acquisition related expenses. Amortization of goodwill related to the
PeopleMover acquisition will be approximately $10.5 million in each of 2000,
2001 and 2002. See "Unaudited Pro Forma Combined Financial Statements."
Furthermore, we will incur substantial stock-based compensation expense in
future periods representing non-cash charges incurred as a result of the
issuance of common stock and stock options prior to this offering. Deferred
compensation expense related to stock options granted to officers, directors and
employees with exercise prices below the fair market value of our common stock
on the date of grant will be approximately $4.8 million in 2000, $3.0 million in
each of 2001 and 2002 and $1.0 million in 2003. As a result of the PeopleMover
and Ithority acquisitions, we will also recognize an additional $2.8 million of
compensation expense in each of 2000, 2001 and 2002. We will also incur
additional compensation expense related to non-vested stock options granted to
non-employees and stock issued or issuable to the former owners of Churchill
which are subject to vesting arrangements. These additional compensation charges
could be substantial as the amount will be based on the fair market value of our
common stock at the time vesting occurs and will therefore increase if our stock
price increases. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
As a result of these factors, we will need to generate significant
additional revenues to achieve 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 which
may cause our stock price to fluctuate or to decline.
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 over a 30 to 45 day period. As a result, our ability to rapidly adjust
these expenses is limited, which may increase the fluctuations in our quarterly
operating results.
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 services, 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 comprehensive labor procurement and management services. However, the
market for these kinds of Internet-based services 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
10
<PAGE>
model in response to additional changes in the market for these services, 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. 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.
You will experience dilution if we raise additional funds through the issuance
of additional equity or convertible debt securities.
If we raise additional funds through the issuance of equity securities or
convertible debt securities, you will experience dilution of your percentage
ownership of our company. This dilution may be substantial. 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.
Risks Related to Our Markets and Our Strategy
Our revenues will not grow if the Internet does not become a proven procurement
and project search medium.
If we are unable to compete with traditional methods for procuring 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 of
the Internet by professionals and buyers requiring individuals with specific
professional skills. as an effective means to procure labor and to search for
and transact project-based work assignments. Currently, only a small percentage
of U.S. businesses, less than one-half of one percent, 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 professionals 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
requiring individuals with specific professional skills have little or no
experience using the Internet for recruiting, and only a limited number of
professionals 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.
We will not be able to expand our business 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
11
<PAGE>
- the Internet industry may be unable to adequately respond to privacy
concerns of potential users.
We will not be able to grow our business if we do not successfully release
OPUSRM and our enhanced version of OPUS XCHANGE on a commercial basis.
Our business model and technologies are designed to permit our existing
FREEAGENT.COM website to be integrated with our OPUS XCHANGE and OPUSRM
services. However, we have not yet released our OPUSRM service or 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. In
addition, while our enhanced version of OPUS XCHANGE and OPUSRM are being
designed to be integrated with each other, there can be no assurance that these
services will be successfully integrated.
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 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 professional procurement and management services as competition in
the market for these services 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 professionals and buyers requiring
individuals with specific professional skills to fulfill project needs.
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 our enhanced version of OPUS XCHANGE 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 in the OPUS XCHANGE
marketplace between professionals and buyers requiring individuals with specific
professional skills to fulfill project needs, our revenues will not increase.
Our business model assumes that a growing percentage of our future revenues will
be based upon project listing and placement fees paid by organizations for using
the OPUS XCHANGE marketplace, and we anticipate that these revenues will
generate higher gross margins than the principal source of our historical
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 project listings that are
originated by buyers requiring professionals
12
<PAGE>
and the number of project placements that occur within the OPUS XCHANGE
marketplace. Because we have not historically charged project listing and
project procurement fees, we have not tracked the number of transactions
processed with free agents through OPUS XCHANGE. As a result, we will also need
to develop the means to accurately track the transactions that occur on OPUS
XCHANGE in order to ensure that we receive the revenues due us for these
transactions.
Our ability to increase transaction volume in the OPUS XCHANGE marketplace
depends in large part on our ability to build a critical mass of professionals
and buyers requiring individuals with specific professional skills to fulfill
project needs. 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 of these buyers to the OPUS XCHANGE marketplace, our services will not be
perceived to provide an effective market for project-based professionals, 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 their services
for specific projects. Similarly, organizations requiring individuals with
specific professional skills 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.
Our plans to charge for project listing fees and project placement fees may
limit the number of organizations willing to list project assignments on OPUS
XCHANGE.
We recently began to charge organizations that list projects on OPUS XCHANGE
and, commencing in the first quarter of 2000, we plan to charge a fee to
organizations that procure free agents to complete a project. These charges may
limit the number of organizations that are willing to list their assignments or
procure professionals through OPUS XCHANGE.
Our efforts to attract buyers requiring individuals with specific professional
skills to fulfill project needs and those professionals to the OPUS XCHANGE
marketplace may not be successful if we are not able to establish distribution,
co-branding and other similar arrangements that will broaden our access to these
buyers and professionals or if the parties with whom we enter into these
arrangements do not effectively market OPUS XCHANGE to their customer base of
suppliers and users of project-based professionals.
We may be unable to establish additional distribution, co-branding and other
similar arrangements with organizations that provide complementary services or
products or that will provide us access to their user base, thereby broadening
our access to potential free agents and employers in need of professionals. If
this occurs, our ability to enhance the demand for and supply of professionals
in our OPUS XCHANGE marketplace will be diminished. Our existing agreements with
CAREERPATH.COM limits our ability to enter into integrated co-branding
arrangements with their direct competitors that provide full-time job board
websites for a period of 18 months from the launch of our co-branded site. Other
agreements may have similar types of provisions. In addition, the parties with
whom we have or may enter into distribution, co-branding and other similar
arrangements may not successfully direct buyers and sellers of professionals to
our OPUS XCHANGE marketplace. If these entities fail to effectively market OPUS
XCHANGE to their customer base of suppliers and users of professionals, or if
the extent of this incoming traffic to our OPUS XCHANGE marketplace is less than
anticipated, our revenues will not increase. In addition, as discussed in the
second preceding risk factor, free agents and organizations requiring
individuals with specific professional skills to fulfill project needs must
actively participate in our OPUS XCHANGE marketplace in order for our revenues
and business to grow.
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
with legacy systems, potential capacity, functionality and reliability.
Prospective users will generally need to change established professional
management and 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 professional resources, those
13
<PAGE>
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 potential customers, our revenues from this service
will not increase. In addition, if systems integrators fail to adopt and support
OPUSRM as a resource management tool, our ability to reach our target customers
in this market may be diminished.
Our sales cycles for OPUSRM and our enhanced version of OPUS XCHANGE will be
lengthy, which could delay the growth of our revenues and increase our
expenditures.
Our OPUSRM service and our enhanced version of OPUS XCHANGE are new and
commercially untried services and will not be commercially released until the
first half of 2000. We may face significant delays in their acceptance. We will
not be able to recognize any revenues during the period in which a potential
customer evaluates whether or not to use them, and we expect that this period
will be substantial, ranging between six and 12 months. The decision of a
customer to use either or both of these services 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
their use and benefits. Our expenditure of substantial time and resources to
persuade customers to use either or both of these services or an unexpectedly
long sales and implementation cycle for them will have a negative impact on the
timing of our revenues. Since we have not yet released either OPUSRM or the
enhanced version of OPUS XCHANGE, we cannot predict how long the average sales
and implementation cycle will be, and we may be unable to adapt our business to
shorten the average sales cycle.
Our future success will depend upon the continued services of our executive
officers.
The loss or departure of any of our executive officers named under
"Management" 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 our executive officers, in particular, Ari B. Horowitz, our
Chairman and Chief Executive Officer, Richard S. Miller, our President and Chief
Operating Officer, and Carlos B. Cashman, our Chief Technology Officer.
If we are unable to hire and retain highly skilled personnel, we will not be
able to grow and to compete effectively.
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 on a timely basis 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 requiring individuals with specific
professional skills or free agents find attractive. We expect to introduce
enhanced services, products and features in order to respond to:
- rapidly changing technology in online professional procurement and
management;
- evolving industry standards, including both formal and de facto standards,
relating to online labor procurement and management;
14
<PAGE>
- developments and changes relating to the Internet;
- competing services and products that offer increased functionality; and
- changes in the requirements of buyers requiring individuals with specific
professional skills 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.
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 labor procurement and management services is intensely
competitive and highly fragmented. Our three primary services compete with a
combination of online and offline companies that provide competing services,
including traditional companies providing benefits and services to independent
professionals, traditional and online recruiting and job-posting services, and
developers of enterprise resource planning services. Some of our competitors may
offer their services at no cost or at prices that are less than the ones that we
currently offer or intend to offer. For example, some competitors do not charge
for posting a project on their website or may charge a fee lower than we are now
charging for project listings on OPUS XCHANGE. Similarly, while we intend to
charge a placement fee in the first quarter of 2000, some of our competitors do
not charge a success or placement fee when a person is engaged for a project.
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
services. We believe that the companies in our target market compete primarily
on the basis of the number of features their services provide to end users, and
the extent of their relationships with both organizations that procure
project-based professionals and individuals who are available for projects. We
believe that we compete effectively by offering services that addresses the
procurement and management of project-based professionals. However, the rapid
pace at which the market is evolving, both in terms of technological innovation,
increased functionality and service offerings, will require us to continually
improve our infrastructure and our services, as well as the range of services we
offer. We may not be able to respond adequately to these competitive challenges.
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
or 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.
15
<PAGE>
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.
As part of our business strategy, we have in the recent past acquired or
invested in technologies, products or businesses that are complementary to our
business and may do so in the future. Our only experience in integrating
acquisitions into our business was our acquisition of Churchill. The process of
integrating PeopleMover, Ithority, and INDUSTRYINSITE.COM as well as any future
acquisitions could involve substantial risks for us, including:
- unforeseen operating difficulties and expenditures;
- difficulties in assimilation of acquired personnel, operations,
technologies and products;
- the need to manage a significantly larger and more
geographically-dispersed business, such as the PeopleMover and Ithority
operations in California;
- amortization of large amounts of goodwill and other intangible assets,
such as the approximately $31.6 million of goodwill and other intangible
assets relating to our acquisition of PeopleMover which we will amortize
over the next three years;
- the diversion of management's attention away from ongoing development of
our business or other business concerns;
- the risks of loss of employees of an acquired business, including
employees who may have been instrumental to the success or growth of that
business; and
- the use of substantial amount of our available cash, including in the case
of any future acquisitions, the proceeds of this offering, to consummate
the acquisition.
We experienced some unforeseen operating difficulties and expenditures in
connection with the Churchill acquisition as well as the diversion of our
management's attention. These difficulties did not have a material impact upon
our operations.
We may never achieve the benefits that we expect from the acquisitions of
PeopleMover, Ithority and INDUSTRYINSITE.COM or that we might anticipate from
any future acquisition. If we make future acquisitions, we may issue shares of
our capital stock, as we have in the PeopleMover and Ithority acquisitions, 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 would reduce our net income or increase our net losses.
If we expand our operations into international markets, we will face new
challenges that we have not previously faced.
As part of our expansion, we may begin to conduct a portion of our
operations outside the United States. We currently have minimal experience
operating in foreign markets. If we expand our operations into foreign markets,
we will face new challenges that we have not previously faced while conducting
our operations in the United States. Countries in which we are currently
considering conducting operations include Canada, Japan and the United Kingdom.
These challenges include:
- currency exchange rate fluctuations, particularly if we sell our products
and services in foreign currencies;
- trade barriers including tariffs and export controls;
- difficulties in collecting accounts receivable in foreign countries;
16
<PAGE>
- the burdens of complying with a wide variety of foreign laws, particularly
complex labor regulations;
- reduced protection for intellectual property rights in some countries,
particularly in Asia; and
- the need to tailor our products and services for foreign markets.
In addition, if we conduct any of our foreign operations through joint ventures
with third parties, we may have limited ability to control the operation of
these entities.
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. To date our
data base server has experienced average use of 70% under peak loads and 50%
under normal loads, our web servers have experienced average use ranging from
20% to 30% under normal and peak loads and our data base storage capacity is at
2% use. There can be no assurance, however, that our systems will be able to
accommodate our growth. We rely on third-party Internet service providers to
provide our clients with access to our services. We have experienced on two
occasions service interruptions as a result of systems failures by these
Internet service providers which have lasted between four to eight hours. We
believe that these interruptions will occur from time to time in the future. In
addition, from time to time the speed of our system has been reduced as a result
of increased traffic through our Internet service provider. We may not be able
to expand and adapt our network infrastructure at a pace that will be
commensurate with the additional traffic increases that we anticipate will
occur. 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. However, the services we provide may 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
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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
individuals with specific professional skills to fulfill project needs. 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;
- 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. As a result of the year 2000 problem, computer systems and
software used by many companies in a wide variety of industries may 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
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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. To date, however, we have not experienced any
year 2000 problems.
Our products and services are integrated with the systems of other
organizations, that use our software to procure individuals with specific
professional skills to fulfill project needs 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 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. Based on advice of counsel, we believe we have viable 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
requiring individuals with specific professional skills to fulfill project needs
became aware of any new brand name and website, our transaction volume could be
substantially limited.
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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, FREEAGENT
XCHANGE, OPUSRM, FREEAGENT E.OFFICE and 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 technology and software we have developed which underlies our
FREEAGENT.COM, OPUS XCHANGE and OPUSRM products and services is important to us.
We do not have any patents relating to our technology and software, although we
do have a 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. This
patent may not be granted and, if granted, the patent and any other patents we
apply for in the future may be successfully challenged.
In general, to protect our proprietary technology and software, we rely on a
combination of contractual provisions, confidentiality procedures and trade
secrets. The unauthorized reproduction or other misappropriation of our
intellectual property, including our technology on which our FREEAGENT.COM, OPUS
XCHANGE and OPUSRM products and services are based, 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.
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 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, including providers of development tools that will enable us to
quickly adapt our technology to new services. Technology from our current or
other vendors may not continue to be available to us on commercially reasonable
terms, or at all.
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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. Our acquisition of
Ithority, an online marketplace where people in need of expert advice can be
connected with providers of expert advice on a variety of subjects, creates the
possibility that we will be subject to potential claims that, among others, the
professional advice obtained through the service was inappropriate, incorrect,
or negligently or recklessly provided. 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.
We expect to incur substantial expenses in order to comply with state employee
leasing, employment agency or temporary employment laws.
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. 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.
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 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
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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.
There are considerable uncertainties in the application of federal tax and
employee benefits laws to our business that 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 be reduced.
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.
We may be subject to 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
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information from organizations, claims of negligence or gross negligence in the
performance of projects by our FREEAGENT E.OFFICE employees, and 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.
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 professional 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. The principal reasons that might cause our stock price to fluctuate
are:
- changes in financial estimates 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, distribution, co-branding and other similar arrangements,
joint ventures or capital commitments;
- loss of a major client or organization with whom we have a distribution,
co-branding or other similar arrangement;
- 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.
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.
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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 approximately 49,173,897 shares of common stock outstanding
immediately after this offering. All of the shares sold in this offering will be
freely tradable 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 42,173,897 shares
and the 11,747,009 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 subject to
applicable holding period, volume limitations, manner of sale and notice
requirements set forth in applicable SEC rules. Commencing 180 days after the
date of this prospectus, approximately 36.3 million outstanding shares of these
restricted securities will be eligible for sale under Rule 144. In addition,
commencing 180 days after the date of this prospectus, stockholders holding
approximately 30.2 million outstanding shares of these restricted securities
after the offering will, if these shares may not be sold under Rule 144, have
registration rights which could allow those holders to sell their shares freely
through a registration statement filed under the Securities Act.
In connection with this offering, our directors and executive officers and
the securityholders named in this prospectus, together with other
securityholders that collectively hold most of the shares of common stock and
shares of common stock issuable upon the exercise of options and warrants, 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. Robertson Stephens
may waive this agreement with respect to one or more of these securityholders in
its sole discretion. Robertson Stephens may grant these waivers under a variety
of circumstances, including situations in which the market value and/or the
average trading volume of our common stock reaches levels that are sufficient to
make it likely that a substantial amount of resales by these securityholders
would not adversely affect the prices at which our common stock trades, as well
as any other circumstances that it deems appropriate.
After this offering, we will have 19,514,723 shares of common stock reserved
for issuance under our stock option plans, employee stock purchase plan and
other stock option agreements of which options to purchase 10,484,841 shares
were outstanding as of as of February 29, 2000. Promptly following this
offering, we intend to file one or more registration statements on Form S-8 to
register these shares which, upon effectiveness, will permit substantial
additional sales of shares of our common stock as these shares are issued.
Our officers and directors will have significant influence over all matters
requiring the approval of stockholders.
We anticipate that our executive officers, directors and 5% stockholders
will control approximately 42.3% of our outstanding common stock following the
completion of this offering or 41.3% 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, such as mergers or acquisitions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of our company in a transaction in which you might otherwise
receive a premium for your shares, and might adversely affect the market price
of the common stock.
Because we are currently unable to specify the specific uses to which the net
proceeds from this offering will be applied, you will be relying on the
judgement of our management regarding the application of the proceeds.
We expect to use the net proceeds from this offering for working capital and
general corporate purposes, but we are unable to identify the specific uses to
which the net proceeds will be applied. Accordingly, our
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management will have broad discretion with respect to the expenditure of the
proceeds. Although we have included estimates of expenditures for some specified
uses under "Use of Proceeds," actual expenditures for expansion of sales and
marketing staff, marketing of our brands, product and technology development,
capital expenditures and other purposes will depend on market and other
conditions existing in the future. You will be relying on the judgment of our
management regarding the application of the proceeds.
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 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 $10.00 per share, purchasers of common stock in
this offering will experience immediate and substantial dilution of
approximately $7.87 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. These
documents also 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. These provisions may have the effect of
precluding the conduct of some types of business at a meeting if the proper
procedures are not followed or may discourage or deter a potential acquiror from
conducting a solicitation of proxies to elect its own slate of directors or
otherwise attempting to obtain control of us.
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. The provision for a classified
board and the director provisions could prevent a party who acquires control of
a majority of our outstanding voting stock from obtaining control of our board
until the second annual stockholders meeting following the date the acquiror
obtains the controlling stock interest. These provisions could also have the
effect of discouraging a potential acquiror from making a tender offer or
otherwise attempting to obtain control of us and could increase the likelihood
that incumbent directors will retain their positions.
In addition, the board of directors has the authority, without further
action by the stockholders, to issue shares of preferred stock without
stockholder approval. Under some circumstances, the issuance of shares of
preferred stock may render more difficult or tend to discourage a merger, tender
offer or proxy contest, the assumption of control by a holder of a large block
of our securities or the removal of incumbent management.
25
<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. Subject to any obligation that we may have to amend or
supplement this prospectus as required by law and the rules of the Securities
and Exchange Commission, 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.
26
<PAGE>
CONCURRENT PLACEMENT
On March 1, 2000, we entered into a stock purchase agreement with Dell USA
L.P., an affiliate of Dell Computer Corporation, under which Dell USA has agreed
to purchase shares of our common stock for a total purchase price of
$14.0 million. Dell USA will purchase the shares at a price equal to the initial
public offering price per share less an amount equal to the per share
underwriting discounts and commissions received by the underwriters, as set
forth on the cover page of this prospectus, except that in no event will Dell
USA's purchase price exceed $22.00 per share. Based on an assumed initial public
offering price of $10.00 per share, we expect that Dell USA would purchase
1,505,376 shares of our common stock in the concurrent placement. Since Dell USA
will purchase the shares directly from us in a private placement, the
underwriters will not receive any discount or commission on the sale of the
shares. The closing of this concurrent placement is contingent on, and will
close simultaneously with, the closing of this offering.
The shares being sold in the concurrent placement will not be registered for
immediate sale under the Securities Act and, subject to certain limited
exceptions involving a sale of the company or a change of control, Dell USA has
agreed not to sell its common stock for a one year period. We will also enter
into a registration rights agreement with Dell USA pursuant to which it will be
able to have its shares of common stock registered for resale under the
Securities Act at various times in the future. See "Shares Eligible for Future
Sale--Registration Rights."
In connection with Dell USA's purchase of our common stock, Dell Marketing
L.P., the marketing affiliate of Dell Computer, will enter into a marketing
agreement under which Dell Marketing will provide a prominent link to our
website on its website. In addition, Dell Marketing will include us as a
featured offer in one issue of its quarterly software and peripherals catalogue.
The effectiveness of the marketing arrangement is conditional upon the sale of
our shares of common stock to Dell USA in the concurrent placement. The term of
the marketing arrangement will initially be for one year.
27
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds to be received by us from the sale of the
7,000,000 shares of common stock offered by us in this offering will be
$63.8 million, assuming an initial public offering price of $10.00 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
$74.6 million. We will not receive any proceeds from the offering of shares by
Safeguard and CompuCom in the Safeguard Subscription Program.
We expect to use the net proceeds from this offering, and the $14.0 million
of proceeds from the sale of our common stock to Dell USA in the concurrent
placements, for working capital and general corporate purposes, including an
estimated $5 to $7 million for capital expenditures, an estimated $15 to
$20 million for sales and marketing and an estimated $15 to $20 million for
product and technology development. The actual amounts expended for these
purposes may vary from our current expectations and will be determined by our
management based on our financial condition, cash flow and operating results as
well as our then current business plans and needs. We may reallocate the
proceeds of this offering that are among the categories discussed above or use a
portion of the proceeds from the offering for purposes not presently
contemplated. As a result, we will have broad discretion as to how the net
proceeds of this offering will be used. We also intend to use $350,000 of the
proceeds to repay in full our non-interest bearing promissory note issued in
connection with the acquisition of INDUSTRYINSITE.COM. The note was issued on
January 12, 2000. We may also use a portion of these proceeds for potential
acquisitions of technologies, products or businesses which may be complementary
to our business. We currently have no commitments or agreements with respect to
any future acquisitions or investments. 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.
28
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect our acquisition of PeopleMover as if the
acquisition had occurred as of December 31, 1999 and the mandatory
conversion of all outstanding shares of our preferred stock into
25,441,091 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 7,000,000
shares of our common stock in this offering, at an assumed initial public
offering price of $10.00 per share, after deducting underwriting discounts
and commissions and estimated offering expenses payable by us, and the
sale of 1,505,376 shares of our common stock to Dell USA in the concurrent
placement at a price equal to the foregoing assumed initial public
offering price less an amount equal to the underwriting discounts and
commissions payable to the underwriters in this offering.
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 December 31, 1999
--------------------------------------
Pro Forma
Actual Pro Forma (1) As Adjusted
-------- ------------- -----------
(in thousands, except share data)
<S> <C> <C> <C>
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 $ -- $ --
Series B convertible preferred stock, $0.001 par value;
8,700,000 shares authorized; 8,676,727 shares issued
and outstanding, actual; none issued
and outstanding, pro forma and pro forma as adjusted..... 9 -- --
Common stock, $0.001 par value; 45,000,000 shares
authorized actual, 150,000,000 pro forma and pro forma as
adjusted; 10,880,000, 38,954,000 and 47,460,000 shares
issued and outstanding, actual, pro forma and pro forma
as adjusted, respectively................................ 11 39 47
Additional paid-in capital................................. 63,835 95,713 173,520
Stock subscription receivable.............................. (239) (239) (239)
Deferred compensation...................................... (5,469) (8,603) (8,603)
Accumulated deficit........................................ (30,425) (30,425) (30,425)
Accumulated other comprehensive loss....................... (3) (3) (3)
-------- -------- --------
Total stockholders' equity............................. $ 27,727 $ 56,482 $134,297
======== ======== ========
</TABLE>
- ------------------------
(1) Under applicable SEC rules, the historical audited financial statements of
Ithority and pro forma financial statements for us reflecting the Ithority
acquisition are not required to be included in this prospectus. However,
those audited and pro forma financial statements will be filed with the SEC
within 75 days of consummation of the Ithority acquisition.
29
<PAGE>
The above table excludes:
- the issuance of 426,073 shares of our common stock in the Ithority
acquisition;
- 405,631 shares of our common stock held in escrow, together with
additional shares of our common stock issuable to the former stockholder
of Churchill as described under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Unaudited Pro Forma
Combined Financial Statements;"
- 5,340,000 shares of common stock issuable at a weighted average exercise
price of $1.09 per share upon the exercise of stock options outstanding at
December 31, 1999, 1,401,000 shares of which (including shares of common
stock issuable upon the exercise of options that automatically vest upon
the consummation of this offering) are currently exercisable, and of which
122,750 have been exercised;
- options to purchase, 4,129,700 shares of our common stock issued
subsequent to December 31, 1999 to officers, directors and employees,
including our Chairman and Chief Executive Officer and our new President
and Chief Operating Officer, at a weighed average exercise price of $8.17
per share;
- options to purchase 1,189,078 shares of our common stock held by employees
of PeopleMover, at a weighed average exercise price of $4.35 per share,
assumed by us in the PeopleMover acquisition;
- 9,029,884 shares of common stock reserved for future grant under our stock
option and employee stock purchase plans;
- 945,547 shares of common stock issuable at a weighted average exercise
price of $.93 per share upon the exercise of warrants outstanding at
December 31, 1999, of which warrants to purchase 840,000 shares of common
stock were exercised in January 2000;
- 9,120 shares of our common stock issuable at an exercise price of $0.01
per share upon the exercise of warrants issued in February 2000 as
compensation to a provider of advertising services;
- the assumed issuance of 450,000 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 $3.07 per share;
- 450,000 shares of common stock issuable upon the exercise of a warrant
having an exercise price of $8.15 per share issued in January 2000 to
Greenhill under the terms of its financial advisory agreement with us as a
result of the consummation of the INDUSTRYINSITE.COM and Ithority
acquisitions;
- 450,000 shares of our common stock issuable upon the exercise of an
additional warrant which may be issued to Greenhill under its financial
advisory agreement with us upon the completion of a specified number or
aggregate value of additional 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;
- 225,000 shares of our common stock issuable upon exercise of a warrant
having an exercise price of $3.33 per share issued to Lucent Technologies
Inc. in February 2000 in connection with their agreeing to use our OPUSRM
and OPUS XCHANGE services, assist us in the further development of our
services and to direct free agents who provide services to Lucent's
NetCare Division to FREEAGENT.COM; and
- shares of our common stock issuable upon the exercise of an additional
warrant issued to Lucent in February 2000 in connection with the
establishment of the foregoing arrangements, and which is exercisable for
that number of shares of our common stock, having a fair value no greater
than $2,655,000 using the Black-Scholes option-pricing model, at an
exercise price and on a specified effective beginning date, in each case
as described in greater detail under "Related Party Transactions--Lucent
Agreement."
30
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
$23.2 million, or $0.59 per common share, after giving effect to our acquisition
of PeopleMover as if the acquisition had occurred on December 31, 1999 and 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 PeopleMover acquisition and
the conversion of our preferred stock referred to above).
After giving effect to the sale by us of:
- the 7,000,000 shares of common stock that we are offering at an assumed
initial public offering price of $10.00 per share, after deducting
underwriting discounts and commissions and estimated offering expenses
payable by us; and
- the 1,505,376 shares of common stock to Dell USA in the concurrent
placement at a price equal to the foregoing assumed initial public
offering price less an amount equal to the assumed underwriting discounts
and commissions payable to the underwriters in this offering,
our pro forma net tangible book value as of December 31, 1999 would have been
$101.0 million, or $2.13 per common share. This represents an immediate increase
in pro forma net tangible book value of $1.54 per common share to existing
stockholders and an immediate dilution of $7.87 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....................... $10.00
Pro forma net tangible book value per common share as of
December 31, 1999..................................... $ 0.59
Pro forma increase per common share attributable to new
investors............................................. 1.54
------
Pro forma net tangible book value per common share after
this
offering.................................................. 2.13
------
Pro forma dilution per share to new investors............... $ 7.87
======
</TABLE>
The following table summarizes on a pro forma basis to reflect the
adjustments described above, differences between our existing stockholders as of
December 31, 1999 and Dell USA and 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 our then existing stockholders, by new
investors with respect to the shares to be sold by us in this offering at the
assumed initial public offering price of $10.00 per share, before deducting
underwriting discounts and commissions and estimated offering expenses payable
by us and Dell USA in the concurrent placement at a price equal to the foregoing
assumed initial public offering price less an amount equal to the underwriting
discounts and commissions payable to the underwriters in this offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
--------------------- ----------------------- Average Price
Number Percent Amount Percent Per Share
---------- -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 38,954,450 82.1% $ 50,996,000 37.8% $ 1.31
Dell USA........................ 1,505,376 3.2 14,000,000 10.3 9.30
New investors................... 7,000,000 14.7 70,000,000 51.9 10.00
---------- ------ ------------ -----
Total....................... 47,459,826 100.0% $134,996,000 100.0%
========== ====== ============ =====
</TABLE>
31
<PAGE>
The foregoing discussion and tables do not reflect:
- the sale of 700,000 shares of common stock by Safeguard and CompuCom in
the Safeguard Subscription Program;
- the consummation of the Ithority and INDUSTRYINSITE.COM acquisitions and
the issuance of 426,073 shares of our common stock in the Ithority
acquisition;
- shares of our common stock issuable upon the exercise of options and
warrants outstanding as of December 31, 1999;
- shares of our common stock issuable upon the exercise of options and
warrants issued subsequent to December 31, 1999; and
- shares of our common stock issuable upon the exercise of options assumed
by us in the PeopleMover acquisition. See "Capitalization."
To the extent outstanding options or warrants are exercised, 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 the stockholders identified in the immediately preceding table will be
approximately $339.6 million ($457.1 million assuming exercise of all
outstanding options and warrants outstanding as of the date of this prospectus),
assuming an initial public offering price of $10.00 per share.
32
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined statement of operations for the
year ended December 31, 1999 gives effect to our acquisitions of Churchill and
PeopleMover as if the transactions had occurred on January 1, 1999 and the
following unaudited pro forma combined balance sheet gives effect to our
PeopleMover acquisition as if it occurred on December 31, 1999.
ACQUISITION OF CHURCHILL
On May 27, 1999, we acquired all of the outstanding common stock of
Churchill in exchange for approximately 946,000 shares of our common stock with
a fair market value of approximately $1.85 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 combined statement of
operations for the year ended December 31, 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 our Consolidated Financial
Statements.
The former owner of Churchill is potentially entitled to approximately
406,000 additional 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 May 27, 2000. The shares held in escrow
and the shares issuable on November 27, 2000 vest ratably over three years from
May 27, 1999 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 services by May 27, 2000. As of December 31,
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.
ACQUISITION OF PEOPLEMOVER
On February 24, 2000, we acquired all of the outstanding capital stock of
PeopleMover for approximately 2,634,000 shares of our common stock.
Additionally, we assumed outstanding PeopleMover stock options which are
exercisable for approximately 1,189,000 shares of our common stock at a weighted
average exercise price of $4.35 per share.
Approximately 342,000 shares of our common stock issued in the acquisition
to stockholders of PeopleMover are subject to a three-year restricted stock
vesting agreement under which the shares may be forfeited in the event the
stockholder is no longer employed by us. The value of these shares, estimated at
approximately $3.1 million, will be recorded as deferred compensation expense
and amortized over the term of the vesting agreement.
We will account for the acquisition of PeopleMover using the purchase method
and, accordingly, PeopleMover's results of operations will be included in our
consolidated financial statements from the date of acquisition. We intend to
preliminarily allocate the purchase price to PeopleMover's assets and
liabilities based on their historical carrying values as these carrying values
are estimated to approximate fair market value of the assets acquired and
liabilities assumed.
The following pro forma financial statements represent the preliminary
allocation of purchase price over historical net book values of the acquired
assets and assumed liabilities of PeopleMover at December 31,
33
<PAGE>
1999, and are for illustrative purposes only. Goodwill and other intangibles of
approximately $31.6 million expected to be created as a result of the
PeopleMover acquisition will be amortized over three years. Actual fair values
will be based on financial information as of the acquisition date.
The unaudited pro forma combined statement of operations does not purport to
be indicative of what our actual results of operations would have been had the
acquisitions of Churchill and PeopleMover actually been completed on January 1,
1999, and the unaudited pro forma combined balance sheet does not purport to be
indicative of what our actual financial condition would have been had the
acquisition of PeopleMover actually been completed on December 31, 1999. These
unaudited pro forma combined financial statements also do not purport to be
indicative of the results of operations or financial condition that we may
achieve in the future. Under applicable SEC rules, the historical audited
financial statements of Ithority and pro forma financial statements for us
reflecting the Ithority acquisition are not required to be included in this
prospectus. However, those audited and pro forma financial statements will be
filed with the SEC within 75 days of consummation of the Ithority acquisition.
The unaudited pro forma combined financial statements should be read in
conjunction with our consolidated financial statements, the financial statements
of Churchill and PeopleMover and the notes to those financial statements
included elsewhere in this prospectus.
34
<PAGE>
OPUS360 CORPORATION
Unaudited Pro Forma Combined Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
Opus360 Pro forma Pro forma
Corporation PeopleMover, Inc. Adjustments(1) Combined
------------ ----------------- -------------- ------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash............................................. $ 1,326,000 $ 241,000 $ (300,000) $ 1,267,000
Accounts receivable.............................. 2,314,000 624,000 -- 2,938,000
Short-term investments........................... 27,137,000 -- -- 27,137,000
Prepaid expenses and other 3,850,000 215,000 -- 4,065,000
------------ ------------ ------------ ------------
Total current assets......................... 34,627,000 1,080,000 (300,000) 35,407,000
Property and equipment, net........................ 2,990,000 1,216,000 -- 4,206,000
Goodwill........................................... 1,702,000 -- 31,626,000 33,328,000
Deferred loan costs................................ 16,000 -- -- 16,000
Due from PeopleMover............................... 575,000 -- (575,000) --
Other assets....................................... 806,000 114,000 -- 920,000
------------ ------------ ------------ ------------
Total assets................................. $ 40,716,000 $ 2,410,000 $ 30,751,000 $ 73,877,000
============ ============ ============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Lines of credit.................................. $ -- $ 980,000 $ -- $ 980,000
Accounts payable................................. 5,489,000 712,000 -- 6,201,000
Accrued expenses................................. 4,818,000 513,000 -- 5,331,000
Accrued wages 2,682,000 -- -- 2,682,000
Deferred revenue................................. -- 1,686,000 -- 1,686,000
Capital lease obligation......................... -- 187,000 -- 187,000
Convertible notes payable........................ -- 1,375,000 (1,375,000) --
Due to Opus360................................... -- 575,000 (575,000)
------------ ------------ ------------ ------------
Total current liabilities.................... 12,989,000 6,028,000 (1,950,000) 17,067,000
Capital lease obligations, net of current
portion........................................ -- 328,000 -- 328,000
Total Liabilities............................ 12,989,000 6,356,000 (1,950,000) 17,395,000
Mandatory redeemable Series A convertible preferred
stock, 6,000,000 shares designated; 4,935,848
shares issued and outstanding at December 31,
1999; zero shares outstanding on a pro forma
basis............................................ -- 5,425,000 (5,425,000) --
Stockholders' equity
Series A convertible preferred stock, $0.001 par
value; 8,400,000 shares authorized; 8,284,000
shares issued and outstanding; zero shares
outstanding on a pro forma basis............... 8,000 -- -- --
Series B convertible preferred stock, $0.001 par
value; 8,700,000 shares authorized; 8,677,000
shares issued and outstanding; zero shares
outstanding on a pro forma basis............... 9,000 -- -- --
Common stock, $0.001 par value 45,000,000 shares
authorized; 10,880,000 issued and outstanding;
38,954,000 shares outstanding on a pro forma
basis.......................................... 11,000 5,000 (2,000) 39,000
Additional paid-in capital 63,835,000 1,786,000 30,100,000 95,713,000
Stock subscription receivable.................... (239,000) (239,000)
Deferred compensation............................ (5,469,000) (932,000) (2,202,000) (8,603,000)
Accumulated deficit.............................. (30,425,000) (10,230,000) 10,230,000 (30,425,000)
Accumulated other comprehensive loss............. (3,000) -- -- (3,000)
------------ ------------ ------------ ------------
Total stockholders' equity................... 27,727,000 (9,371,000) 38,126,000 56,482,000
------------ ------------ ------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity... $ 40,716,000 $ 2,410,000 $ 30,751,000 $ 73,877,000
============ ============ ============ ============
</TABLE>
See accompanying notes to pro forma combined financial statements.
35
<PAGE>
OPUS360 CORPORATION
Unaudited Pro Forma Combined Statement of Operations
Year Ended December 31, 1999
<TABLE>
<CAPTION>
The Churchill
Benefit Pro Forma Adjustments
Corporation ------------------------------------
Period from The Churchill
January 1, 1999 Benefit
Opus360 to May 26, 1999 PeopleMover, Inc. Corporation PeopleMover, Inc.
------------ --------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues..................... $ 419,000 $ 298,000 $ 1,302,000
Cost of revenues............. 261,000 29,000 939,000
------------ --------- -----------
Gross profit............. 158,000 269,000 363,000
Operating expense:
Sales and marketing........ 11,068,000 -- 1,952,000
Product development........ 9,034,000 -- 3,824,000
General and
administrative........... 7,114,000 460,000 2,341,000 $300,000(2) $ 172,000(3)
Depreciation and
amortization............. 629,000 8,000 180,000 295,000(2) 10,540,000(3)
Amortization of stock-based
compensation............. 2,448,000 -- 326,000 1,045,000(3)
------------ --------- ----------- -------- -----------
Total costs and
expenses............... 30,293,000 468,000 8,623,000 595,000 11,757,000
------------ --------- ----------- -------- -----------
Loss from operations..... (30,135,000) (199,000) (8,260,000)
Other income and expense:
Interest income............ 765,000 -- --
Interest expense........... (20,000) -- (73,000)
------------ --------- -----------
Net loss................. (29,390,000) (199,000) (8,333,000)
Historical basic and diluted
net loss per share (4)..... $ (2.91)
============ ========= =========== ======== ===========
Shares used in the
calculation of historical
basic and diluted net loss
per share (4).............. 10,083,563
============ ========= =========== ======== ===========
Pro forma basic and diluted
net loss per share (4)..... $ (1.12)
============
Shares used in the
calculation of pro forma
basic and diluted net loss
per share (4).............. 26,323,752
============
<CAPTION>
Pro Forma
Combined
------------
<S> <C>
Revenues..................... $ 2,019,000
Cost of revenues............. 1,229,000
------------
Gross profit............. 790,000
Operating expense:
Sales and marketing........ 13,020,000
Product development........ 12,858,000
General and
administrative........... 10,387,000
Depreciation and
amortization............. 11,652,000
Amortization of stock-based
compensation............. 3,819,000
------------
Total costs and
expenses............... 51,736,000
------------
Loss from operations..... (50,946,000)
Other income and expense:
Interest income............ 765,000
Interest expense........... (93,000)
------------
Net loss................. (50,274,000)
Historical basic and diluted
net loss per share (4)..... $ (3.91)
============
Shares used in the
calculation of historical
basic and diluted net loss
per share (4).............. 12,868,154
============
Pro forma basic and diluted
net loss per share (4)..... $ (1.73)
============
Shares used in the
calculation of pro forma
basic and diluted net loss
per share (4).............. 29,108,342
============
</TABLE>
See accompanying notes to pro forma combined financial statements.
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<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) The acquisition of PeopleMover consisted of the following:
- the issuance of approximately 2,634,000 shares of our common stock valued
at approximately $23,990,000, or $9.11 per share;
- our assumption of outstanding PeopleMover stock options which are
exercisable for approximately 1,189,000 shares of our common stock. The
options have been valued at approximately $7,875,000 using the
Black-Scholes pricing model. These options have an aggregate exercise
price of approximately $5,175,000 or $4.35 per share; and
- estimated acquisition costs of approximately $300,000.
Assuming the transaction had occurred on December 31, 1999, the preliminary
allocation of the purchase price would have been as follows:
<TABLE>
<S> <C>
Value of approximately 2,292,000 shares not subject to
restricted stock vesting agreement........................ $20,880,000
Value of stock options issued under Black-Scholes pricing
model..................................................... 7,875,000
Estimated costs associated with acquisition................. 300,000
Conversion of redeemable preferred stock.................... (5,425,000)
Conversion of notes payable into equity..................... (1,375,000)
Negative net assets acquired, as of December 31, 1999....... 9,371,000
-----------
Excess purchase price over net assets acquired.............. $31,626,000
</TABLE>
The purchase price will be preliminarily allocated to PeopleMover's
historical assets and liabilities, as these carrying values are estimated to
approximate fair market value. The excess purchase price over the net assets
acquired in the PeopleMover transaction has been preliminarily assigned to
goodwill, which will be amortized over three years, and may be subject to
change upon evaluation of the fair value of PeopleMover's acquired assets
and liabilities assumed as of the acquisition date as well as the potential
identification of certain intangible assets, including customer lists and
in-process technology.
The value of the approximately 342,000 shares which are subject to the
three-year vesting agreement is approximately $3,134,000 and will be
recorded to deferred compensation expense and amortized over the term of the
vesting agreement. Only the vested portion of the restricted shares is
included for purposes of calculating basic earnings per share. The unvested
portion of the restricted shares is also included for purposes of
calculating diluted earnings per share, if such amounts are dilutive.
(2) For the year ended December 31, 1999, the adjustments to pro forma operating
expenses include $295,000 of goodwill amortized during the period and
$300,000 incremental payroll expenses related to new employment contracts
entered into with the former owner and a key employee of Churchill. The
adjustment for goodwill represents five months of amortization expense,
which is not included in our historical financial statements, in order to
reflect the acquisition of Churchill as if it took place on January 1, 1999.
The adjustment for payroll expense represents the incremental difference
between the actual salaries earned by the former owner and key employee of
Churchill and the amounts that they would have earned had their new
employment contracts been in effect as of January 1, 1999.
(3) For the year ended December 31, 1999, the adjustments to pro forma operating
expenses include $10,540,000 and $1,045,000 of goodwill and deferred
compensation amortized during the period, respectively, and $172,000 of
incremental payroll expenses related to new employment contracts entered
into with some PeopleMover employees. The adjustment for goodwill and
stock-based compensation represents 12 months of amortization expense to
reflect the acquisition of PeopleMover as if it occurred on January 1, 1999.
The adjustment for payroll expense represents the incremental difference
between
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<PAGE>
the actual salaries earned by the PeopleMover employees and the amounts that
they would have earned had their new employment contracts been in effect as
of January 1, 1999.
(4) Basic and diluted historical net loss per share on a pro forma basis is
calculated using our historical weighted-average amounts adjusted for the
impact of the unrestricted shares of our common stock issued in connection
with the Churchill and PeopleMover acquisitions, as if these shares were
outstanding from January 1, 1999. Diluted historical net loss per share on a
pro forma basis does not include approximately 228,000 unvested restricted
shares issued to certain PeopleMover stockholders and the effect of options
and warrants to purchase 6,552,000 and approximately 1,396,000 shares of
common stock, respectively, including the options we assumed in the
PeopleMover acquisition, or approximately 25,441,000 shares of our common
stock issuable upon the conversion of our Series A and B preferred stock on
an "as-if converted" basis, respectively, as the effect of their inclusion
is anti-dilutive.
Pro forma basic and diluted net loss per share is computed by assuming the
conversion of all convertible preferred stock into common stock as if such
shares were outstanding from their respective dates of issuance.
All computations of net loss per share exclude the effect of approximately
406,000 escrowed shares and $850,000 of contingently issuable shares of
common stock in connection with the Churchill acquisition as the conditions
surrounding the release of such shares have not been satisfied.
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<PAGE>
SELECTED FINANCIAL DATA
The selected balance sheet data as of December 31, 1998 and 1999 and the
selected statement of operations data for the period from August 17, 1998 (our
inception) through December 31, 1998 and for the twelve months ended
December 31, 1999 are derived from our audited financial statements, which have
been audited by KPMG LLP, included elsewhere in this prospectus. Historical
results are not necessarily indicative of the results to be expected in the
future.
You should read the data set forth below in conjunction with "Unaudited Pro
Forma Combined Financial Statements," "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 Year Ended
December 31, 1998 December 31, 1999
----------------------- -----------------
(in thousands, except per share data)
<S> <C> <C>
Statement of Operations Data:
Revenues.............................................. $ -- $ 419
Cost of revenues...................................... -- 261
------- --------
Gross profit.......................................... -- 158
Operating expenses:
Sales and marketing................................. 80 11,068
Product development................................. 552 9,034
General and administrative.......................... 407 7,114
Depreciation and amortization....................... 2 629
Amortization of equity-based compensation........... -- 2,448
------- --------
Total operating expenses.......................... 1,041 30,293
------- --------
Loss from operations................................ (1,041) (30,135)
Other income, net..................................... 6 745
------- --------
Net loss............................................ $(1,035) $(29,390)
======= ========
Basic and diluted net loss per share:................. $ (0.11) $ (2.91)
======= ========
Weighted average number of shares used in calculating
basic and diluted net loss per share(1)............. 9,120 10,084
======= ========
Pro forma basic and diluted net loss per share........ $ (1.12)
========
Pro forma weighted average number of shares used in
calculating basic and diluted net loss per
share(1)............................................ 26,324
========
</TABLE>
- ------------------------
(1) Reflects the automatic conversion of each share of our outstanding preferred
stock into 1.5 shares of our common stock as if these shares were
outstanding from their respective dates of issuance.
<TABLE>
<CAPTION>
As of December 31,
-----------------------------
1998 1999
---------- ----------
(in thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable securities............ $5,818 $28,463
Working capital............................................. 5,199 21,638
Total assets................................................ 5,886 40,716
Convertible preferred stock................................. 5 17
Total stockholders' equity.................................. $5,253 $27,727
</TABLE>
39
<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.
Overview
We provide Internet-based services for putting people and projects together
across the labor supply chain. Our e-commerce services streamline the
procurement and management of professional resources by using advanced
technologies to enable buyers requiring individuals with specific professional
skills to fulfill project needs to identify and procure those professionals. Our
three services, each of which is offered and can be used as a stand-alone
application and is designed to be integrated and used with each other, consists
of:
- FREEAGENT.COM: a website that enables free agents to 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 an online marketplace of corporate products and services.
- OPUS XCHANGE: an Internet service which is designed to enable
corporations, professional services firms, staffing companies and other
buyers requiring individuals with specific professional skills to easily
and rapidly procure professionals from FREEAGENT.COM. Our enhanced version
of OPUS XCHANGE for corporate customers will also allow these
organizations to procure professionals from each other in an
exchange-based environment by using technologies to match individuals 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 our acquisition of Churchill in May 1999, we
did not have any revenues and our activities consisted primarily of the
development and testing of our Internet-based services, 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 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, which
has been designed for use by large corporate customers, in the first half of
2000, and to integrate OPUSRM with the enhanced version of OPUS XCHANGE in the
second half of 2000. OPUSRM has been released to a limited number of selected
customers for implementation and final testing prior to full commercial
availability. We are currently in the final stages of internal testing of the
enhanced version of OPUS XCHANGE prior to our releasing it to a limited number
of customers for implementation and further testing.
On May 27, 1999, we acquired all of the outstanding stock of Churchill in
exchange for approximately 946,474 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. The former owner of Churchill is potentially
entitled to an additional 405,631 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 May 27, 2000. The shares
held in escrow and the shares to be issued 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 FREEAGENT
E.OFFICE services by May 27, 2000. As of December 31, 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 on May 27, 2000
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
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<PAGE>
have been earned based on the fair market value of our common stock on May 27,
2000. We will then amortize to compensation expense the unvested portion of
these shares over the remaining vesting period. These compensation expense
charges could be substantial and will increase if our stock price increases.
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. These risks
include our need to:
- increase usage of our services and derive revenue from these services;
- enter into additional distribution, co-branding and other similar
arrangements with organizations that provide complementary products or
services or that will give us access to their user base, thereby
broadening our access to potential free agents and employers in need of
individual professional talent;
- expand our marketing and sales efforts;
- effectively respond to competitive developments;
- integrate the business, products, services and technology of our recent
and pending acquisitions and any future acquisitions; and
- manage our anticipated growth.
We may not successfully address any of these risks. See "Risk Factors."
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 December 31, 1999 was $30.4 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
--------------- --------- --------
(in thousands)
<S> <C> <C> <C>
Year ended December 31, 1999:
Revenues................................................. $ -- $ 419 $ 419
Gross profit............................................. -- 158 158
Net loss before equity-based compensation charges........ (18,943) (7,999) (26,942)
Total assets at period end............................... 37,864 2,852 40,716
Period from August 17, 1998 (inception) to December 31,
1998:
Revenues................................................. $ -- $ -- $ --
Gross profit............................................. -- -- --
Net income (loss)........................................ (1,035) -- (1,035)
Total assets at period end............................... 5,886 -- 5,886
</TABLE>
Over 95% of our revenues during our short operating history have been
derived from the fees paid by free agents who purchase our FREEAGENT E.OFFICE
services. The remaining portion of our revenues principally consisted of
FREEAGENT.COM advertising revenue. 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.
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<PAGE>
Recent Acquisitions
PEOPLEMOVER, INC.
On February 24, 2000, we acquired 100% of the outstanding capital stock of
PeopleMover, Inc. for an aggregate purchase price of $31.6 million payable in
common stock as described below. PeopleMover, which is headquartered in
Manhattan Beach, California, is a developer of Internet-based resource
management application services similar to our OPUSRM service, principally
focused on the needs of staffing firms. Its principal application service,
PEOPLEMOVER/STAFFING, enables professional staffing firms to recruit and assign
people to jobs based on skills and availability. PEOPLEMOVER/STAFFING manages
information regarding a staffing firm's resources and applicants, customer
accounts, including job and project openings, and sales activity.
PEOPLEMOVER/STAFFING supports many of the needs of large staffing firms,
including:
- resume scanning and matching against openings;
- tracking of skills and availability of contractors and applicants;
- time and expense processing; and
- integration with back office systems for billing, payroll and human
resources.
Our acquisition of PeopleMover expands our product line by providing a
service for the staffing industry. We believe that staffing firms are key
intermediaries in the labor market and, therefore, important participants for
our ability to put people and projects together. PEOPLEMOVER/STAFFING will also
be able to be integrated with our OPUS XCHANGE service. PeopleMover currently
provides its PEOPLEMOVER/STAFFING service to 11 staffing companies. For the year
ended December 31, 1999, PeopleMover had revenues of $1.3 million, a net loss
before preferred stock dividends of $8.3 million and a net loss after preferred
stock dividends of $8.8 million.
Under the merger agreement, the former stockholders of PeopleMover received
on the closing of the acquisition 2,633,359 shares of our common stock. In
addition, we assumed options outstanding under the PeopleMover stock option plan
which, subject to vesting, will be exercisable for 1,189,078 shares of our
common stock at a weighted average exercise price of $4.35 per share. At
closing, approximately 342,000 shares were placed into escrow and are subject to
forfeiture at their original valuation of $9.11 per share in order to satisfy
any breaches of representations, warranties, covenants and other indemnity
obligations of PeopleMover and some of its former stockholders. All of the
shares in escrow are also subject to a three-year vesting agreement that
requires the individuals receiving these shares to remain employed by us in
order to obtain them without restriction at the end of the vesting periods. We
made loans to PeopleMover in connection with the acquisition. The outstanding
indebtedness was recorded as a contribution to capital upon consummation of the
acquisition. As of December 31, 1999, the amount due from PeopleMover was
$575,000. See "Unaudited Pro Forma Combined Financial Statements."
ITHORITY CORPORATION
On January 20, 2000, we acquired 100% of the outstanding capital stock of
Ithority Corporation for an aggregate purchase price of $8.0 million payable in
common stock and cash as described below. Ithority, which is headquartered in
San Francisco, California, provides an online marketplace where people in need
of expert advice are connected with providers of expert advice on subjects such
as technology, software development, strategic consulting, graphic design and
finance. Ithority receives a percentage of the fee received by the provider of
the expert knowledge. We plan to integrate this knowledge marketplace into our
FREEAGENT.COM service offering, which will expand our free agent marketplace to
anyone who chooses to buy or sell expert knowledge. The Ithority website was
launched in September 1999 and Ithority had nominal revenues and a net loss of
$0.1 million (unaudited) in 1999. As of January 31, 2000, Ithority had
approximately 900 registered users.
Under the merger agreement, the former shareholders of Ithority received
243,474 shares of our common stock at the closing and $500,000 in cash, of which
$250,000 was paid at closing and $250,000 is payable upon the integration of the
Ithority website with FREEAGENT.COM. The former owners are also entitled to
42
<PAGE>
receive 182,599 shares of our common stock, which were placed in escrow at
closing, on the first anniversary of the closing, and additional shares of
common stock valued at $4.0 million based on the fair market value of our common
stock on the first anniversary of the closing. The escrowed shares and 97% of
the additional shares are subject to forfeiture, at their original valuation of
$8.21 per share, in order to satisfy any breaches of representations,
warranties, covenants and other indemnity obligations of Ithority and its former
principal shareholders set forth in the merger agreement. 178,240 of the escrow
shares and 97% of the additional shares issuable to the former principals of
Ithority are also subject to a three-year vesting agreement that requires the
individuals receiving these shares to remain employed by us in order to obtain
them without restriction at the end of the vesting periods.
INDUSTRYINSITE.COM
On January 12, 2000, we acquired from Brainstorm Interactive, Inc. all of
the assets and liabilities of INDUSTRYINSITE.COM, a website operated by
Brainstorm, for an aggregate purchase price of $1.0 million, of which $650,000
was paid in cash on the closing date and the remainder is represented by a
promissory note due upon the earlier to occur of 90 days after the closing date,
three business days after the consummation of this offering or upon our change
of control. See "Use of Proceeds." As of December 31, 1999, INDUSTRYINSITE.COM
had a network of approximately 63,000 professional users that work either
full-time or as free agents in various professional industries such as
management consulting, information technology, computer software and marketing.
By accessing the INDUSTRYINSITE.COM website, these professionals can create a
profile of their skills, academic background, work experience and interests to
market themselves to potential employers, communicate online with professionals
in similar industries, receive content, news and information on industry events,
create a personal e-mail, and search for job opportunities. By June 30, 2000, we
plan to integrate INDUSTRYINSITE.COM into our FREEAGENT.COM service offering and
convert the approximately 63,000 member profiles into E.PORTFOLIOS so that these
members will be able to be matched to projects through OPUS XCHANGE.
PRO FORMA REVENUE AND ACCUMULATED DEFICIT
On a pro forma basis, as if we acquired Churchill and PeopleMover on
January 1, 1999, our revenues for the year ended December 31, 1999 would have
been $2.0 million and our net loss would have been $50.3 million. On a pro forma
basis as if the PeopleMover acquisition had been consummated as of December 31,
1999, our accumulated deficit would have been $30.4 million. Under the rules of
the SEC, we have not included in this prospectus pro forma information relating
to our acquisitions of Ithority and INDUSTRYINSITE.COM. See "Unaudited Pro Forma
Combined Financial Statements."
Classification and Recognition of Revenues
We classify and recognize our revenues within our reportable segments as
follows:
FREEAGENT SERVICES REVENUE
FREEAGENT E.OFFICE revenues consist of an initial sign-up fee of $199 and
monthly fees, ranging from approximately $120 to $400 depending on the level of
services package requested, 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. Free agents may elect to terminate the
receipt of FREEAGENT E.OFFICE services at any time and for any reason; however,
we have no obligation to return any fees previously paid by the free agent.
FREEAGENT business services revenues consists of commission-based or
fee-based e-commerce services for 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 and
products provided by these business partners. These services will consist of a
variety of support services, including training, health benefits, and products
designed to help free agents establish and manage their careers. We will be paid
a commission or a fee, either on a fixed or variable basis, based on the
purchase
43
<PAGE>
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, provided that no significant
obligations on our part exist, including refunds, and collection of the
resulting receivable is probable.
FREEAGENT.COM advertising revenue, consists of advertising revenues sold on
a monthly or extended-term basis and fees from sponsorship arrangements which
allow advertisers to sponsor an area of FREEAGENT.COM. Banner advertising
revenues are recognized as revenue over the period in which the ads are
displayed, and sponsorship revenues will be recognized over the term of
sponsorship. These revenues are derived either through third party advertising
organizations which sell advertising space on FREEAGENT.COM, in which case we
will receive a negotiated percentage of the advertising fee charged by the
organization to the advertiser, or directly from the advertiser who purchases
the advertising space from us.
APPLICATION AND PROCUREMENT SERVICES REVENUE
OPUS XCHANGE project listing revenues consist of fees that are paid by
organizations that list projects on OPUS XCHANGE. An organization may either pay
a fixed fee of $50 for each specific project listed or a quarterly fee of $500
for unlimited listings during that quarter. These fees will be recognized as
revenues over the applicable period for which the project is listed. Through
December 31, 1999, project listings were offered to organizations without
charge.
OPUS XCHANGE project placement revenues consist of a negotiated fixed base
fee and/or a variable fee, generally ranging between 1% to 10% of the total
procurement dollar value. These fees to be paid by the contracting organization
will generally be recognized as revenue either when a person is engaged for a
project if the person is not a FREEAGENT E.OFFICE employee, or over the term of
the contract with the buyer if the person is our FREEAGENT E.OFFICE employee.
Through December 31, 1999, we did not charge organizations for project
placements.
OPUSRM and OPUS XCHANGE integration revenues consist of fees based on our
standard billing rates paid for the integration, installation and customization
of OPUSRM and the enhanced version of OPUS XCHANGE and are 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. These
fees will be negotiated with each organization and are expected to vary based on
the number of seats managed in the OPUSRM database. Unlike traditional software
pricing models, which employ one-time license fees and annual maintenance and
upgrade fees, our OPUSRM service is offered 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.
As noted above, through December 31, 1999, over 95% of our revenues were
fees for our FREEAGENT E.OFFICE services. The remaining portion of our revenues
principally consisted of FREEAGENT.COM advertising revenue. In January 2000, we
began to recognize FREEAGENT business services and FREEAGENT.COM advertising
revenues and began to charge OPUS XCHANGE project listing fees. We expect to
charge for OPUS XCHANGE project placement fees beginning in the first quarter of
2000 and to begin to recognize OPUSRM and enhanced OPUS XCHANGE integration and
service revenues in the first half of 2000. Over time, we expect that the
revenues derived from our application and procurement services segment will
comprise an increasing percentage of our total revenues.
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 services
segment include salaries paid to staff that help administer our FREEAGENT
E.OFFICE services and other costs associated with operating
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<PAGE>
FREEAGENT.COM, including certain technical personnel, equipment leasing costs,
telecommunications charges and depreciation. We expect cost of revenues for our
FREEAGENT services to increase as a percentage of revenues in the near term as
we continue to build 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 and
enhanced OPUS XCHANGE customers as well as other costs associated with operating
OPUS XCHANGE and OPUSRM, including certain technical personnel, equipment
leasing costs, telecommunications charges and depreciation.
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 EXPENSES. Sales and marketing expense consists
primarily of agency fees, production fees, marketing and advertising for OPUS
XCHANGE and OPUSRM, 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 OPUS XCHANGE and OPUSRM will continue to cause fluctuations in sales and
marketing expense as a percentage of revenues. We intend to aggressively market
our services to increase our brand awareness. 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. Sales
and marketing expense will increase in future periods as we continue to grow our
business and as a result of our recent acquisitions. For example, we currently
estimate that we will use approximately $15 to $20 million of the net proceeds
of this offering for sales and marketing. See "Use of Proceeds."
PRODUCT DEVELOPMENT EXPENSES. 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. Product
development expense are expected to increase in future periods as we continue to
develop our products and services and as a result of our acquisition of
PeopleMover. For example, we currently estimate that we will use approximately
$15 to $20 million of the net proceeds of this offering for product and
technology development. See "Use of Proceeds."
GENERAL AND ADMINISTRATIVE EXPENSES. 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. General
and administrative expense will increase in future periods as we continue to
grow our business and as a result of our recent acquisitions.
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
year ended December 31, 1999, we incurred net losses of approximately
$29.4 million. As of December 31, 1999, we had an accumulated deficit of
approximately $30.4 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, OPUSRM and PEOPLEMOVER/STAFFING 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.
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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.
The following table presents our quarterly operating results for the four
quarters ended December 31, 1999.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------
March 31, 1999 June 30, 1999 September 30, 1999 December 31, 1999
-------------- ------------- ------------------ -----------------
(in thousands)
<S> <C> <C> <C> <C>
Revenues.......................... $ -- $ 64 $ 177 $ 178
Cost of revenues.................. -- 9 139 113
------- ------- ----------- --------
55 38 65
Operating expenses excluding
deferred compensation........... 1,976 3,721 6,494 15,654
------- ------- ----------- --------
Net loss from operations before
deferred compensation........... $(1,976) $(3,666) $ (6,456) $(15,589)
</TABLE>
Year Ended December 31, 1999 Compared to Period from August 17, 1998 (Inception)
to December 31, 1998
REVENUES
For the year ended December 31, 1999, our revenues were $0.4 million,
substantially all of which consisted of the initial sign-up fees and monthly
fees paid by our FREEAGENT E.OFFICE employees. We had no revenues for the period
August 17, 1998 (inception) to December 31, 1998. At January 31, 2000, we had
over 64,000 registered users of FREEAGENT.COM, of whom 286 were FREEAGENT
E.OFFICE employees, approximately 190 of whom joined us through our May 1999
acquisition of Churchill.
COST OF REVENUES
Cost of revenues for the year ended December 31, 1999 were $0.3 million and
were $0 for the period from August 17, 1998 (inception) to December 31, 1998.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses of $11.1 million for the
year ended December 31, 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 in 1999 included non-cash
charges of $0.2 million related to the fair market value of warrants issued as
partial consideration for advertising services provided by Kirshenbaum Bond &
Partners. See Note 10 of Notes to our Consolidated Financial Statements included
elsewhere in this prospectus. A portion of the advertising services will
continue to be paid on a quarterly basis by the issuance of additional warrants
having an exercise price of $0.01 per share through the consummation of this
offering. The next quarterly payment will be made at the end of February 2000.
As a result, we expect to incur additional non-cash charges in the first quarter
of 2000. The amount of these non-cash charges in 2000 through the consummation
of this offering is currently not determinable since it will be based on the
fair market value of our common stock on the date of issuance of the warrants
determined under the Black-Scholes pricing model, some variables of which will
not be known until the date of grant. 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 $9.0 million for the
year ended December 31, 1999 consisted primarily of salaries and consulting fees
paid to our development engineers. Product
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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 in 1999 included non-cash charges of approximately $24,000 related to
the amortization of the fair market value of warrants and stock issued as
consideration for product and development services provided by Sapient
Corporation and J.P. Morgan & Co. Incorporated, respectively. See Note 10 of
Notes to our Consolidated Financial Statements included elsewhere in this
prospectus. 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
$7.1 million for the year ended December 31, 1999 consisted primarily of
salaries and benefits, general office expenses, rent and utilities, recruiting
fees and professional fees. General and administrative expense in 1999 included
non-cash charges of $0.4 million related to the amortization of the fair market
value of warrants to purchase 450,000 shares of our common stock issued as
consideration for financial and advisory services provided by Greenhill & Co.,
LLC, one of our stockholders. In accordance with our financial advisory
agreement with Greenhill, warrants to purchase an additional 450,000 shares of
our common stock were issued to Greenhill in January 2000 upon consummation of
the Ithority and INDUSTRYINSITE.COM acquisitions. As a result, we recorded the
remaining $0.2 million of amortization associated with the first warrants and we
recorded a prepaid expense of approximately $0.8 million associated with the
second warrants which will be amortized over one year. Accordingly, we will
reflect additional non-cash charges of approximately $0.2 million per quarter in
2000 as a result of this issuance. See Note 10 of Notes to our Consolidated
Financial Statements included elsewhere in this prospectus. General and
administrative expenses for the period August 17, 1998 (inception) to
December 31, 1998 were $0.4 million.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of
$0.6 million for the year ended December 31, 1999 consisted primarily of
amortization of goodwill associated with the Churchill acquisition and
depreciation of equipment. Depreciation and amortization expense was negligible
in the 1998 period. Depreciation and amortization expense will increase
substantially in future periods, primarily reflecting amortization of goodwill
and intangible assets associated with our acquisitions of PeopleMover, Ithority
and INDUSTRYINSITE.COM, and depreciation of assets acquired in these
acquisitions. As a result of the PeopleMover acquisition, depreciation and
amortization expense will increase approximately $10.5 million for each of the
next three years. See "Unaudited Pro Forma Combined Financial Statements."
AMORTIZATION OF EQUITY-BASED COMPENSATION. The amortization of equity-based
compensation for the year ended December 31, 1999 was $2.4 million and consisted
principally 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. Of this
amount, $0.8 million was amortization of deferred compensation expense
associated with option grants to employees, officers and directors and included
amounts related to the acceleration of certain options granted to directors. In
addition, we recognized $0.2 million of compensation expense upon the purchase
of shares of our common stock by our Chairman and Chief Executive Officer from a
former employee at the employee's original purchase price in accordance with a
repurchase agreement. See Note 10 of Notes to our Consolidated Financial
Statements included elsewhere in this prospectus. In January and February 2000,
we issued options to purchase 1,802,333 shares of common stock at exercise
prices below the fair market of our common stock at the date of grant to
directors, officers and employees, principally to our new President and Chief
Operating Officer. After giving effect to the issuance of these additional
options, we have recorded total deferred compensation of $11,762,000, which we
expect to recognize as compensation expense in future periods as follows:
<TABLE>
<CAPTION>
Deferred
Period Compensation Expense
- --------------------------------------------------------- --------------------
<S> <C>
Year ending December 31, 2000............................ $4,787,000
Year ending December 31, 2001............................ 2,992,000
Year ending December 31, 2002............................ 2,992,000
Year ending December 31, 2003............................ 991,000
</TABLE>
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In connection with the grant of 322,000 stock options in 1999 to
non-employees, we recorded deferred compensation expense of approximately
$1.9 million for the year ended December 31, 1999. In December 1999, we fully
vested 245,000 of the options granted to non-employees which would have
otherwise vested over a three-year period. Accordingly, we revalued and
immediately expensed the fair market value of these options and amortized to
compensation expense any previously unamortized deferred compensation related to
these options. The amount recognized as expense during the year ended
December 31, 1999 relating to non-employee options, including in respect of the
accelerated options, was $1.4 million. In February 2000, we issued to
non-employees options to purchase an additional 32,250 shares of our common
stock, also subject to a three-year vesting period. 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. We cannot presently determine the
amount of future compensation expense we may record related to the 109,250
non-vested 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. The compensation expense charges could be substantial and will
increase if our stock price increases.
As a result of the acquisition of Ithority, we recorded approximately
$5.3 million of deferred compensation expense in the first quarter of 2000
related to the shares placed in escrow and additional shares issuable to the
former owners of Ithority which are subject to the three-year vesting
arrangement. See "--Recent Acquisitions." We will amortize this amount over the
vesting period. Accordingly, we will reflect additional non-cash charges related
to these shares of approximately $0.4 million per quarter.
As a result of the PeopleMover acquisition, we recorded approximately
$3.1 million of deferred compensation expense in the first quarter of 2000
related to a portion of the shares to be placed in escrow which will be subject
to the three-year vesting arrangement. See "--Recent Acquisitions." We will
amortize this amount over the vesting period. Accordingly, we expect to reflect
additional non-cash charges related to these shares of approximately
$0.3 million per quarter.
As a result of the foregoing, we expect to have deferred compensation
expenses of approximately $7.6 million in 2000 and $5.8 million in each of 2001
and 2002. These amounts do not reflect compensation expense which will be
recorded in connection with the vesting of the remaining 109,250 options issued
to non-employees as described above.
OTHER INCOME. Interest income, net of $0.7 million for the year ended
December 31, 1999 consisted primarily of interest income from short-term
investments. Interest income, net was negligible in the 1998 period. We have
invested our cash primarily in 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 December 31, 1999, we had a net operating loss carryforward of
$26.7 million which gives rise to substantially all of our $11.7 million gross
deferred tax asset. We have recorded a valuation allowance in the amount of
$11.7 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 with the sale of our equity
securities, through which we have raised net proceeds of approximately
$53.4 million through December 31, 1999. Between December 1998 and April 1999,
we raised in a private placement approximately $11 million from the sale of
8,284,000 shares of our Series A preferred stock. We also issued 852,000
warrants to purchase common stock in connection with the issuance of the
Series A preferred stock. During September and October 1999, in another private
placement, we raised $40 million from the sale of 8,676,727 shares 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
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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 46,500 shares of our common stock. The
facilities contain various non-financial covenants, and the maintenance of
$2.0 million of tangible net worth covenant. At December 31, 1999, we were in
compliance with all of these covenants. Amounts borrowed under the facilities
are secured by our current assets. At December 31, 1999, our cash and short-term
investments totaled $28.5 million.
Cash used in operating activities for the year ended December 31, 1999
totaled $20.8 million, primarily due to our net loss of $29.4 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, 1998. 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 year ended December 31, 1999
totaled $30.7 million. We used $27.1 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 new principal offices during the
first quarter of 2000 and expect to spend approximately $3.5 million in capital
expenditures as part of the design and development of these new facilities. In
addition, we also expect to have additional capital expenditures of
approximately $3 to $7 million during 2000.
Net cash provided by financing activities for the year ended December 31,
1999 was $47.0 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. Each share of the Series A
preferred stock and Series B preferred stock will automatically convert into 1.5
shares of common stock upon consummation of this offering.
In December 1999 and January 2000, we entered into separate agreements with
Alta Vista (through Worldlife Solutions, Inc.), CareerPath.com and Vault.com,
pursuant to which the parties have agreed to promote each party's respective
content, products and services and jointly develop either a co-branded website
or feature each party's services within their respective web sites. We have
agreed to spend in the aggregate a minimum of approximately $0.1 million in
development costs as well as approximately $5.0 million in advertising to market
the new sites. In addition, the terms of some of these agreements require us to
share a portion in varying amounts of the revenues generated on the site,
including advertising and e-commerce revenues, with these parties. The terms of
these agreements vary from one to five years. We have also entered into an
agreement with PricewaterhouseCoopers pursuant to which we have agreed to
purchase development and implementation services through September 2000. The
aggregate annual commitment under these agreements does not exceed $4.0 million
in 2000 or $1.5 million thereafter.
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. If we
are unable to complete this offering and the concurrent placement or if the net
proceeds from this offering and the concurrent placement are significantly less
than we anticipate, we may not be able to expand our operations in the manner
that we currently plan. In the future, we may need to raise additional funds
through public or private financings, or other arrangements to fund our
operations and potential acquisitions, if any. We currently have no plans to
effect any other offerings. We cannot assure you that any financings or other
arrangements will be available in amounts or on terms acceptable to us or at all
and any new financings or other arrangements could place operating or other
restrictions on us. Our inability to raise capital when
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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.
Qualitative and Quantitative Disclosure About Market Risk
As of December 31, 1999, we had $27.1 million in short term investments,
which were held primarily in the form of short term, investment grade U.S.
government securities. As a result, our interest income is sensitive to changes
in the general level of U.S. interest rates. However, due to the short-term
nature of our investments and the fact that we generally hold these instruments
until their maturity dates, we believe that we are not subject to any material
risks as a result of this exposure.
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. However,
these systems and software products now need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. While computer systems
and software used by many companies and governmental agencies have been upgraded
to comply with these year 2000 requirements, existing systems and software at
some companies may still 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.
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 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 information technology and non-information technology systems could
result in claims of mismanagement, misrepresentation or breach of contract and
related litigation, which could be costly and time-consuming to defend.
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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.
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. As of the date of this prospectus, we have not experienced any
year 2000 problems and are not aware of any material year 2000 problems
experienced by our customers or potential customers.
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
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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 Internet-based services for putting people and projects
together across the labor supply chain. Our business-to-business service uses
advanced technologies to enable corporations, professional services firms,
staffing companies and other organizations to identify and procure professionals
with technology, creative, strategic consulting and other expertise required for
their projects. Our strategy is to build the largest community of free agents by
providing them with access to multiple project opportunities and to create a
marketplace that will attract large buyers of professional resources to fulfill
their project needs. We believe organizations will use our labor resource
management services in order to more efficiently manage their highly skilled
internal and external professional resources.
Our three services, each of which is offered and can be used as a
stand-alone application and is designed to be integrated and used with each
other, consists of:
- SERVING THE FREE AGENT COMMUNITY. FREEAGENT.COM is a website where free
agents can efficiently and cost-effectively manage their independent
careers by accessing multiple project opportunities, our FREEAGENT
E.OFFICE and E.PORTFOLIO services and a marketplace of corporate products.
- MATCHING BUYERS WITH PROFESSIONALS FOR PROJECTS. OPUS XCHANGE is an
Internet service designed to enable buyers requiring individuals with
specific professional skills to quickly and easily procure those
professionals through matching technologies in an online environment. Our
enhanced version of OPUS XCHANGE for large corporate customers is designed
to enable corporations, professional services firms, staffing companies
and other organizations to easily and rapidly procure professionals from
all sources across the labor supply chain using more advanced matching
technologies 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 commercially
release OPUSRM and our enhanced version of OPUS XCHANGE.
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 solution has created a foundation for
business-to-business e-commerce that will enable organizations to streamline
complex processes, lower costs and improve productivity. According to Forrester
Research, business-to-business e-commerce is expected to grow from an estimated
$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 PROFESSIONALS
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
professionals with skills including strategic consulting, creative design and
systems engineering. In response, many organizations externally source, on a
project-by-project basis, different aspects of the development, design and
maintenance of their e-commerce strategies and applications to qualified
independent professionals, professional services firms and staffing companies to
capitalize on their accumulated strategic, creative and 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.
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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
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, workers supplied by
professional services firms or staffing companies 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 professionals across the
labor supply chain on multiple projects has been, and continues to be, a
resource intensive, paper based, and error prone process, resulting in increased
costs, inefficient utilization and decreased profits.
INEFFICIENT MARKETPLACE FOR PROCURING PROFESSIONALS
As organizations and individuals increasingly embrace more flexible work
arrangements made possible by advances in technology and telecommunications, a
community of independent professionals that desire to work outside of the
corporate environment has emerged. The primary obstacle impeding an
organization's ability to easily and rapidly reach professionals has been the
lack of an efficient solution to connect them with professionals from numerous
professional services firms, staffing companies and other organizations and free
agents. Because of the Internet's ability to centralize information and
disseminate it widely, a growing number of organizations are using it as a
solution for improving their labor procurement processes. According to
Forrester, of the six 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
professionals will lead to an increase in the number of organizations that
procure external labor online.
LARGE MARKET OF UNDERSERVED FREE AGENTS
While free agents 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.
Our Services
We provide Internet-based services for putting people and projects together
across the labor supply chain. Our business-to-business e-commerce service is
designed to streamline the procurement and management of professional resources
and to enable corporations, professional services firms, staffing companies and
other buyers requiring individuals with specific professional skills to identify
and procure these professionals to
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fulfill project needs and to enable free agents to search for and secure project
assignments. Our services consist of the following:
SERVING THE FREE AGENT COMMUNITY
FREEAGENT.COM is a website where free agents can access multiple project
opportunities from corporations, professional services firms and staffing
companies and more effectively market themselves using E.PORTFOLIOS, which are
standardized, machine-readable and in an easily searchable format. An
E.PORTFOLIO, in addition to containing traditional resume information such as
their skills, experiences, references and other professional information, allows
free agents to, among other things, upload their photographs, audio/video clips,
graphic design snapshots, and PowerPoint files. In contrast to the typically
static paper-based resume, an E.PORTFOLIO is a multimedia, online service that
is easily updatable to reflect a real-time snapshot of a free agent's
availability, work experiences and preferences and current project pipeline.
Through FREEAGENT.COM, free agents can interact with each other, receive
industry-related content and research project offerings. Free agents can also
subscribe for corporate-style benefits and administrative services to assist
them in managing their careers.
As of February 29, 2000, we had over 76,800 registered free agents, over
26,300 E.PORTFOLIOS and over 4,000 active projects posted on FREEAGENT.COM.
MATCHING BUYERS WITH PROFESSIONALS FOR PROJECTS
OPUS XCHANGE is an Internet-based, business-to-business service that is
designed to enable organizations to post projects through FREEAGENT.COM and
procure free agents that match the specific skills, qualifications and
preferences required by these organizations. Our enhanced version of OPUS
XCHANGE, which is designed for use by large clients such as corporations,
professional services firms and staffing companies, enable these organizations
to perform, sophisticated and customized searches to identify and procure
professionals from any source in the labor supply chain. It will also facilitate
the transactions among them by automating the requisition, approval and
engagement processes. We believe our enhanced version of OPUS XCHANGE will
assist organizations by capturing data each time the service is used on the
time, efficiency, cost-competitiveness and quality of professionals and
suppliers of professionals. We have established these performance metrics and
refer to them collectively as TCQ(2) or Time, Cost, Quality and Quantity, an
internally developed performance tracking system that evaluates the service of
vendors and free agents. There are numerous metrics traced in each TCQ(2)
category. For example, under the category Time, we will track the time in number
of days elapsed from the moment a staffing vendor receives a requisition to the
time that the staffing firm responds back to the client with qualified
candidates. There will be similar metrics tracked by the OPUS XCHANGE service in
the other TCQ(2) categories. We also believe that access to this performance
data will eventually help these large clients in evaluating the performance of
their suppliers of professionals as well as better understanding of the
prevailing billing rates and skills of such project-based professionals. We
expect to commercially release our enhanced version of OPUS XCHANGE by June 30,
2000.
MANAGING LABOR RESOURCES
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 and post-transaction analysis. OPUSRM allows
organizations to build a central database of information on all current and
future projects, and all information on the professionals within the
organizations, including their background, skills sets and availability. By
having a central database of project needs as well as the skills and
availability of the workforce, staffing managers within the organization will be
able to quickly and efficiently identify, match and assign professionals to the
appropriate projects. 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 easily and rapidly integrate with OPUS XCHANGE
and our FREEAGENT.COM community, enabling organizations to procure, manage and
track the project performance of external resources in the
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same manner as full-time employees. We expect to launch OPUSRM in the first half
of 2000 and integrate OPUSRM with the enhanced version of OPUS XCHANGE in the
second half of 2000.
Our Strategy
Our goal is to be the leading provider of Internet-based services for
putting people and projects together across the labor supply chain by providing
services that enhance the efficiency of the procurement and management of
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 by
continuing to aggressively market our services. We will also seek to enter into
additional distribution, co-branding and other similar arrangements with
companies that will provide us with access to a larger base of free agent talent
through their existing customer bases. 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 PROFESSIONALS
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 requiring professionals to
fulfill project needs. We believe that creating an easy-to-use, open marketplace
based on XML standards that allow buyers and professionals to interact easily
and rapidly with each other will increase the flow of projects to our OPUS
XCHANGE marketplace. We expect that our direct sales and marketing efforts to
attract large buyers of professionals will be augmented by the sales and
marketing efforts of organizations with which we enter into strategic
relationships and that have existing relationships with these buyers.
CAPTURE IMPORTANT DATA ON PROFESSIONALS AND ORGANIZATIONS
The enhanced version of OPUS XCHANGE is designed to capture and manage
performance information about suppliers of project-based professionals, such as
staffing companies, professional services organizations and other recruiting,
search and placement firms, as well as performance information about the
professional after completion of the project. Vendor performance information
will enable organizations to analyze the timeliness of vendor response,
appropriateness of individual candidates provided by the vendor and the cost
competitiveness of the vendor service. We expect to develop and maintain an
extensive database of professionals and vendor information through relationships
with internal, vendor, client and free agent sources. Each time a professional
completes a project, we will attempt to gather information about the
individual's skills and expertise and the client's evaluation of their project
performance. This data will enable us to provide organizations with industry
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 data about the vendor
and professionals 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 AND OPUS XCHANGE
We target our sales and marketing for OPUSRM and our enhanced version of
OPUS XCHANGE, which we expect to commercially release during the first half of
2000, to resource-intensive, project-focused service organizations, such as
information technology, web consulting firms, internal information technology
departments of Fortune 1000 companies, information technology staffing companies
and other service firms. We also intend to provide additional consulting and
support services to these organizations and believe that these on-going
relationships will enable us to sell new services as they are developed. We
believe that organizations using either OPUS XCHANGE or OPUSRM alone will find
it attractive to use both services because
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they have been designed to integrate with one another to provide organizations
with a single service for the procurement and management of their internal and
external professional resources.
CONTINUE TO ENHANCE FUNCTIONALITY OF SERVICES
We intend to provide the best available services and tools to empower buyers
requiring professionals to fulfill project needs to more effectively manage
their labor procurement processes. 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 designed for large corporate customers, which
will provide advanced vendor management, performance tracking and enhanced
matching capabilities. The enhanced version of OPUS XCHANGE will also capture
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 that will work with clients to develop
and further enhance our services.
PURSUE STRATEGIC ACQUISITIONS
We have recently completed the acquisitions of Ithority, INDUSTRYINSITE.COM
and PeopleMover. These acquisitions expand or are complementary to our business
and we expect that we will continue to evaluate from time to time acquisition
and investment opportunities in complementary businesses, products and
technologies. We intend to explore opportunities which may accelerate our
growth, attract buyers requiring individuals with specific professional skills
to fulfill project needs, increase our free agent talent pool, add new content
and advertisers, enhance our product and services, develop new technologies or
assist us in penetrating new markets, including the international markets.
Products and Services
FREEAGENT.COM
FREEAGENT.COM is a website 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, third-party commercial
and professional products and services, community, content, information sharing
and networking. As of February 29, 2000, over 76,800 free agents were registered
users of FREEAGENT.COM. FREEAGENT.COM currently includes the following services:
E.PORTFOLIOS AND PROJECT OPPORTUNITIES. FREEAGENT.COM enables free agents to
create E.PORTFOLIOS to market themselves to organizations seeking project-based
professionals. 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 his
or her services, and allows the free agent to upload his or her photograph,
audio/visual clips, graphic design snapshots and PowerPoint files. With an
E.PORTFOLIO professionals can include in one standardized, machine-readable and
easily searchable format information that would in a paper-based format include
numerous pages and attachments. As organizations list projects on OPUS XCHANGE,
our search 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
respond to projects. In the future, we expect to incorporate additional
functionality into our E.PORTFOLIO service, such as video interviewing
capabilities. As of February 29, 2000, over 26,300 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. As we enter into additional distribution, co-branding
and other similar arrangements, we expect to provide in the future individual
sites within FREEAGENT.COM which will contain industry-specific content designed
for specific segments of our free
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agent community, such as the technology, creative and strategic consulting
segments. We also plan to provide free agents with professional networking
opportunities by offering them access to specialized databases of other
professionals where they can find potential mentors and contacts across a range
of professions, backgrounds and interests. In addition, we also expect to
facilitate the 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 February 29, 2000,
approximately 284 of our registered free agents had elected to receive our
FREEAGENT E.OFFICE services. As of December 31, 1999, 234 organizations have
used our FREEAGENT E.OFFICE employees. 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.
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. These products and services, which are
provided by third party vendors with whom we have entered into distribution
arrangements, include computers, business cards, industry group membership, fax
and communication equipment, office supplies and training and reference
materials. We generally will be paid a commission or fee, either on a fixed or
variable basis, based on the purchase price for each service used by, or product
purchased by each registered free agent. To date, we have not generated any
significant revenues from these relationships. 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.
ITHORITY
Our recent acquisition of Ithority expands our FREEAGENT.COM marketplace to
include any buyer or seller of expert knowledge. Ithority's knowledge
marketplace connects experts on a variety of subjects, such as technology,
software development, strategic consulting and graphic design with buyers
requiring such knowledge. These buyers and sellers generally negotiate a fee for
the sale of this knowledge. Ithority has
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charged, and we will charge, a percentage of the fee received by the provider of
the expert knowledge. We plan to integrate Ithority into FREEAGENT.COM during
the first half of 2000.
OPUS XCHANGE
OPUS XCHANGE is an Internet service that enables corporations, professional
services firms and staffing companies to post projects and procure free agents
for project assignments. OPUS XCHANGE is designed to perform a detailed match of
a project manager's specific project skill requirements with the corresponding
skills set forth in E.PORTFOLIO, producing a more accurate match than a
traditional text-based resume search. OPUS XCHANGE ranks each candidates
E.PORTFOLIO against the project manager's requisition of required skills,
performances and availability. In addition, the project manager is able to
review multiple E.PORTFOLIOS concurrently.
Our enhanced version of OPUS XCHANGE is designed to enable our customers to
identify and procure professionals using more sophisticated matching
technologies and to reduce candidate search and procurement costs. The typical
process today for procuring external, project-based workers is often a manual,
paper-based and inefficient process. Our enhanced version of OPUS XCHANGE will
provide an Internet service which facilitates the procurement of contract
professionals from any source in the labor supply chain. We believe each of our
OPUS XCHANGE services will benefit both buyers and professionals by creating a
more efficient labor procurement marketplace.
Our enhanced version of OPUS XCHANGE is designed to facilitate the following
steps of the labor procurement process:
- THE COMPLETION OF AN ONLINE REQUISITION FOR A PROFESSIONAL. Today,
requisitions are often completed on a piece of paper and faxed to the
supplier or communicated by telephone. OPUS XCHANGE is designed to allow
project managers to enter their exact requirements online and to
instantaneously send this requisition to various suppliers with the press
of a button rather than sending multiple faxes or making multiple phone
calls.
- THE EVALUATION OF QUALIFIED CANDIDATES FOR A PROJECT. Using OPUS XCHANGE,
suppliers and individuals will be able to submit their E.PORTFOLIO
directly for viewing by the project manager. OPUS XCHANGE will allow the
project manager to view and automatically rank against the required
skills, performances, and availability all E.PORTFOLIO responses from
suppliers and individuals, through a single easily accessible and
searchable OPUS XCHANGE webpage. This is in contrast to the typical
process of receiving multiple paper-based or e-mail resumes which must be
manually reviewed, compared and categorized.
- THE SCHEDULING OF CANDIDATE INTERVIEWS. Through OPUS XCHANGE, suppliers
and individuals will be able to suggest available interview times when
they submit their response forms. Project managers may then accept the
appropriate interview times online when they select the candidate for
interviews.
- THE COMPLETION OF ONLINE EVALUATION FORMS. Rather than a paper-based
evaluation form or even a wordprocessor-based evaluation form, OPUS
XCHANGE will supply an on-line evaluation form for interviewees and
project managers. These evaluation forms will also be distributed
automatically to the project manager with a reminder to complete the
evaluation. Today, this process is often completed manually. By compiling
and storing evaluation forms on-line the organization will be able to
easily search completed evaluations in connection with new project
requisitions and better evaluate candidates based on past performance.
- THE COMPLETION OF PROJECT TIME AND EXPENSE REPORTS. Through OPUS XCHANGE,
professionals will be able to complete online time and expense reports.
These time and expense reports will then be automatically routed to the
various approvers on both the buyer and supplier sides of the transaction.
Today, the time and expense reports are typically completed manually, on
spreadsheets or paper-based forms. Often buyers and suppliers have their
own time and expense systems which are often different or incompatible so
that the information must be entered twice because there is often no
connection between the buyer and supplier systems.
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OPUS XCHANGE is designed to be accessed and used as a stand-alone
application or it can be used together with OPUSRM AND FREEAGENT.COM as an
integrated service. To facilitate transactions in the OPUS XCHANGE marketplace,
we are implementing open XML standards that will enable corporations,
professional service firms, staffing companies and other buyers and providers of
professionals to connect their existing and new systems to OPUS XCHANGE
including OPUSRM or other resource management applications.
We expect to commercially release the enhanced version of OPUS XCHANGE for
large corporate clients 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 professionals 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 companies and sellers
of project-based professionals 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 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.
The technologies employed by OPUSRM match the qualifications and criteria
needed by an organization's project manager with the qualifications and
experience of the organization's employees as set forth in his or her
E.PORTFOLIO contained in the organization's OPUSRM database. OPUSRM allows a
project manager or staffing manager to search for professional resources based
on numerous criteria, including technical skills, level of skill, number of
years of experience, availability, geographic location and industry experience.
Once identified, OPUSRM then allows the project or staff manager to allocate the
professional to the project.
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, if integrated with OPUS XCHANGE, will also manage the procurement
of external resources for projects. OPUSRM can be integrated with existing
systems and incorporate 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 service.
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We believe customers will increasingly use Internet applications instead of
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.
PEOPLEMOVER
On February 24, 2000, we acquired PeopleMover. PeopleMover is a developer of
Internet-based resource management application services, similar to our OPUSRM
service, principally focused on the needs of staffing firms. Its principal
application service, PEOPLEMOVER/STAFFING, enables professional staffing firms
to recruit and assign people to jobs based on skills and availability.
PEOPLEMOVER/STAFFING manages information regarding a staffing firm's resources
and applicants, customer accounts including job and project openings and sales
activity. PEOPLEMOVER/STAFFING supports many of the needs of large staffing
firms including:
- resume scanning and matching against openings;
- tracking of skills and availability of contractors and applicants;
- time and expense processing; and
- integration with back office systems for billing, payroll and human
resources.
PeopleMover currently provides its PEOPLEMOVER/STAFFING service to 11
staffing companies.
Customer and Business Relationships
We have entered into a three-year agreement with CAREERPATH.COM, a full time
recruiting services 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. Under the agreement,
FREEAGENT.COM will be CAREERPATH.COM's exclusive service for the procurement of
project-based professionals. The co-branded website will:
- allow CAREERPATH.COM's affiliated network of over 100 national and
regional newspapers to list projects on OPUS XCHANGE;
- allow employers to procure professionals for projects through the
co-branded website and individuals to obtain all of the products and
services available on FREEAGENT.COM; and
- allow CAREERPATH.COM's current database of over 1,000,000 individuals to
be matched to projects through OPUS XCHANGE.
We agreed with CAREERPATH.COM to jointly share the costs associated with
building the co-branded website which we estimate to be $180,000. Any amounts in
excess of this estimate will be our responsibility. We have agreed to share a
portion of the revenues generated from transactions conducted through the
co-branded website with CAREERPATH.COM, including with respect to revenues
generated from project listing and placement fees, subscriptions for products
and services and advertising revenue. We agreed to pay CAREERPATH.COM an advance
on its first year revenue share and for advertising fees to promote the
co-branded website in their affiliated newspapers through the issuance of
245,355 shares of our common stock valued at $2.0 million. Based on an assumed
initial public offering price of $10 per share, these shares have a market value
of $2,453,550. Our agreement with CAREERPATH.COM limits our ability to enter
into similar integrated co-branding arrangements with their direct competitors
in the full time recruiting marketplace for a period of 18 months from the date
of the launch of the co-branded site.
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OPUS XCHANGE
The following companies have entered into agreements with us to post
projects to OPUS XCHANGE:
<TABLE>
<S> <C> <C>
Aegis Software ISAM People Unlimited Consulting
Cambridge Technology Partners J.P. Morgan & Co. Primenet
CompuCom Systems Klein Management Systems recruit.com
Concise Design Lucent Technologies RCM Technologies
Eland Solutions MDTSC SVR Group
ETR Technology Center MISI Co. The Sporn Group
Gregory & Gregory Legal Staffing NSP TIS Worldwide
International Informaric Solutions Paragon Computer Professional
</TABLE>
In addition, Cambridge Technology Partners, CompuCom Systems, Inc., J.P.
Morgan & Co. and Lucent Technologies Inc. have entered into agreements with us
to use our enhanced version of OPUS XCHANGE.
OPUSRM
The following companies have entered into agreements with us to use OPUSRM:
<TABLE>
<S> <C> <C>
CompuCom Systems Lucent Technologies Sapient Corporation
CyberSafe Corporation PRT Group
</TABLE>
PricewaterhouseCoopers has agreed to be an integration and implementation
services provider for our OPUSRM product.
PEOPLEMOVER/STAFFING
The following companies have entered into agreements with PeopleMover to use
PEOPLEMOVER/STAFFING:
<TABLE>
<S> <C> <C>
Aetea Information Technology Global Employment Solutions Seltman, Cobb & Bryant
DM Stone Net-Strike Worldwide Superior Technical Resources
Dunhill Staffing Systems Re: source Connection The TriStaff Group
Furst Staffing Services Robert Half International
</TABLE>
Product and Service Providers
The following product and service providers promote their offerings through
FREEAGENT.COM either directly or through third parties. We receive a percentage,
typically between 5% and 30%, of any revenues generated by 24 of these parties
from the sale of these products and services to users of FREEAGENT.COM. In
addition, we receive a fixed fee per transaction from 13 of these parties. We do
not receive any revenue from
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one provider. To date, we have not generated any significant revenues from these
relationships. These product and service providers are:
<TABLE>
Gift, Greetings and Other
Office Computer and Internet Information
- ----------------------------- ----------------------------- -----------------------------
Ameritech/Yellowpages.net Alias Wavefront 1-800-Flowers
<S> <C> <C>
Amazon.com Crucial Technology 2ThankU.com
BizBuyer Datafix.com cardstar.com
Bizfone McAfee Enews
ConsumerInfo.com PC Connections Link Share
Furniture.com QuickSand Prestige
Officemax Veritec Inc. TheGift.com
Send.com Webtrends WebCriteria
Staples
Textbooks.com
</TABLE>
<TABLE>
Education Printing/Shipping Communications
- ----------------------------- ----------------------------- -----------------------------
JCM Enterprise e*Stamp Bell South
<S> <C> <C>
Sessions iPrint.com Perfect Cents
Tutorials.com SmartShip
</TABLE>
<TABLE>
Financial Insurance General
- ----------------------------- ----------------------------- -----------------------------
OneCore.com TechInsurance.com ActBig.com
<S> <C> <C>
Qspace
</TABLE>
Content and Distribution Relationships
We have entered into agreements with the following companies that will
provide content to FREEAGENT.COM and/or will feature FREEAGENT.COM products and
services and OPUS XCHANGE on their websites or on co-branded websites,
including:
<TABLE>
<S> <C> <C>
AltaVista (through Worklife Solutions, Inc.) Career Exchange Wall Street Journal Interactive Edition
Contract Professional Gartner Institute Vault.com
CareerPath.com Screaming Media
</TABLE>
Sales and Marketing
We sell our integrated services through our direct sales organization and
distribution, co-branding and other similar arrangements. As of December 31,
1999, our direct sales force consisted of 10 sales professionals. We plan to
expand our direct sales force in the near future, with regional sales managers
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 services companies, Fortune
1000 information technology departments, large information technology staffing
companies 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.
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Technology
We have developed Internet applications that are designed for high-level
performance and reliability using standard tools and computer languages. We
believe that these 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 or Internet framework. Due to the ease of use and intuitive
nature of web browser interfaces, the training required for the use of these
applications is minimal (two to three hours for an end user, and one to two days
for OPUS XCHANGE and two to three days for OPUSRM for an organization's internal
resource manager), so that organizations are more likely to use these
applications. Upgrades of Internet-based applications are much easier to
implement across organizations since the upgrades do not need to be directly
installed on our clients' systems. We believe that these Internet-based
applications are also generally well-suited for the application service provider
model, which simplifies the installation, upgrade and maintenance process for
these applications.
We are able to leverage existing third-party tools, such as web application
servers, to provide standard services which enhance the performance, reliability
and redundancy of our applications. Use of these tools and frameworks allows us
to focus on higher value-added business functionality rather than building and
maintaining complex infrastructure code. These tools and frameworks provide
advanced services, including message queuing, resource pooling, transaction
distribution and management, and security, and enable our services to be
deployed on a variety of server platforms such as Unix or WindowsNT.
Our Internet applications, OPUSRM and OPUS XCHANGE, are written in the Java
programming language. We use open standards, such as XML (extensible markup
language) as our means of communicating between our systems, which facilitates
our integration with customers and partners in an open, network environment. We
use other open, Internet standards such as SSL (secure sockets layer) for secure
transmission of data and HTML (hypertext markup language) and DHTML (dynamic
hypertext markup language) for presentation of information in web browsers.
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
services to meet the varied needs of our customers.
Parts of our application services were based on intellectual property that
we acquired from PRT Group and USWeb Corporation. In December 1998, we purchased
from PRT the worldwide rights for intellectual property and any and all work
covering a vendor management application. This intellectual property for the
vendor management application was created in the course of PRT's consulting
services for several large financial institutions assisting these companies in
their vendor reorganizations. Some of our design concepts for OPUS XCHANGE are
based on this intellectual property. In 1998, we purchased from USWeb the
worldwide rights to the intellectual property and all work surrounding an
internal staffing application, which was developed first at Gray Peak
Technologies and, following USWeb's acquisition of Gray Peak, later at USWeb.
Some of this intellectual property was used to help design part of our OPUSRM
application service.
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 services, we expect further
competition from established and emerging companies, as these markets continue
to grow.
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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, 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" services, such as Monster Talent Market, and
large Internet information portals, that provide online job search services for
project-based professionals. We may experience competition from potential
customers, such as professional services firms and information technology
consulting companies, if they are able to develop their own search services for
project-based professionals 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 services, particularly those that adopt resource
management services and implement web-based technologies, including companies
which provide competitive project labor management services, 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.
We believe that there are a number of companies that offer services that
provide one or more aspects of the functionality of our services, such as Niku
Corporation. However, we do not believe that there are any competitors which are
dominant in our market.
Many of our competitors and potential 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 services 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:
- the number of features their services provide to end users;
- the extent of their relationships with organizations across the labor
supply chain, including professional services firms, staffing companies
and other suppliers of professional resources, that procure professionals
and individuals who are available for projects;
- product quality and performance;
- product features and functionality; and
- ease of integration and customization.
We believe we distinguish ourselves from our competitors by offering a full
complement of services geared toward the procurement and management of
project-based professionals. However, the rapid pace at which the market is
evolving, both in terms of technological innovation, increased functionality and
service offerings, will require us to continually improve our infrastructure and
our Internet service. We cannot assure you that we will be able to respond
adequately to these competitive challenges. 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
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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, OPUSRM, E.PORTFOLIO,
FREEAGENT E.OFFICE, FREEAGENT, OPUS XCHANGE and FREEAGENT XCHANGE.
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.
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. Based on the advice of counsel, we believe we have viable
defenses to these claims. However, 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 requiring individuals with specific professional
skills to fulfill project needs 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 services 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
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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,
responsibilities and liabilities 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 employment tax and employee benefit
matters.
EMPLOYER STATUS. The common law test of employment, as applied by the IRS
for employment tax and employee benefit plan purposes, involves an examination
of approximately 20 factors to ascertain whether an employment relationship
exists between a worker and a company. That test is generally applied to
determine whether an individual is an independent contractor or an employee for
federal employment tax and employee benefit plan purposes. An important factor
in making this determination is whether or not a company has the right to
exercise control over a worker with respect to how work is performed, as
evidenced by factors such as the extent of instructions, training and the nature
of the work. Other factors considered by the IRS include the financial control
or the economic aspects of the relationship; and the intended relationship of
the parties, such as how the relationship is described in written agreements,
how compensation is reported for income and employment tax purposes, whether
employee benefits are provided, and whether services are ongoing or for a
particular project.
EMPLOYMENT TAXES. 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 by us
from the organizations to whom they have provided services through us. There are
three types of federal employment taxes with respect to wages and salaries paid
to employees: withholding of income tax requirements, obligations under the
Federal Income Contributions Act, and obligations under the Federal Unemployment
Tax Act. Employers have the obligations to withhold and remit the employer
portion and, where applicable, the employee portion of these taxes. 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.
An adverse determination of this type could also result in joint and several
liability for any organization that has used these free agents through our
FREEAGENT E.OFFICE services if we have failed to remit the proper amount of
employment taxes with respect to these free agents. While we believe that we
have a reasonable basis for assuming the
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withholding obligation for free agents based on our employment relationships
with them, there can be no assurance as to the ultimate resolution of the issue.
A definitive adverse resolution of this issue to the effect that free agents are
not our employees for employment tax purposes, could substantially limit our
ability to aggregate a large community of free agents and attract organizations
to use free agents through our FREEAGENT E.OFFICE services.
EMPLOYEE BENEFIT PLANS. 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 and the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). 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.
STATE REGULATION. 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.
Employees
As of December 31, 1999, we had 425 full-time employees, including 270 free
agents who had purchased our FREEAGENT E.OFFICE services, and 155 corporate
staff members. Of our corporate staff, 63 were in programming and technical
development, 39 were in sales, marketing, and business development, 26 were
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in customer support and operations and 27 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. We have
added four and 90 additional employees in connection with our acquisitions of
Ithority and PeopleMover.
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 with the assistance of a
relationship manager, 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 prior to
signing up to our services 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
a portion of all of 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 currently located at 733 Third Avenue, New
York, New York 10017, where we occupy approximately 15,000 square feet of office
space under a month to month lease. We also lease an office located at 425
Market Street in San Francisco, California. In March 2000, we intend to relocate
our corporate headquarters to 37 West 13(th) Street, New York, New York 10019,
where we have entered into a lease for approximately 25,000 square feet of
office space.
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 and Chief Executive Officer
Richard S. Miller............ 41 President, Chief Operating Officer and Director
Carlos B. Cashman............ 27 Chief Technology Officer
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; Chief Financial Officer and
Secretary
Wendy M. Petty............... 36 Senior Vice President of Sales
Edyse Vogel.................. 50 Senior Vice President of Operations
Mary Anne Walk............... 52 Senior Vice President, Human Resources
Andrew Grygiel............... 40 Vice President, General Manager, Application and
Procurement Services Group
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 from
November 1999 to January 2000. 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, a
network consulting company. 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 and
Business Development of Conley Corporation, a developer of storage management
software. 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.
RICHARD S. MILLER has served as our President and Chief Operating Officer
and as a director since February 2000. From December 1998 to January 2000, he
served as President of the Global Services Division at AT&T which provides
telecommunication services to AT&T's largest corporate clients. From
September 1995 to November 1998, he was Vice President of the Eastern Region in
Global Services and served as a member of the leadership team of AT&T's Business
Services Unit. From January 1995 to August 1995, he was Vice President and
General Manager, Communications Services Division at Unisys Corporation. From
January 1992 to December 1994, he served as Regional Vice President at Unisys.
Prior to 1994, he held a series of sales, marketing and general management
assignments at Unisys where he began his career in 1980. Mr. Miller graduated
with a B.S. degree in Business Management from Bentley College and holds an
M.B.A. from Columbia University.
CARLOS B. CASHMAN, our co-founder, has served as Chief Technology Officer
since November 1999, as a director from inception until January 2000; 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
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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 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, 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 and as Secretary since February 2000. 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 and is a certified public accountant.
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.
MARY ANNE WALK has served as Senior Vice President, Human Resources since
February 2000. From March 1999 until February 2000, Ms. Walk served as Vice
President, Human Resources at AT&T where she was responsible for global human
resources, policies and practices. From January 1996 until March 1999, she
served as Vice President, Labor Relations and Human Resources Business
Management for AT&T. From August 1992 to January 1996, Ms. Walk served as Human
Resources Vice President for the Business Communications Services Unit of AT&T.
From May 1964 to August 1992, Ms. Walk held various positions at AT&T and
Southwestern Bell Telephone Company. She is currently the Chairman of the Board
of Directors for the Employment Policy Foundation and a member of the Board of
Directors for the Labor Policy Association. Ms. Walk holds a B.S. Degree in
Business Administration from Tarkio College, an M.B.A. in Marketing from
Fairleigh Dickinson University and a M.D. in Management from the Massachusetts
Institute of Technology as a Sloan Fellow.
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ANDREW GRYGIEL has served as Vice President, General Manager of our
Application and Procurement Services Group since February 2000. Prior thereto,
Mr. Grygiel served as 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 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.
JAMES CANNAVINO has served as a director since January 1999. 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 October 1999. 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., a
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 January 1999. 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.
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.
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BARRY RUBENSTEIN has served as a director since January 1999.
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 January 1999. Mr. Weiss was a
founding principal and is currently a Senior Managing Director 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 was of counsel to the law firm of Schulte
Roth & Zabel LLP. 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.............................. 2001 Messrs. Cannavino, Nuti and Lieber
Class II............................. 2002 Messrs. Drew, Halvey and Weiss
Class III............................ 2003 Messrs. Horowitz, Miller and
Rubenstein
</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. It is expected that a person nominated by the former stockholders
of PeopleMover will be elected to our board of directors.
Pursuant to a stockholders agreement, our board of directors has consisted
of nine directors, two of which, Messrs. Rubenstein and Lieber, were designated
by a majority of the holders of our outstanding Series A preferred stock, one of
which, Mr. Drew, was designated by a majority of the holders of our outstanding
Series B preferred stock, two of which, Messrs. Weiss and Nuti, were designated
by Ari B. Horowitz, two of which, Messrs. Horowitz and Miller, were designated
by a majority of the holders of our outstanding common stock, and two of which,
Messrs. Cannavino and Drew were designated by the board. The stockholder
agreement will terminate upon consummation of this offering.
Committees of the Board of Directors
The board of directors established a compensation committee and a stock
option committee in January 1999. The compensation committee reviews and makes
recommendations regarding our compensation policies and forms of compensation
provided to our directors and officers. The compensation committee also reviews
and determines bonuses for our officers and other employees. In addition, the
compensation committee and the stock option committee review and determine
stock-based compensation for our directors, officers, employees and consultants
and administer the 1998 Plan. Following the closing of this offering, the stock
option committee shall cease to exist and the compensation committee shall
administer all stock-based
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compensation plans. The members of the compensation committee are Messrs. Weiss
and Halvey, who were appointed on January 20, 1999 and October 21, 1999,
respectively. The sole member of the stock option committee is Ari B. Horowitz,
who was appointed on January 20, 1999.
The board will establish an audit committee in connection with the
consummation of this offering.
Director Compensation
Directors do not receive any stated salary for their services as directors
or as members of board committees. However, in its discretion the board of
directors in the future may determine to pay directors a fixed annual fee for
serving as a director and/or a fixed fee and expenses for attendance at each
meeting of the board of directors or committee. Directors have been eligible to
receive stock option grants and stock purchase rights under our 1998 Stock
Option Plan. The following table sets forth information relating to option
grants to our current directors under the plan.
<TABLE>
<CAPTION>
Number of Appreciated
Name Shares Exercise Price Date of Grant Value(4)
- ---- --------- -------------- ----------------- -----------
<S> <C> <C> <C> <C>
James Cannavino (1)..... 135,000 $0.83 December 24, 1998 $1,237,950
William R. Nuti (2)..... 67,500 $1.85 June 1, 1999 $ 550,125
John L. Drew (3)........ 67,500 $3.07 October 1, 1999 $ 467,775
</TABLE>
- ------------------------
(1) This option was accelerated and vested and became immediately exercisable on
December 31, 1999 pursuant to action by the Stock Option Committee.
(2) This option vests ratably on an annual basis over a three-year period and
are exercisable until the tenth anniversary of the date of grant.
(3) This option was accelerated and vested and became immediately exercisable on
December 31, 1999 pursuant to action by the Stock Option Committee and was
exercised in its entirety on January 1, 2000.
(4) Based on an initial public offering price of $10.00 per share less the
exercise price multiplied by the number of shares of common stock issuable
upon exercise.
We will establish the 2000 Stock Option Plan for Non-Employee Directors for
the purpose of enhancing the interests of certain directors in our continued
success. The following summary of the plan is qualified in its entirety by
reference to the full text of the plan, a copy of which has been filed as an
exhibit to the registration statement of which this prospectus is a part. Each
of our directors who is not our employee or the employee of any of our
subsidiaries and who was not initially elected to the Board, and was not our
employee or the employee of any of our subsidiaries, within the previous
12 months will, immediately following each annual stockholders meeting,
commencing with the annual meeting in 2001, automatically receive an annual
grant of options to purchase 12,000 shares of our common stock at an exercise
price equal to 100% of the fair market value of our common stock at the date of
grant of the option. Each non-employee director, upon initially joining our
board of directors, will also receive under the plan an initial grant of options
to purchase 12,000 shares of our common stock at an exercise price equal to 100%
of the fair market value of the common stock as of such date. A total of
1,125,000 shares of our common stock have been reserved for issuance under the
plan. Options granted under the plan shall be exercisable for a period of up to
10 years beginning on the date of grant.
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.
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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(1).......................................... 125,000 750,000
Chairman and Chief Executive Officer
Carlos B. Cashman........................................... 100,000 --
Chief Technology Officer
Allen Berger................................................ 100,000 367,500
Senior Vice President and Chief Marketing Officer
</TABLE>
- ------------------------
(1) Mr. Horowitz also served as our President from November 1999 through January
2000. Effective February 1, 2000, Mr. Horowitz's annual base salary was
increased to $250,000.
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
Total Options Potential Realizable Value at Assumed
Number of Granted to Annual Rates of Stock Price Appreciation for
Securities Employees Exercise Option Term (3)
Underlying Options During Price per Expiration ----------------------------------------------
Name Granted (1) Period Share(2) Date 0% 5% 10%
- ---- ------------------ ------------- --------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ari B. Horowitz...... 750,000 17.2% $0.37 4/1/04 7,222,500 9,294,612 11,801,325
Carlos B. Cashman.... -- -- -- --
Allen Berger......... 367,500 8.4% $0.33 4/13/09 3,553,725 5,864,913 9,410,729
</TABLE>
- ------------------------
(1) These options were granted under the 1998 Plan and 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. These options are
exercisable as to vested shares for five years from the date of grant in the
case of Mr. Horowitz and 10 years from the date of grant in the case of Mr.
Berger. The options will vest and become immediately exercisable upon a
change of control. Options to purchase 270,000 shares of common stock
granted to Mr. Horowitz will vest immediately upon the completion of this
offering.
(2) Mr. Horowitz's options are incentive stock options and the exercise price is
equal to 110% of the fair market value on the date of grant which our board
of directors determined to be $0.33 or less. In determining the fair market
value of common stock for these options granted in April 1999, the board
considered the fact that we did not have any revenues, that our activities
consisted primarily of developing and testing our Internet-based services,
capital raising activities and building corporate infrastructure, that we
were experiencing significant operating losses primarily due to the
substantial costs incurred in order to develop our products and services,
that we were still formulating our application strategy and had not yet
developed an internal working model of OPUSRM, that we were facing liquidity
problems and continually seeking financing in order to fund our business and
that our common stock was extremely illiquid.
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(3) 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 0%, 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
$10.00 per share. These assumptions are not intended to forecast future
appreciation of our stock price. Actual gains, if any, on stock option
exercises are dependent on the future performance of our common stock and
overall market conditions. The potential realizable value computation does
not take into account federal or state income tax consequences of option
exercises or sales of appreciated stock.
Option Values as of December 31, 1999
The following table sets forth information concerning the options held by
each of the officers named in the above summary compensation table.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options in-the-Money Options
Acquired at December 31, 1999 at December 31, 1999 (1)
on Value --------------------------- ---------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ari B. Horowitz(2)........ -- -- -- 750,000 -- 7,222,500
Carlos B. Cashman......... -- -- -- -- -- --
Allen Berger.............. -- -- -- 367,500 -- 3,553,725
</TABLE>
- ------------------------
(1) The information set forth in these columns is based on an assumed initial
public offering price of $10.00 per share, less the exercise price,
multiplied by the number of shares underlying the option.
(2) Options to purchase 270,000 shares granted to Mr. Horowitz will become
immediately exercisable upon the completion of this offering.
Employment and Repurchase Agreements
We have entered into employment agreements with Ari B. Horowitz, our
Chairman and Chief Executive Officer, Richard S. Miller, our President and Chief
Operating Officer, Carlos B. Cashman, our Chief Technology Officer and Allen
Berger, our Senior Vice President and Chief Marketing Officer. Our employment
agreements with Messrs. Horowitz, Miller, Cashman and Berger provide for annual
base salaries of $150,000, $250,000, $125,000 and $150,000, respectively.
Effective February 1, 2000, our board increased Mr. Horowitz's annual base
salary to $250,000. These executive officers may also receive discretionary
bonuses as determined by our Compensation Committee.
Our employment agreements with these executive officers generally 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 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
termination by us for cause or his 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 his options
shall vest and become immediately exercisable. In the event of a change of
control, Mr. Horowitz's options shall also vest and become immediately
exercisable. In the case of Mr. Cashman, if his employment with us is terminated
by us without cause or because he resigns with good reason, 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 any shares of common stock subject to vesting and held by Mr. Cashman
or his transferees shall lapse. If Mr. Cashman's employment with us is
terminated by us by reason of his disability 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 three months after the date of termination and our
right to repurchase any shares of common stock subject to vesting and held by
Mr. Cashman or his transferees shall lapse. In the case of Mr. Berger, if his
employment with us is terminated without cause or because he resigns with good
reason, he, or his legal
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representative, shall be entitled to continue to receive his salary and benefits
for a period of one year after the date of termination. If Mr. Berger's
employment with us is terminated by us by reason of his disability or due to his
death, he, or his legal representatives, shall be entitled to continue to
receive his salary for a period of three months after the date of termination.
In the event Mr. Berger's employment with us is terminated by us without cause,
or because he resigns with good reason, a portion of any then unvested options
that Mr. Berger holds on the date of his termination will vest and become
immediately exercisable, such number of shares being equal to the number of
shares that would have been vested and become exercisable as of the first
anniversary of his termination.
Mr. Miller is employed under an employment agreement that expires on
January 31, 2003. Under the agreement, Mr. Miller's base salary is $250,000,
with an annual increase at the discretion of our board of directors. Mr. Miller
is eligible to receive an annual bonus of no less than $100,000 during each
calendar year of his employment period based upon his achievement of performance
criteria mutually agreed upon by Mr. Miller and us. In addition, we have granted
to Mr. Miller options to purchase up to 1,507,500 shares of our common stock.
Options to purchase 32,918 shares have an exercise price of $9.11 per share.
Options to purchase 900,000 shares have an exercise price of $2.67 per share and
options to purchase 574,582 shares have an exercise price of $8.00 per share.
Moreover, we shall at least once each year commencing in 2001 consider
Mr. Miller for future annual or other grants of stock options and other equity
awards. If we terminate Mr. Miller's employment pursuant to an involuntary
termination or for poor or incompetent performance, he, or his legal
representatives, shall receive his salary and benefits for a period of
12 months and shall be credited with one additional year of employment for
purposes of calculating his vested interest in his options and any other equity
awards granted to him during his employment period with us. If Mr. Miller's
employment is terminated by us without cause or by Mr. Miller with good reason,
he, or his legal representatives, shall be entitled to continue to receive his
salary and benefits for a period lasting the longer of 12 months or the
remainder of his employment period and shall become fully vested in all of his
options and any other equity awards granted to him during his employment period
with us.
Our employment agreements with Messrs. Horowitz, Miller, Cashman and Berger
contain non-compete provisions that restrict them from competing against us for
specified time periods. If Mr. Horowitz's employment with us is terminated for
any reason during the term of his employment with us, he cannot compete with us
for two years following the date of termination. In the case of Messrs. Miller,
Cashman and Berger, they cannot compete with us for one year following the
termination of their employment with us.
Mr. Cashman has entered into a share repurchase agreement with us. The
agreement provides that the 1,100,000 shares of Common Stock held by him when he
entered into the agreement shall be subject to vesting during 2000, with the
shares vesting in equal monthly installments over the year. If Mr. Cashman's
employment with us is terminated for any reason, the shares of Common Stock
which are not then vested shall cease to vest and all or any portion of the then
unvested shares shall be subject to repurchase by us for 360 days after the date
of termination at the price per share originally paid by Mr. Cashman for them.
Mr. Cashman may transfer all or any portion of the shares of Common Stock
subject to vesting and repurchase by us, if the transferee of the shares agrees
that the shares being transferred shall continue to be subject to vesting and
repurchase by us. Mr. Cashman's employment agreement with us provides for the
immediate vesting of all unvested shares of Common Stock and the lapse of our
repurchase rights with respect to the shares if his employment with us is
terminated under the circumstances described therein.
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.
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The total number of shares of common stock issuable under the 1998 Plan is
6,000,000 shares, plus an annual increase on each anniversary date of the
adoption date of the 1998 Plan equal to the lesser of 150,000 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.
As of February 29, 2000, 5,970,930 shares of common stock were issuable upon
the exercise of outstanding options granted under the 1998 Plan at a weighted
average exercise price of $2.17. At that date, 173,937 shares of common stock
have been issued upon the exercise of options and 5,133 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. No further shares will be granted under
the 1998 Plan following the consummation of this offering.
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 Stock
Option Committee, of which Mr. Horowitz is the sole member, was appointed as
administrator of the 1998 Plan by the board. 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 225,000 shares, provided that options to purchase up to an additional
600,000 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
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<PAGE>
lapse shall be determined by the administrator. No stock purchase rights have
been granted under the 1998 Plan.
2000 Stock Option Plan
Our 2000 Plan, when adopted by our board of directors and approved by our
stockholders, will serve as the successor to our 1998 Plan. We will reserve
7,500,000 shares of our common stock for issuance under this plan. In addition,
shares available for grant under the 1998 Plan and any shares issued under the
1998 Plan that are forfeited or repurchased by us or that are issuable upon
exercise of options that expire or become unexercisable for any reason without
having been exercised in full will be available for grant and issuance under our
2000 Plan. Shares will again be available for grant and issuance under our 2000
Plan that are subject to issuance upon exercise of an option granted under our
2000 Plan that cease to be subject to the option for any reason other than
exercise of the option, or have been issued upon the exercise of an option
granted under our 2000 Plan that are subsequently forfeited or repurchased by us
at the original purchase price.
On each January 1, the aggregate number of shares reserved for issuance
under our 2000 Plan will increase automatically by a number of shares equal to
5.0% of our outstanding shares on December 31 of the preceding year.
Our 2000 Plan will terminate ten years from the date our board of directors
approved the plan, unless it is terminated earlier by our board of directors.
The plan will authorize the award of options.
Our 2000 Plan will be administered by our compensation committee. The
compensation committee will have the authority to construe and interpret the
plan, make option grants and make all other determinations necessary or
advisable for the administration of the plan.
Our 2000 Plan will provide for the grant of both incentive stock options
that qualify under Section 422 of the Internal Revenue Code and nonqualified
stock options. Incentive stock options will be available for grant only to our
employees or employees of our subsidiaries. All nonqualified options will be
available for grant to our employees, officers, directors and consultants or of
any of our subsidiaries. The exercise price of incentive stock options will be
at least equal to the fair market value of our common stock on the date of
grant. The exercise price of incentive stock options granted to 10% stockholders
will be at least equal to 110% of that value.
Options will be exercisable only as they vest or may be immediately
exercisable with the shares issued subject to our right of repurchase that
lapses as the shares vest. In general, options will vest over a four-year
period. The maximum term of options granted under our 2000 Plan will be ten
years.
Options granted under our 2000 Plan will not be transferable in any manner
other than by will or by the laws of descent and distribution. They will be
exercisable only by the optionee during his or her lifetime. The compensation
committee will be authorized to determine otherwise and provide for alternative
provisions in option agreements with respect to nonqualified options granted
under our 2000 Plan. Options granted under our 2000 Plan generally will be
exercisable for a period of time after the termination of the optionee's service
to us or any of our subsidiaries. Options will generally terminate immediately
upon termination of employment for cause.
Options to purchase 1,850,250 shares of our common stock were granted in
February 2000 under the 2000 Plan, of which options to purchase 1,470,000 shares
were granted to our executive officers, including options to purchase 960,000
shares to Mr. Horowitz and options to purchase 150,000 shares to Mr. Miller. The
exercise price of these options is $10.00 per share except that Mr. Horowitz's
exercise price is $11.00 per share.
Employee Stock Purchase Plan
Our 2000 Employee Stock Purchase Plan will become effective on the first day
on which price quotations are available for our common stock on the Nasdaq
National Market. We have initially reserved
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2,250,000 shares of our common stock under this plan. On each January 1, the
aggregate number of shares reserved for issuance under the Stock Purchase Plan
will increase automatically by a number of shares equal to 1.0% of our
outstanding shares on December 31 of the preceding year. Our board of directors
or compensation committee may reduce the amount of the increase in any
particular year. The aggregate number of shares reserved for issuance under the
Stock Purchase Plan may not exceed 15,000,000 shares.
The Stock Purchase Plan will be administered by our compensation committee.
Our compensation committee will have the authority to construe and interpret the
plan, and its decisions will be final and binding.
Employees generally will be eligible to participate in the Stock Purchase
Plan if they are employed before the beginning of the applicable offering
period, are customarily employed by us, or any subsidiaries that we designate,
for 20 hours or more per week and more than five months in a calendar year and
are not, and would not become as a result of being granted an option under the
plan, 5% stockholders of us or our designated subsidiaries. Participation in the
Stock Purchase Plan will end automatically upon termination of employment for
any reason.
Under the Stock Purchase Plan, eligible employees will be permitted to
acquire shares of our common stock through payroll deductions. Eligible
employees may select a rate of payroll deduction between 1% and 15% of their
compensation and are subject to maximum purchase limitations.
Except for the first offering period, each offering period under the Stock
Purchase Plan will be for two years and consist of four six-month purchase
periods. The first offering period is expected to begin on the first business
day on which price quotations for our common stock are available on the Nasdaq
National Market. Offering periods and purchase periods will begin on May 1 and
November 1 of each year. However, because the first day on which price
quotations for our common stock will be available on the Nasdaq National Market
may not be May 1 or November 1, the length of the first offering period may be
more or less than two years, and the length of the first purchase period may be
more or less than six months.
The Stock Purchase Plan will provide that the purchase price for our common
stock purchased under the plan will be 85% of the lesser of the fair market
value of our common stock on the first day of the applicable offering period or
the last day of the applicable purchase period. The compensation committee will
have the power to change the offering dates, purchase dates and duration of
offering periods without stockholder approval, if the change is announced prior
to the beginning of the affected date or offering period.
The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code. The plan will
terminate 10 years from the date the plan is adopted by our board of directors,
unless it is terminated earlier under the terms of the plan. The board will have
the authority to amend, terminate or extend the term of the plan, except that no
action may adversely affect any outstanding options previously granted under the
plan.
Except for the automatic annual increase of shares described above,
stockholder approval will be required to increase the number of shares that may
be issued or to change the terms of eligibility under the Stock Purchase Plan.
The board will be able to make amendments to the plan as it determines to be
advisable if the financial accounting treatment for the plan is different from
the financial accounting treatment in effect on the date the plan was adopted by
the board.
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PeopleMover 1999 Stock Incentive Plan
Upon our acquisition of PeopleMover, we assumed the options granted under
the PeopleMover 1999 Stock Incentive Plan. As part of the acquisition, all stock
options outstanding under the PeopleMover Plan to purchase shares of common
stock of PeopleMover were converted into options, a portion of which are subject
to vesting periods, to purchase up to 1,189,078 shares of our common stock from
us. These options were issued to employees of PeopleMover. The maximum term of
these options is ten years. Except for the shares of our common stock issuable
upon the exercise of these options, no further shares may be granted under the
PeopleMover Plan.
The PeopleMover Plan may be administered by our board of directors or a
committee approved by our board of directors to administer the PeopleMover Plan.
The administrator has the authority, among other things, to reduce the exercise
price of any option outstanding under the PeopleMover Plan to not less than 85%
of the fair market value of our common stock on the date of the grant of the
option.
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RELATED PARTY 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 executive
officers, as follows:
<TABLE>
<CAPTION>
Number Purchase Price Appreciated
Name Title of Shares Per Share Value(1)
- ---- --------------------------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Ari B. Horowitz............ Chairman and Chief 3,000,000 $0.03 $29,910,000
Executive Officer
Carlos B. Cashman.......... Chief Technology Officer 1,500,000 0.03 14,955,000
Shawn Kreloff.............. Executive Vice President, 1,500,000 0.03 14,955,000
Business Development
Richard McCann............. Senior Vice President and 187,500 0.13 1,850,625
Chief Financial Officer
</TABLE>
- ------------------------
(1) Based on an assumed initial public offering price of $10.00 per share.
In connection with the purchase by Mr. Horowitz, we loaned him $100,000 at
an interest rate of 7% per annum, compounded annually. Mr. Horowitz repaid his
loan in full in April 1999. We also loaned Mr. Horowitz $20,000 in September
1999 in connection with his purchase of 85,715 shares of common stock from a
former employee. The rate of interest on this loan is 7%. The loan remained
outstanding on December 31, 1999 and is payable on demand.
In December 1998, in connection with our Series A preferred stock financing,
we also granted warrants to purchase an aggregate of 852,000 shares of our
common stock prior to December 24, 2005 at an exercise price of $0.83 per share.
The following table summarizes the warrants issued to executive officers,
directors or their affiliates or immediate family members.
<TABLE>
<CAPTION>
Appreciated
Name Relationship to Opus360 Number of Warrants Value(2)
- ---- --------------------------- ------------------ -----------
<S> <C> <C> <C>
Irwin Lieber......................... Director 240,000 $2,200,800
Barry Rubenstein..................... Director 240,000 2,200,800
Roger J. Weiss....................... Director 90,000(1) 825,300
Leonard Horowitz..................... Father of Ari B. Horowitz 30,000 275,100
Gerald Cashman....................... Father of Carlos B. Cashman 12,000 110,040
</TABLE>
- ------------------------
(1) Shares purchased by a partnership of which Mr. Weiss is the general partner.
(2) Based on an assumed initial public offering price of $10.00 per share less
the exercise price of the warrants, multiplied by the number of shares of
common stock issuable upon exercise.
The warrants issued to Messrs. Lieber, Rubenstein and Horowitz and to the
affiliated partnership of Mr. Weiss were exercised in January, 2000.
In September 1998, we entered into a software conveyance agreement with
USWeb whereby USWeb assigned rights it held to internally developed software
with a market value of $95,120 to us in exchange for 407,657 shares of common
stock that were issued on December 24, 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. We believe that this
transaction was on terms no less favorable to us than those that would have been
available to us in an arm's-length transaction with an unaffiliated party.
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. In September and October of 1999, we sold an aggregate of
8,676,727 shares of our Series B preferred stock at a price of $4.61 per share
in a
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private placement. The following table summarizes the shares of preferred stock
purchased by our executive officers, directors and 5% stockholders or their
affiliates or family members.
<TABLE>
<CAPTION>
Appreciated
Name Relationship to Opus360 Series A Series B Value(4)
- ---- --------------------------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Wheatley Partners, LLC(1) 5% stockholder and 1,600,000 433,839 $ 26,507,588
affiliate of Barry
Rubenstein and Irwin
Lieber, two of our
directors
Seneca Ventures Affiliate of Mr. 160,000 43,384 2,650,760
Rubenstein, one of our
directors
Woodland Venture Fund Affiliate of Mr. 160,000 43,384 2,650,760
Rubenstein, one of our
directors
Barry Rubenstein Director 160,0000 43,384 2,650,760
Irwin Lieber Director 200,000(2) 32,537 3,088,059
G&R Partnership, L.P. Affiliate of Roger J. 100,000 75,921 2,163,819
Weiss, one of our directors
CrossPoint Venture 5% stockholder 1,600,000 1,084,598(3) 33,268,973
Partners, L.P.
Various family members of Mr. McCann is our Senior 80,000 31,452 1,426,786
Richard McCann Vice President and Chief
Financial Officer
Entities affiliated with 5% stockholder; Mr. Halvey, 800,000 2,819,955 40,299,332
Safeguard Scientific, one of our directors, is a
Inc. Senior Vice President of
Safeguard
John L. Drew Director -- 216,919 2,253,788
Applegreen Partners Entity in which family -- 10,845 112,680
members of Mr. Lieber, one
of our directors, are
affiliated
Gerald Cashman Father of Carlos Cashman, 8,000 -- 110,000
our Chief Technology
Officer
Leonard Horowitz Father of Ari B. Horowitz, 20,000 5,422 331,335
our Chairman and Chief
Executive Officer
Various trusts and family Mr. Weiss is one of our -- 55,313 574,702
members of Roger J. Weiss directors
</TABLE>
- ------------------------
(1) Shares purchased by two partnerships of which Wheatley Partners, LLC is the
general partner.
(2) Includes shares sold to Mr. Lieber's family members.
(3) Shares purchased by partnerships of which CrossPoint Venture Partners, L.P.
is the general partner.
(4) Represents the appreciated value of the underlying common stock based on an
assumed initial public offering price of $10.00 per share, multiplied by the
number of shares of common stock issuable upon conversion.
Each share of Series A preferred stock and Series B preferred stock
automatically converts into 1.5 shares of our common stock 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 use in CyberSafe's internal business. 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 we
provided to early adopters of OPUSRM during the period
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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, such as representatives speaking at
tradeshows, serving as a spokesman and providing favorable references to our
potential partners or customers. 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. We believe
that the terms of our license agreement with CyberSafe is on terms no less
favorable to us than those that would have been available to us in an
arm's-length transaction with an unaffiliated party.
USWeb Agreements
From October 1998 until November 1999, USWeb provided us with consulting,
software development and related services for which we paid USWeb, one of our
stockholders, 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 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.
We believe that the terms of the consulting and software development
arrangement and the lease with USWeb were on terms no less favorable to us than
those that would have been available to us in an arm's-length transaction with
an unaffiliated party.
Investment Advisory Agreement with Weiss, Peck & Greer
In September 1999, we entered into an investment advisory agreement with
Weiss, Peck & Greer. Roger J. Weiss, a member of our board, is a Senior Managing
Director of Weiss, Peck & Greer. Under the agreement, Weiss, Peck & Greer acts
as the investment manager of our portfolio of short-term investments. See Note
1(f) of Notes to our Consolidated Financial Statements. During 1999, we obtained
services from Weiss, Peck & Greer having an aggregate cost of approximately
$22,000 under the agreement. We believe the terms of this agreement are on terms
no less favorable to us than those that would have been available in an
arm's-length transaction with an unaffiliated third party.
Lucent Agreement
In February 2000, we entered into a three-year strategic relationship with
Lucent. John L. Drew, a member of our board, is the Chief Executive Officer of
the NetCare Professional Services Division of Lucent and an Executive Vice
President of Lucent. Our strategic relationship with Lucent requires Lucent to
use its reasonable best efforts to cause free agents who provide services to
Lucent's NetCare Division to become registered users of FREEAGENT.COM, post
their E.PORTFOLIOS on FREEAGENT.COM and purchase FREEAGENT E.OFFICE services. In
turn, we are required to offer these free agents our FREE AGENT E.OFFICE
services and to provide Lucent with consolidated billing services for all
services provided by these free agents to Lucent's NetCare Division. As part of
this relationship, Lucent has agreed to list projects on OPUS XCHANGE which
require the services of professionals with information technology expertise and
to use OPUSRM to manage each of Lucent's information technology employee
resources entered into the OPUSRM database. We have agreed to provide to Lucent
set-up and implementation services for OPUS XCHANGE and OPUSRM.
In conjunction with our entry into a strategic relationship with Lucent, we
issued to Lucent two warrants to purchase shares of our common stock. The first
warrant entitles Lucent to purchase up to 225,000 shares of our common stock at
the exercise price of $3.33 per share for one year from the date of grant,
subject to extension if this offering does not close by March 31, 2000. In
connection with the granting of the first warrant to Lucent, we recorded
deferred costs of approximately $1.3 million, regarding the fair market value of
the warrant calculated using the Black-Scholes option-pricing model which will
be amortized over two years. The second warrant will be exercisable for a
three-year period commencing on the 240th day after the effective date of the
registration statement of which this prospectus is a part. The exercise price of
the second warrant is equal to the average market price of our common stock
during the 10 trading days immediately
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<PAGE>
preceding the date the warrant first becomes exercisable. The number of shares
issuable upon the exercise of the second warrant will be determined by dividing
$2,655,000 by the present value of a warrant to purchase one share of our common
stock, as determined by the Black-Scholes option-pricing model, with the strike
price and the market price assumed to be the actual exercise price and the
volatility rate assumed to be 100%. We believe that the terms of our strategic
relationship with Lucent and the warrants are on terms no less favorable to us
than those that would have been available to us in an arm's-length transaction
with an unaffiliated party.
Legal Services
Since our inception, Leonard Horowitz, the father of Ari B. Horowitz, our
Chairman of the Board and Chief Executive Officer, has provided us with legal
services. For these legal services, we paid Mr. Horowitz approximately $36,000
in 1998 and $107,000 in 1999. We believe that fees paid to Mr. Horowitz for
legal services were no less favorable to us than those we could have obtained in
an arm's-length transaction with an unaffiliated party.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of common stock as of January 31, 1999 and as adjusted to reflect the
sale of the shares of common stock offered by us in this offering and the
concurrent placement 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 January 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 40,346,021 shares of common
stock outstanding as of January 31, 2000, after giving effect to the shares of
our common stock issued in the PeopleMover acquisition and assuming the
conversion of all of our outstanding shares of preferred stock and 49,173,897
shares of common stock outstanding after completion of this offering. The table
assumes that the underwriters' over-allotment option 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.
Beneficial ownership after the offering and the concurrent placement assumes
that 1,505,376 shares are sold to Dell USA in the concurrent placement based on
an assumed initial public offering price of $10.00 per share.
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<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership Before Offering
---------------------------------------------------------------
Common Stock
Underlying
Options and
Warrants
Exercisable Total Owned Total Owned
Common Stock Within 60 Prior to Shares to After
Name of Beneficial Owner Outstanding Days Offering Percentage be Offered Offering
- ------------------------ -------------- -------------- ------------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
CrossPoint Venture Partners 4,026,896 -- 4,026,896 10.0% 4,026,896
L.P.(1)
18552 MacArthur Boulevard,
Suite 400
Irvine, California 92612
Safeguard Scientifics, Inc.(2) 5,429,931 -- 5,429,931 13.5% 700,000 4,729,931
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087-1945
Wheatley Partners, L.L.C. (3) 3,050,758 -- 3,050,758 7.6% 3,050,758
80 Cuttermill Road, Suite 311
Great Neck, New York 11021
Ari B. Horowitz.................. 3,235,715 270,000(9) 3,505,715 8.6% 3,505,715
Richard S. Miller................ -- 300,000 300,000 * 300,000
Carlos B. Cashman................ 1,650,000 -- 1,650,000 4.1% 1,650,000
Allen Berger..................... -- -- -- -- --
James Cannavino.................. -- 135,000 135,000 * 135,000
John L. Drew(4).................. 392,878 392,878 1.0% 392,878
John K. Halvey(5)................ -- -- -- -- --
Irwin Lieber(6).................. 3,399,564 3,399,564 8.4% 3,399,564
William R. Nuti.................. -- -- -- -- --
Barry Rubenstein(7).............. 4,205,986 4,205,986 10.4% 4,205,986
Roger J. Weiss................... 353,881(8) 353,881 * 353,881
All executive officers and
directors as a group
(17 persons)(11)............... 12,024,766 930,000(10) 12,954,766 31.4% 12,954,766
<CAPTION>
Beneficial
Ownership After
Name of Beneficial Owner Offering
- ------------------------ ---------------
<S> <C>
CrossPoint Venture Partners 8.2%
L.P.(1)
18552 MacArthur Boulevard,
Suite 400
Irvine, California 92612
Safeguard Scientifics, Inc.(2) 11.0%
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087-1945
Wheatley Partners, L.L.C. (3) 6.2%
80 Cuttermill Road, Suite 311
Great Neck, New York 11021
Ari B. Horowitz.................. 7.1%
Richard S. Miller................ *
Carlos B. Cashman................ 3.4%
Allen Berger..................... --
James Cannavino.................. *
John L. Drew(4).................. *
John K. Halvey(5)................ --
Irwin Lieber(6).................. 6.9%
William R. Nuti.................. --
Barry Rubenstein(7).............. 8.6%
Roger J. Weiss................... *
All executive officers and
directors as a group
(17 persons)(11)............... 25.9%
</TABLE>
- ------------------------------
* Less than 1%.
(1) Includes 2,400,000 shares held by CrossPoint Venture Partners, L.P., 650,759
shares held by CrossPoint Venture Partners 1997, L.P. and 976,139 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 650,759 shares held by CompuCom Systems, Inc., 1,525,379 shares
held by Pennsylvania Early Stage Partners, L.P. and 3,253,796 shares held by
Safeguard 99 Capital L.P. Up to 400,000 of the shares held by Safeguard 99
Capital, and up to 300,000 of the shares held by CompuCom will be offered in
the Safeguard Subscription Program. To the extent that less than all of the
shares offered in the Safeguard Subscription Program are not purchased by
Safeguard's stockholders, the number of shares held by Safeguard after the
offering will increase accordingly. 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 2,806,698 shares held by Wheatley Partners, L.P. and 244,061 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 ownership of the
shares held by the Wheatley funds, except to the extent of their respective
pecuniary interests therein arising from their ownership interests.
(4) Excludes shares of our common stock issuable upon exercise of warrants held
by Lucent Technologies Inc. See "Related Party Transactions--Lucent
Agreement." Mr. Drew, one of our directors, is the Chief Executive Officer
of NetCare Professional Services Division of Lucent and an Executive Vice
President of Lucent. Mr. Drew disclaims beneficial ownership of these
shares.
(5) Excludes the 5,429,933 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.
(6) Includes the 3,050,759 shares held by the Wheatley funds referred to in
Note 3 above and 348,806 shares held by Mr. Lieber. Mr. Lieber, one of our
directors, disclaims beneficial interest of the 3,050,759 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 the 3,050,759 shares held by the Wheatley funds referred to in
Note 3 above, the 305,076 shares held by Seneca Ventures, the 305,076 shares
held by Woodland Venture Fund, the 240,000 shares held by Brookwood, L.P.
and the 305,076 shares held by Mr. Rubenstein. Mr. Rubenstein is the general
partner of Brookwood, L.P. and the sole stockholder of Woodland Services
Corp.,
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which is the sole general partner of each of Seneca Ventures and Woodland
Venture Fund. Mr. Rubenstein, one of our directors, disclaims beneficial
ownership of the 3,050,759 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.
(8) Shares held by G&R Partnership, L.P., the general partner of which is
Mr. Weiss, one of our directors.
(9) Options to purchase 270,000 shares granted to Mr. Horowitz on April 1, 1999
will become immediately exercisable upon the completion of this offering.
(10) Includes the 270,000 shares underlying the option held by Mr. Horowitz
referred to in Note 8 above, as well as 225,000 shares underlying an option
held by Richard McCann which will be exercisable in full upon the completion
of this offering.
(11) Excludes the 5,429,933 shares held indirectly by Safeguard Scientific
referred to in Note 2 above as to which Mr. Halvey, one of our directors,
disclaims beneficial ownership. Also excludes the shares issuable upon
exercise of warrants held by Lucent referred to in Note (4) above as to
which Mr. Drew, one of our directors, disclaims beneficial ownership.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, our authorized capital stock will
consist of 150,000,000 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
January 31, 2000, 40,346,021 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. Each share of preferred stock will
automatically convert into 1.5 shares of common stock upon the completion of
this offering.
The following description of our capital stock, provisions of our restated
certificate of incorporation and our restated bylaws are summaries thereof and
are qualified in their entirety by reference, and our restated certificate of
incorporation and our restated bylaws. Forms of our restated certificate of
incorporation and our restated bylaws have been 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.
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Anti-takeover Provisions of Our Charter and Bylaws
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
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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 three nor more than 15
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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These provisions are permitted under Delaware law.
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 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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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
49,173,897 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 41,473,897 shares of common stock held by existing stockholders and
the 11,747,008 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 including shares issued on exercise
of outstanding options or warrants, assuming exercise on the last day of the
term of the option or warrant, will become available for sale in the public
market as follows:
<TABLE>
<CAPTION>
Number of Shares Date
- ---------------- ----
<C> <S>
23,276,836 90 days after the date of this prospectus, shares saleable
under Rule 144 (subject to volume limitations)
12,193,331 After 180 days after the date of this prospectus (in some
cases subject to volume limitations of Rule 144)
2,416,125 One year after the date of this prospectus (in some cases
subject to volume limitations of Rule 144)
2,180,376 Two years after the date of this prospectus (in some cases
subject to volume limitations of Rule 144)
</TABLE>
After this offering, we will have 19,514,723 shares of common stock reserved
for issuance under our stock option plans, employee stock purchase plan and
other stock option agreements of which options to purchase 10,484,841 shares
were outstanding as of February 29, 2000. Promptly following this offering, we
intend to file one or more registration statements on Form S-8 to register these
shares which, upon effectiveness, will permit substantial additional sales of
shares of our common stock as these shares are issued.
Lock-Up Agreements
Our directors and executive officers and the securityholders named in this
prospectus, together with other securityholders that collectively hold most of
the shares of common stock and shares of common stock issuable upon the exercise
of options and 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
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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
491,739 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.
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 19,514,723
shares of common stock which may be issued under our stock option plans,
employee stock purchase plans and other stock option agreements. 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 approximately 32,800,000 shares of
common stock and shares of common stock issuable upon exercise of options and
warrants, 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 either
- holders of at least 25% of the outstanding shares of common stock issued
upon the conversion of our Series A preferred stock, so long as the shares
being registered have a value of $5,000,000 in the aggregate;
- holders of at least 25% of the outstanding shares of common stock issued
upon the conversion of our Series B preferred stock, so long as the shares
being registered have a value of $5,000,000 in the aggregate; or
- Ari Horowitz, so long as his shares of common stock being registered have
a value of $5,000,000 in the aggregate,
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we must use our best efforts to register on Form S-1 these shares and those of
any other securityholders 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 Mr. Horowitz. 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.
In connection with the concurrent placement, at such time as we are
qualified to register securities on Form S-3, Dell USA will be entitled to two
demand registration rights with respect to the shares it purchases in the
concurrent placement so long as the anticipated gross proceeds before deducting
underwriting discounts and commissions of the shares being registered is at
least $3.0 million for each demand. In addition, Dell USA will have unlimited
piggyback registration rights with respect to its shares. The provisions of the
registration rights agreement are otherwise substantially equivalent to those
described above.
In addition, holders of 225,000 shares of common stock issuable on exercise
of a warrant will have one demand right when we are eligible to use Form S-3 and
unlimited piggyback rights and the holders of shares issued in the PeopleMover
acquisition will have a one time piggyback right for up to 250,000 of the shares
issued in the acquisition.
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UNDERWRITING
Of the 7,700,000 shares offered by this prospectus, 5,950,000 shares are
being offered by means of an underwritten public offering and 1,750,000 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
Securities Inc. 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 Securities Inc..................................
E*OFFERING Corp.............................................
---------
Total................................................... 5,950,000
=========
</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 1,155,000 additional
shares of common stock at the same price per share as we will receive for the
5,950,000 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 to be offered by the
underwriters. If purchased, the additional shares will be sold by the
underwriters on the same terms as those on which the 5,950,000 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 them.
The following table shows the per share and total underwriting discounts and
commissions to be paid by us to the underwriters. These discounts and
commissions have been determined based upon our negotiations
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with the representatives of the underwriters. This information is presented
assuming either no exercise or full exercise by the underwriters of their
over-allotment option.
<TABLE>
<CAPTION>
Total(1)
-----------------------------------
Without Over- With Over-
Per Share(2) allotment Option allotment Option
------------ ---------------- ----------------
<S> <C> <C> <C>
Initial public offering price....................... $ $ $
Underwriting discounts and commissions..............
Proceeds, before expenses, to us....................
</TABLE>
- ------------------------
(1) Prior to this offering, FleetBoston Ventures, an affiliate of FleetBoston
Robertson Stephens Inc., purchased 216,919 shares of our Series B preferred
stock, which will automatically convert into 325,380 shares of common stock
upon completion of this offering. In December, 1999, we issued to an
affiliate of J.P. Morgan & Co. 39,000 shares of our common stock in exchange
for consulting services. The issuance of each of these securities may be
deemed to be additional underwriting compensation. See
"--FleetBoston Ventures" and "--J.P. Morgan & Co. Incorporated" below.
(2) The underwriting discount of $ per share represents % of the initial
public offering price.
The total expenses of the offering payable by us are estimated at
$ . We are not responsible for expenses associated with the Safeguard
Subscription Program.
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.
Our directors and executive officers and the securityholders named in this
prospectus, together with other securityholders that collectively hold most of
the shares of common stock and shares of common stock issuable upon the exercise
of options and 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
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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.
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. There
are no plans to direct shares to particular Internet purchasers.
DIRECTED SHARES.
Of the 5,950,000 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, including our
vendors, business partners, customers, potential customers and their respective
employees. 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, the primary
factors 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.
LISTING.
We have applied 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
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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.
DELIVERY.
The shares of common stock to be sold in this offering are expected to be
delivered to purchasers on , 2000.
Safeguard Subscription Program
As part of this offering, we are offering 1,750,000 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 20 shares of Safeguard 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. Subscription orders will be satisfied first from the
shares being sold by us, second from 300,000 shares being offered by CompuCom,
and third from 400,000 shares being offered by Safeguard.
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 Safeguard and CompuCom........
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.
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Each of Safeguard and CompuCom is an underwriter with respect to the shares
included in the Safeguard Subscription Program. However, neither is an
underwriter with respect to the other shares offered by this prospectus.
Safeguard and CompuCom are not included in the term "underwriter" as used in
this prospectus, except with respect to the shares to be sold in the Safeguard
Subscription Program. 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 shares of Series B preferred stock which will convert into shares of our
common stock upon the closing of this offering.
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.
39,000 shares of our common stock in exchange for consulting services performed
under the agreement, valued at .
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
1 to 1.5 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 consolidated financial statements for Opus360 Corporation as of
December 31, 1999 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 each of the two years ended
December 31, 1999, 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.
The financial statements of PeopleMover, Inc. as of December 31, 1998 and
1999 and for each of the two years in the period ended December 31, 1999,
included in this prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the 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.
100
<PAGE>
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. Upon approval of the common stock for quotation on the
Nasdaq National Market, such reports, proxy and other information may be
inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington,
D.C. 20006.
101
<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
1999...................................................... F-3
Consolidated Statements of Operations for the period from
August 17, 1998 (inception) to December 31, 1998 and for
the year ended December 31, 1999.......................... F-4
Consolidated Statements of Stockholders' Equity for the
period from August 17, 1998 (inception) to December 31,
1998 and for the year ended December 31, 1999............. F-5
Consolidated Statements of Cash Flows for the period from
August 17, 1998 (inception) to December 31, 1998 and for
the year ended December 31, 1999.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
THE CHURCHILL BENEFIT CORPORATION
Independent Auditor's Report................................ F-27
Balance Sheets as of December 31, 1997, 1998 and March 31,
1999 (unaudited).......................................... F-28
Statements of Operations for the years ended December 31,
1997 and 1998 and the three months ended March 31, 1998
and 1999 (unaudited)...................................... F-29
Statement of Stockholders' Equity for the years ended
December 31, 1997 and 1998................................ F-30
Statements of Cash Flows for the years ended December 31,
1997 and 1998 and the three months ended March 31, 1998
and 1999 (unaudited)...................................... F-31
Notes to Financial Statements............................... F-32
PEOPLEMOVER, INC.
Report of Independent Accountants........................... F-36
Balance Sheets as of December 31, 1999 and December 31,
1998...................................................... F-37
Statements of Operations for the years ended December 31,
1999 and 1998............................................. F-38
Statements of Stockholders' Deficit for the years ended
December 31, 1999 and 1998................................ F-39
Statements of Cash Flows for the years ended December 31,
1999 and 1998............................................. F-40
Notes to Financial Statements............................... F-41
</TABLE>
F-1
<PAGE>
The Board of Directors
Opus360 Corporation:
When the stock split referred to in Note 10 of the Notes to Financial
Statements has been consummated, we will be in a position to render the
following report.
/s/ KPMG LLP
Independent Auditors' Report
The Board of Directors
Opus360 Corporation:
We have audited the accompanying consolidated balance sheets of Opus360
Corporation as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity and cash flows for the period from August 17,
1998 (inception) to December 31, 1998 and the year ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Opus360 Corporation as of December 31, 1998 and 1999, and the results of its
operations and its cash flows for the period from August 17, 1998 (inception) to
December 31, 1998 and the year ended December 31, 1999 in conformity with
generally accepted accounting principles.
New York, New York
February 8, 2000, except as
to paragraphs 24 and 25 of
note 10,
paragraphs 6 through 12 of
note 13 and paragraphs 18
through 20 of note 13 which
are as of March 1, 2000
F-2
<PAGE>
OPUS360 CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Pro Forma
December 31, December 31, December 31,
1998 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
Assets
Current assets:
Cash................................................ $ 5,818,000 $ 1,326,000 $ 1,326,000
Accounts receivable................................. 12,000 2,314,000 2,314,000
Short-term investments.............................. -- 27,137,000 27,137,000
Prepaid expenses and other.......................... 2,000 3,850,000 3,850,000
----------- ------------ ------------
Total current assets.......................... 5,832,000 34,627,000 34,627,000
Property and equipment, net........................... 54,000 2,990,000 2,990,000
Goodwill, net......................................... -- 1,702,000 1,702,000
Deferred loan costs................................... -- 16,000 16,000
Due from PeopleMover.................................. 575,000 575,000
Other assets.......................................... -- 806,000 806,000
----------- ------------ ------------
Total assets.................................. $ 5,886,000 $ 40,716,000 $ 40,716,000
=========== ============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.................................... $ 293,000 $ 5,489,000 $ 5,489,000
Accrued expenses.................................... 340,000 4,818,000 4,818,000
Accrued wages....................................... -- 2,682,000 2,682,000
----------- ------------ ------------
Total current liabilities..................... 633,000 12,989,000 12,989,000
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; zero shares outstanding on a pro
forma basis....................................... 5,000 8,000 --
Series B convertible preferred stock, $0.001 par
value; 8,700,000 shares authorized; 0 and
8,677,000 shares issued and outstanding,
respectively; zero shares outstanding on a pro
forma basis....................................... -- 9,000 --
Common stock, $0.001 par value; 45,000,000 shares
authorized; 9,500,000 and 10,880,000 issued and
outstanding, respectively; 36,322,000 shares
outstanding on a pro forma basis.................. 9,000 11,000 36,000
Additional paid-in capital.......................... 6,381,000 63,835,000 63,827,000
Stock subscription receivable....................... (107,000) (239,000) (239,000)
Deferred compensation............................... -- (5,469,000) (5,469,000)
Accumulated deficit................................. (1,035,000) (30,425,000) (30,425,000)
Accumulated other comprehensive loss................ -- (3,000) (3,000)
----------- ------------ ------------
Total stockholders' equity.................... 5,253,000 27,727,000 27,727,000
----------- ------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity.... $ 5,886,000 $ 40,716,000 $ 40,716,000
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
OPUS360 CORPORATION
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Period from
August 17, 1998
(inception) to Year ended
December 31, December 31,
1998 1999
--------------- -------------
<S> <C> <C>
Revenue..................................................... $ -- $ 419,000
Cost of revenue............................................. -- 261,000
------------ ------------
Gross profit................................................ -- 158,000
Operating expenses:
Sales and marketing....................................... 80,000 11,068,000
Product development....................................... 552,000 9,034,000
General and administrative................................ 407,000 7,114,000
Depreciation and amortization............................. 2,000 629,000
Amortization of equity-based compensation................. -- 2,448,000
------------ ------------
Total operating expenses................................ 1,041,000 30,293,000
------------ ------------
Loss from operations.................................... (1,041,000) (30,135,000)
Other income:
Interest income........................................... 6,000 765,000
Interest expense.......................................... -- (20,000)
------------ ------------
Loss before income taxes................................ (1,035,000) (29,390,000)
Income tax expense.......................................... -- --
------------ ------------
Net loss................................................ $ (1,035,000) $(29,390,000)
============ ============
Historical basic and diluted net loss per share............. $ (0.11) $ (2.91)
============ ============
Shares used in the calculation of historical basic and
diluted net loss per share................................ 9,120,348 10,083,563
============ ============
Pro forma basic and diluted net loss per share (note 9)..... $ (1.12)
============
Shares used in the calculation of pro forma basic and
diluted net loss per share (note 9)....................... 26,323,752
============
</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 the Year ended December 31, 1999
<TABLE>
<CAPTION>
Class A Convertible Class B Convertible
Preferred Stock Preferred Stock Common Stock Additional
---------------------- ---------------------- ---------------------- Paid-in
Shares Amount Shares Amount Shares Amount Capital
---------- --------- ---------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at August 17, 1998
(inception) -- $ -- -- $ -- -- $ -- $ --
Issuance of common stock........ -- -- -- -- 9,092,000 9,000 526,000
Issuance of common stock for
technology.................... -- -- -- -- 408,000 -- 95,000
Issuance of Class A convertible
preferred stock............... 4,636,000 5,000 -- -- -- -- 5,790,000
Expenses incurred in connection
with equity offerings......... -- -- -- -- -- -- (30,000)
Net loss and comprehensive
loss.......................... -- -- -- -- -- -- --
---------- --------- ---------- --------- ---------- --------- -----------
Balance at December 31,
1998...................... 4,636,000 5,000 -- -- 9,500,000 9,000 6,381,000
Issuance of Class A convertible
preferred stock............... 3,648,000 3,000 -- -- -- -- 4,557,000
Issuance of Class B convertible
preferred stock............... -- -- 8,677,000 9,000 -- -- 39,991,000
Issuance of shares in connection
with acquisition.............. -- -- -- -- 946,000 1,000 1,749,000
Expenses incurred in connection
with equity offering.......... -- -- -- -- -- -- (40,000)
Proceeds from stock
subscriptions receivable...... -- -- -- -- -- -- --
Record equity base compensation
expense to a shareholder...... -- -- -- -- -- -- 243,000
Record deferred compensation for
issuance of options to
employees..................... -- -- -- -- -- -- 5,758,000
Record deferred compensation for
issuance of options to non-
employees..................... -- -- -- -- -- -- 1,916,000
Amortization of deferred
compensation for employee
stock options................. -- -- -- -- -- -- --
Amortization of deferred
compensation for non-employee
stock options................. -- -- -- -- -- -- --
Issuance of warrants to a
bank.......................... -- -- -- -- -- -- 63,000
Issuance of warrants for
services...................... -- -- -- -- -- -- 554,000
Issuance of warrants for
services...................... -- -- -- -- -- -- 182,000
Issuance of warrants for
services...................... -- -- -- -- -- -- 54,000
Issuance of shares to
CareerPath.................... -- -- -- -- 246,000 1,000 1,999,000
Issuance of shares to
J.P. Morgan................... -- -- -- -- 39,000 -- 318,000
Warrants exercised.............. -- -- -- -- 120,000 -- 100,000
Options exercised............... -- -- -- -- 29,000 -- 10,000
Comprehensive loss..............
Net loss.................... -- -- -- -- -- -- --
Unrealized holding loss on
short term investments.... -- -- -- -- -- -- --
Comprehensive loss -- -- -- -- -- -- --
---------- --------- ---------- --------- ---------- --------- -----------
Balance at December 31,
1999...................... 8,284,000 $ 8,000 8,677,000 $ 9,000 10,880,000 $ 11,000 $63,835,000
========== ========= ========== ========= ========== ========= ===========
<CAPTION>
Stock Other
Subscriptions Deferred Accumulated Comprehensive
Receivable Compensation Deficit Loss Total
------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at August 17, 1998
(inception) $ -- $ -- $ -- $ -- $ --
Issuance of common stock........ (107,000) -- -- -- 428,000
Issuance of common stock for
technology.................... -- -- -- -- 95,000
Issuance of Class A convertible
preferred stock............... -- -- -- -- 5,795,000
Expenses incurred in connection
with equity offerings......... -- -- -- -- (30,000)
Net loss and comprehensive
loss.......................... -- -- (1,035,000) -- (1,035,000)
--------- ----------- ------------ ---------- ------------
Balance at December 31,
1998...................... (107,000) -- (1,035,000) -- 5,253,000
Issuance of Class A convertible
preferred stock............... (195,000) -- -- -- 4,365,000
Issuance of Class B convertible
preferred stock............... -- -- -- -- 40,000,000
Issuance of shares in connection
with acquisition.............. -- -- -- -- 1,750,000
Expenses incurred in connection
with equity offering.......... -- -- -- -- (40,000)
Proceeds from stock
subscriptions receivable...... 63,000 -- -- -- 63,000
Record equity base compensation
expense to a shareholder...... -- -- -- -- 243,000
Record deferred compensation for
issuance of options to
employees..................... -- (5,758,000) -- -- --
Record deferred compensation for
issuance of options to non-
employees..................... -- (1,916,000) -- -- --
Amortization of deferred
compensation for employee
stock options................. -- 756,000 -- -- 756,000
Amortization of deferred
compensation for non-employee
stock options................. -- 1,449,000 -- -- 1,449,000
Issuance of warrants to a
bank.......................... -- -- -- -- 63,000
Issuance of warrants for
services...................... -- -- -- -- 554,000
Issuance of warrants for
services...................... -- -- -- -- 182,000
Issuance of warrants for
services...................... 54,000
Issuance of shares to
CareerPath.................... -- -- -- -- 2,000,000
Issuance of shares to
J.P. Morgan................... -- -- -- -- 318,000
Warrants exercised.............. -- -- -- -- 100,000
Options exercised............... -- -- -- -- 10,000
Comprehensive loss..............
Net loss.................... -- -- (29,390,000) -- (29,390,000)
Unrealized holding loss on
short term investments.... -- -- -- (3,000) (3,000)
------------
Comprehensive loss -- -- -- -- (29,393,000)
--------- ----------- ------------ ---------- ------------
Balance at December 31,
1999...................... $(239,000) $(5,469,000) $(30,425,000) $ (3,000) $ 27,727,000
========= =========== ============ ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
OPUS360 CORPORATION
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Period from
August 17, 1998
(inception) to Year ended
December 31, December 31,
1998 1999
--------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,035,000) $(29,390,000)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization........................... 2,000 629,000
Non cash product development expense.................... 95,000 24,000
Non cash compensation expense........................... -- 2,448,000
Non cash advertising expense............................ -- 182,000
Non cash advisory expense............................... -- 369,000
Non cash interest expense associated with issuance of
warrants.............................................. -- 47,000
Expenses paid by stockholder............................ 225,000 58,000
Loss on disposal of equipment........................... -- 8,000
Changes in operating assets and liabilities:
Account receivables................................... (12,000) (1,092,000)
Prepaid expenses and other current assets............. (2,000) (3,848,000)
Other assets.......................................... -- (1,099,000)
Accounts payable...................................... 68,000 5,138,000
Accrued expenses...................................... 339,000 4,478,000
Accrued wages......................................... -- 1,267,000
----------- ------------
Net cash provided by (used in) operating
activities.......................................... $ (320,000) $(20,781,000)
=========== ============
Cash flows from investing activities:
Acquisition of property and equipment..................... (56,000) (3,156,000)
Increase in short term investments........................ -- (27,140,000)
Cash acquired in connection with acquisition of
subsidiary.............................................. -- 129,000
Due from PeopleMover...................................... -- (575,000)
----------- ------------
Net cash used in investing activities............... $ (56,000) $(30,742,000)
=========== ============
Cash flows from financing activities:
Net proceeds from issuance of Series A convertible
preferred stock......................................... $ 5,765,000 $ 4,560,000
Net proceeds from issuance of Series B convertible
preferred stock......................................... -- 39,795,000
Net proceeds from issuance of common stock................ 429,000 2,676,000
----------- ------------
Net cash provided by financing activities........... 6,194,000 47,031,000
----------- ------------
Net increase (decrease) in cash..................... 5,818,000 (4,492,000)
Cash:
Beginning of period....................................... -- 5,818,000
----------- ------------
End of period............................................. $ 5,818,000 $ 1,326,000
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements
(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 service for
putting people and projects together. The Company's e-commerce service is
designed 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 service 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 provided offline back-office and employer services
similar to those of the Company's online FREEAGENT E.OFFICE service.
(B) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Opus and it's wholly owned subsidiary, The 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, recognizes revenue. The Company currently
recognizes as revenue the monthly fees it charges to its FREEAGENT E.OFFICE
employees for providing FREEAGENT E.OFFICE services as these services are
provided. Previously, Churchill recorded as revenue, the gross billings from
services provided by its FREEAGENT E.OFFICE employees to customers with whom
Churchill contracts, invoices and collects on behalf of its FREEAGENT E.OFFICE
employees. Churchill would then record a corresponding charge to cost of
revenues for the same amount less its FREEAGENT E.OFFICE service fee. This
change in Churchill's revenue recognition policy has no effect on historical net
income or loss.
F-7
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
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.
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 1.5 for 1.0 basis. Accordingly, the effect of the
conversions has been reflected in the accompanying pro forma balance sheet as if
they had occurred as of December 31, 1999. A registration statement relating to
the IPO was filed with the SEC on December 21, 1999, but has not yet become
effective.
(C) 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.
(D) REVENUE RECOGNITION
To date, the Company has generated revenue principally from charging fees to
independent professionals who receive the Company's FREEAGENT 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 FREEAGENT E.OFFICE
fees as its services are provided to such FREEAGENT E.OFFICE employees on a
monthly basis. The Company recognizes the initial
sign-up fee over the period of the FREEAGENT E.OFFICE employees' initial
contract term. The FREEAGENT E.OFFICE employee may elect to terminate receiving
the Company's FREEAGENT E.OFFICE services at any time; however, the FREEAGENT
E.OFFICE employee is not entitled to any refund upon termination.
Company revenue from the sale of banner ads or sponsorship fees on
FREEAGENT.COM is recognized ratably in the period in which the advertisement is
displayed or the term of the sponsorship agreement, provided that no significant
Company obligations remain and collection of the resulting receivable is
probable.
FREEAGENT business services revenues will consist of commission-based or
fee-based services for products provided through FREEAGENT.COM by the Company's
business partners. Business service revenues will be recognized as revenues when
the transaction is consummated provided that no significant obligations exist,
including refunds, and collection of the resulting receivable is probable.
Through December 31, 1999, no revenue has been recognized from this service.
F-8
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
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. Through December 31,
1999, 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. Through December 31, 1999, no revenue has been
recognized for this service.
(E) COST OF REVENUE
Cost of revenue consists primarily of salaries paid to staff that help
administer the Company's FREEAGENT 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.
(F) INVESTMENT SECURITIES
Investment securities at December 31, 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 December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair Market
Cost Gain Loss Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Government agency debt securities............... $24,787,000 7,000 (14,000) 24,780,000
Corporate debt securities....................... 2,355,000 2,000 -- 2,357,000
----------- ----- ------- ----------
Total........................................... $27,142,000 9,000 (14,000) 27,137,000
=========== ===== ======= ==========
</TABLE>
(G) ADVERTISING COSTS
Advertising costs are expensed as incurred. For the period from August 17,
1998 (inception) to December 31, 1998 and for the year ended December 31, 1999,
advertising expenses amounted to approximately $0 and $4,545,000, respectively.
(H) ACCOUNTS RECEIVABLE AND ACCRUED WAGES PAYABLE
Accounts receivable represents amounts invoiced by the Company on behalf of
its FREEAGENT E.OFFICE employees for services rendered to a customer that has
contracted with the Company. Accrued wages
F-9
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
represents the amounts owed to the Company's FREEAGENT E.OFFICE employees for
services rendered under contracts with third parties.
(I) 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.
(J) 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.
(K) 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 year ended December 31, 1999 was $411,000.
(L) 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, short-term
investments and other assets, accounts payable and accrued expenses approximate
fair market value due to the short maturity of these instruments.
(M) 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
December 31, 1999, all development costs have been charged to product
development expense in the accompanying consolidated statements of operations.
(N) 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)
tax bases of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse.
(O) 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.
(P) 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 11).
(Q) 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.
(R) 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 December 31, 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.
(S) 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)
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 946,474 shares (the
"Initial Shares") of the Company's common stock valued at approximately $1.849
per share, or $1.75 million.
The former owner of Churchill is potentially entitled to an additional
405,631 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 May 27, 2000 (the
"Additional Shares").
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 FREEAGENT E.OFFICE service one year
from the date of the acquisition agreement.
As of December 31, 1999, the Company could 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.
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 $2,113,000
created as a result of the Churchill transaction is being amortized over three
years and was calculated as follows:
<TABLE>
<S> <C>
Value of Initial Shares..................................... $1,750,000
Acquisition costs........................................... 297,000
Negative net assets acquired................................ 66,000
----------
Excess purchase price over net assets acquired.............. $2,113,000
==========
</TABLE>
On a pro forma basis as if the acquisition of Churchill had taken place on
August 17, 1998 the Company's revenue, net loss, and basic and diluted net loss
per share would have been $300,000 and
F-12
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
$717,000, $(1,333,000) and $(29,966,000), and $(0.20) and $(2.86) per share, for
the period and year ended December 31, 1998 and December 31, 1999, respectively.
On February 3, 2000, the Company determined that all contingencies
surrounding the release of the Escrow and Additional Shares potentially due to
the former owner of Churchill have been satisfied and it is probable that the
shareholder will be entitled to all such shares and amounts.
Based on the fair market value of the Company's common stock on the date
that determination of amounts owed is considered probable, the Company would
record deferred compensation of $4,545,000 as these amounts are still subject to
the former owner of Churchill remaining employed by the Company.
Fair Market Value of the Escrow and Additional Shares was calculated as
follows:
<TABLE>
<S> <C>
Escrow Shares--405,631 shares at $9.11 per share............ $3,695,000
Additional Shares--93,300 shares at $9.11 per share......... $ 850,000
----------
$4,545,000
==========
</TABLE>
(3) Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
Computer equipment................................. $56,000 $1,946,000
Leasehold improvements............................. -- 1,209,000
Furniture and fixtures............................. -- 54,000
------- ----------
56,000 3,209,000
Less accumulated depreciation...................... (2,000) (219,000)
------- ----------
Total.......................................... $54,000 $2,990,000
======= ==========
</TABLE>
(4) Concentrations
At December 31, 1998 and December 31, 1999 five clients accounted for
approximately $828,000 and $376,000 of accounts receivable, respectively.
(5) Related Party Transactions
A stockholder of the Company provided and charged the Company for product
development consulting, 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 $225,000 and $1,818,000 for the period from August 17,
1998 (inception) to December 31, 1998, and the year ended December 31, 1999,
respectively. As of December 31, 1999, amounts of $255,000 and $258,000,
respectfully were owed to this stockholder and are included in accounts payable.
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.
F-13
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
(6) Lines of Credit
In May 1999, the Company entered into a $1,000,000 line of credit with a
bank which provides for: (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
22,500 shares of common stock at $0.83 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 24,000 shares of common stock at $1.85 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 covenants and
the maintenance of a $2,000,000 tangible net worth covenant, 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 $63,000 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 in
certain circumstances. The Company will be responsible for all expenses in
connection with the 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 issued under the Company's line of credit. The table below includes
amounts related to the new lease.
F-14
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
Future minimum annual lease payments under noncancelable operating leases as
of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Operating
Lease
----------
<S> <C>
2000........................................................ $ 471,000
2001........................................................ 248,000
2002........................................................ 175,000
2003........................................................ 100,000
2004........................................................ 100,000
Thereafter.................................................. 475,000
----------
$1,569,000
==========
</TABLE>
Rent expense for the period from August 17, 1998 (inception) to
December 31, 1998 and the year ended December 31, 1999 was $24,000 and $492,000,
respectively.
In December 1999 and January 2000, the Company entered into agreements with
other Internet sites pursuant to which the parties have agreed to promote their
respective content, products and services and jointly develop either a
co-branded website or feature the Company's services within their sites. The
Company has agreed to spend in the aggregate a minimum of approximately
$0.1 million in development costs as well as approximately $5.0 million in
advertising to market the new sites. In addition, the terms of certain of these
agreements require the Company to share revenues generated on the site. The
terms of these agreements vary from one to five years. We have also entered into
an agreement pursuant to which we have agreed to purchase development and
implementation services through September 2000. The aggregate annual commitment
under these agreements does not exceed $4 million in 2000 and $1.5 million
thereafter.
(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
December 31, 1999, the Company had a net operating loss carryforward of
$26.7 million give rise to substantially all of its $11.7 million gross deferred
tax asset. The Company has recorded a valuation allowance in the amount of
$11.7 million to fully eliminate the deferred tax asset.
All net operating losses have a carryforward period of twenty years with
$0.7 million and $26.0 million expiring in 2018 and 2019 respectively, unless
utilized prior to expiration.
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ -------------
<S> <C> <C>
Computed expected tax benefit...................... $(352,000) $(9,542,000)
State and local income tax benefits,
Net of federal income tax........................ (55,000) (1,672,000)
Expenses not deductible for tax purposes........... 36,000 243,000
Others............................................. (25,000) (296,000)
Increase in valuation allowance.................... 396,000 11,267,000
--------- -----------
$ -- $ --
========= ===========
</TABLE>
F-15
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
Temporary differences that give rise to the components of deferred tax
assets as of December 31, 1998 and December 31, 1999 are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward.................. $ 305,000 $10,692,000
Accrued bonus and vacation....................... 66,000 377,000
Fixed assets..................................... 1,000 --
Others........................................... 24,000 25,000
Deferred compensation............................ -- 576,000
--------- -----------
Total gross deferred tax assets................ 396,000 11,670,000
--------- -----------
Less valuation allowance........................... (396,000) (11,663,000)
--------- -----------
Net deferred tax assets........................ $ -- $ 7,000
--------- -----------
Deferred tax liabilities:
Fixed assets..................................... -- 7,000
--------- -----------
Total gross deferred tax liabilities........... -- 7,000
--------- -----------
Net deferred tax............................... $ -- $ --
========= ===========
</TABLE>
The Company recorded a full valuation allowance against its deferred tax
assets since management believes that it is not more likely than not that these
assets will be realized.
(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
August 17, 1998 Year
(inception) to Ended
December 31, 1998 December 31, 1999
----------------- ------------------
<S> <C> <C>
Numerator:
Net loss.................................................. $(1,035,000) $(29,390,000)
=========== ============
Denominator:
Basic and diluted loss per share weighted average
shares.................................................. 9,120,348 10,083,563
=========== ============
Basic and diluted net loss per share...................... $ (0.11) $ (2.91)
=========== ============
</TABLE>
Basic and diluted net loss per share excludes the effect of 405,631 escrowed
shares and $850,000 of contingently issuable shares of common stock in
connection with the acquisition of The Churchill Benefit Corporation as the
conditions surrounding the release of such shares had not been satisfied as of
December 31, 1999. Diluted net loss per share for the period from August 17,
1998 (inception) to December 31, 1998 and the year ended December 31, 1999 does
not include the effect of options and warrants to purchase 2,277,000 and
7,060,000 shares of common stock, respectively, or 6,954,000 and 25,442,000
shares of common stock 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 Company's unaudited
pro forma basic and diluted loss per share. Pro forma basic and diluted loss per
share is computed by assuming the conversion of all
F-16
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
convertible preferred stock into common stock as if such shares were outstanding
from their respective dates of issuance.
<TABLE>
<CAPTION>
Year
Ended
December 31, 1999
------------------
<S> <C>
Numerator:
Net loss.................................................. $(29,390,000)
============
Denominator:
Weighted average number of common shares.................. 10,083,563
Assumed conversion of preferred stock
Series A................................................ 11,961,255
Series B................................................ 4,278,934
------------
26,323,752
============
Pro forma basic and diluted net loss per share............ $(1.12)
============
</TABLE>
(10) Stockholders' Equity
COMMON STOCK:
In , 2000, the Company affected a 3 for 2 split of its common
stock. The accompanying financial statements give retroactive effect for this
split.
Between August and December 1998, the Company sold 9,091,073 shares of
common stock to founders, employees and investors for approximately $535,000 at
prices ranging between $0.03 and $0.23 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 $107,000 and $44,000 as of December 31, 1998 and December 31,
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 4,708,500 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 85,710 shares for approximately $20,000, or $0.23 per share. In
connection with this transaction, the Company recorded compensation expense of
approximately $243,000, or $2.84 per share, representing the difference between
the price paid, of $0.23 per share and the fair market value of the common stock
on that date, $3.07 per share.
In December 1999, the Company and the CEO terminated their repurchase rights
pursuant to these agreements.
In October 1998, the Company entered into an agreement with USWeb
Corporation whereby the Company acquired certain prototype technology in
exchange for 408,000 shares of common stock at a fair value of $0.23 per share,
or $95,000. The Company has expensed this amount in accordance with
SFAS No. 86. The Company's CEO was formerly a senior managing partner of USWeb.
F-17
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
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 1.5 for 1.0 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 852,000 shares of
common stock at fair market value of $1.25 per share. The warrants are
immediately exercisable and expire December 24, 2005. As these warrants were
issued in connection with the sale of equity, the Company has charged and
recorded a corresponding credit to additional paid-in capital for the fair
market value of the warrants.
On September 3, 1999, the Company sold 8,677,000 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 1.5 for 1.0 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 450,000 shares of the Company's common stock
at $3.07 per share upon the commencement of the Initial Term, 2) warrants to
immediately purchase 450,000 shares of the Company's common stock at the then
fair market value upon the earlier of the commencement of the First Renewal Term
or the pricing of a qualified IPO, and 3) warrants to immediately purchase
450,000 shares of the Company's common stock 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 a pre-paid expense of approximately $554,000 representing the
fair market value of the warrants calculated using the Black-Scholes pricing
model and is amortizing this amount over the Initial Term of the agreement.
F-18
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
In January 2000, the Company completed the acquisitions of
INDUSTRYINSITE.COM and Ithority Corporation (see Note 13) and accordingly, the
Company expensed any previously unamortized amounts associated with the Initial
Term warrants. Additionally, the Company issued to Greenhill, the First Renewal
Term warrants to purchase 450,000 shares of the Company's common stock at fair
market value of $8.21 per share. In connection with the issuance of the First
Renewal Term warrants the Company recorded a prepaid expense of approximately
$832,500 calculated using the Black-Scholes pricing model. The Company will
amortize this amount over one year, which is the Company's best estimate of the
length of the First Renewal Term.
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, are exercisable upon the
Company's IPO and expire five years from the dates of issuance. The agreement
also provides that, after the Company has completed its IPO, all fees are to be
paid only in cash.
In connection with the KBP agreement, the Company issued 40,500 warrants to
KBP through December 31, 1999, and the Company recorded sales and marketing
expenses of approximately $182,000, representing the fair market value of the
warrants calculated using the Black-Scholes pricing model.
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 for two years in exchange for warrants to immediately purchase 120,000
shares of Common Stock at $0.83. In connection with the granting of warrants to
Sapient, which expire on December 31, 1999, the Company recorded deferred costs
of approximately $54,000, representing the fair market value of the warrants
calculated using the Black-Scholes pricing model, which will be amortized over
the term of the agreement.
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
equally share up to $90,000 of the costs associated with building the site and
will promote the site to each other's 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 $8.15 per share or 245,355
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 prepaid
royalties and prepaid advertising, respectively.
F-19
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
J.P. MORGAN:
In December 1999, the Company entered into an agreement with J.P. Morgan &
Co. ("J.P. Morgan") whereby J.P. Morgan will assist the Company for two years in
developing its enhanced OPUS XCHANGE product in exchange for 39,000 shares of
the Company's common stock with a fair value of $8.15 per share, or $318,000.
The Company will charge to product development expense the fair market value of
the shares issued to J.P. Morgan over the term of the agreement.
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. The plan authorized the granting of
6 million options and are for periods not to exceed ten years.
For the year ended December 31, 1999, the Company recorded deferred
compensation of approximately $5,758,000 in connection with the granting of
options to employees and board members under the Plan. Deferred compensation
related to options granted to employees and board members is being amortized
over the vesting period of the options, which is generally four years. In
December 1999, the Company fully vested certain options that would have
otherwise vested over a four-year period. Accordingly, the Company charged to
compensation expense any previously unamortized amounts related to these
options. The Company recognized $756,000 as expense during the year ended
December 31, 1999 relating to employee and board member options, which includes
amounts related to the acceleration of certain options.
In January and February 2000, the Company recorded additional deferred
compensation primarily related to options granted to our new president of
$6,760,000 in connection with granting options to employees and board members.
The Company expects to amortize unamortized deferred compensation expense of
$11,762,000 as follows:
<TABLE>
<S> <C>
For the year ended December 31, 2000........................ $4,787,000
For the year ended December 31, 2001........................ $2,992,000
For the year ended December 31, 2002........................ $2,992,000
For the year ended December 31, 2003........................ $ 991,000
</TABLE>
In connection with the granting of approximately 322,000 stock options in
1999 to non-employees, the Company recorded deferred compensation expense of
approximately $1,916,000 for the year ended December 31, 1999. These options
have been issued under the Plan and generally vest over three years. 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. Fair
market value at each date of grant and interim reporting period was calculated
using the Black-Scholes pricing model.
In December 1999, the Company fully vested certain options to non-employees
which would have otherwise vested over a three-year period. Accordingly, the
Company revalued and immediately expensed the fair value of the accelerated
options and amortized to compensation expense any previously unamortized
deferred compensation related to these options.
The Company recognized expense of $1,449,000 for the year ended
December 31, 1999 relating to the vesting of approximately 245,000 non-employee
options, which includes amounts related to the acceleration of certain options.
The Company cannot presently determine the amount of future compensation expense
it
F-20
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
may record related to the remaining unvested options issued to non-employees as
these amounts are subject to adjustment based on the fair market value of the
Company's common stock at each reporting date.
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............................................. 1,425,000 $ 0.55
Canceled............................................ -- --
----------
Outstanding, December 31, 1998...................... 1,425,000 0.55
Granted............................................. 4,675,000 1.15
Canceled............................................ (732,000) (0.63)
Exercised........................................... (28,000) 0.33
----------
Outstanding, December 31, 1999...................... 5,340,000 $ 1.09
==========
</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>
$0.32-$0.45 713,000 9.83 $0.38 32,000 $0.38
$0.50-$0.67 360,000 9.90 $0.61 9,000 $0.58
$0.79-$0.83 352,000 9.98 $0.81 1,000 $0.81
--------- -------
1,425,000 42,000
========= =======
</TABLE>
The following table summarizes information concerning outstanding options at
December 31, 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>
$0.32-$0.45 2,894,000 9.18 $0.37 590,000 $0.37
$0.50-$0.67 360,000 8.90 $0.61 99,000 $0.60
$0.79-$0.83 252,000 9.07 $0.80 78,000 $0.80
$1.47-$1.85 916,000 9.52 $1.83 99,000 $1.81
$2.67-$3.07 894,000 9.76 $2.77 40,000 $2.79
$8.00 24,000 9.98 8.00 -- 8.00
--------- -------
5,340,000 906,000
========= =======
</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-21
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
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% ~ 5.42%
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................................... $(1,039,000) $(30,272,556)
Pro forma basic and diluted loss per share....... $(0.11) $(3.00)
</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-22
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
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 year ended December 31, 1999.
<TABLE>
<CAPTION>
Application
and
Procurement FreeAgent
Services Services Total
----------- ---------- -----------
<S> <C> <C> <C>
1999:
Revenues.............................. $ -- $ 419,000 $ 419,000
Gross (loss) profit................... -- 158,000 158,000
Net loss before equity-based
compensation charges................ (18,943,000) (7,999,000) (26,942,000)
Total assets.......................... 37,864,000 2,852,000 40,716,000
1998:
Revenues.............................. $ -- $ -- $ --
Gross profit.......................... -- -- --
Net income (loss)..................... (1,035,000) -- (1,035,000)
Total assets.......................... 5,886,000 -- 5,886,000
</TABLE>
For the year ended December 31, the reconciliation between segment net loss
and net loss from operations is as follows:
<TABLE>
<S> <C>
Segment net operating loss.................................. $(26,942,000)
Equity-based compensation................................... 2,448,000
Enterprise net operating loss............................... $(29,390,000)
</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 FREEAGENT 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 December 31, 1999 was $558,000.
The Company does not provide any post retirement or any post employment
benefits.
(13) Subsequent Events
INDUSTRYINSITE.COM:
On January 10, 2000, the Company acquired from BrainStorm Interactive Inc.
all of the related assets and liabilities of IndustryInsite.com
("IndustryInsite.com"), a web-site operated by BrainStorm, for an aggregate
purchase price of $1,000,000. The purchase price was paid as follows:
i) $650,000 on closing and ii) a $350,000 note payable which will be due upon
the earlier of (i) ninety days from closing (ii) three business days after the
completion of the Company's IPO and (iii) a change of control of the Company, as
defined.
F-23
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
ITHORITY CORPORATION:
On January 20, 2000, the Company acquired 100% of the outstanding equity of
Ithority Corporation ("Ithority") in exchange for approximately 243,474 shares
of the Company's common stock valued at $2 million, or $8.21 per share, plus
$250,000 on closing and $250,000 upon the earlier of integration of Ithority's
web-site with the Company's or 120 days subsequent to closing.
The former shareholders of Ithority are also entitled to approximately
182,599 shares, which have been placed in escrow (the "Ithority Escrow Shares")
plus $4 million of the Company's common stock payable one year from the date of
closing based upon the then fair market of the Company's common stock (the
"Ithority Additional Shares"). The Ithority Escrow Share will be released one
year from the date of closing and are subject to certain representations and
warranties provided by the selling shareholders.
Approximately 177,668 of the Ithority Escrow Shares and 97% of Ithority
Additional Shares payable to certain selling shareholders are subject to three
year vesting agreements whereby the Company has the right but not the obligation
to repurchase these shares for $0.01 per share in the event the shareholder is
no longer employed by the Company. The Company will record deferred compensation
expense for the fair market value of the shares, which are subject to
employment, and will amortize such amounts over the vesting period.
Under Rule 3-05 of Regulation S-X, the Company is required to file with the
SEC audited financial statements of Ithority Corporation as soon as possible but
in no event more than 75 days from the consummation of the acquisition.
PEOPLEMOVER, INC.:
On January 28, 2000, the Company acquired all of the outstanding equity of
PeopleMover, Inc. ("PeopleMover") for approximately 2,634,000 shares of common
stock. Additionally, the Company will exchange options to purchase approximately
1,189,000 shares of its common stock for outstanding stock options to purchase
PeopleMover common stock.
The acquisition of PeopleMover consists of the following:
- 2,634,000 shares of Opus360 common shares valued at approximately
$23,990,000, or $9.11 per share;
- the assumption by Opus360 of options to purchase shares of PeopleMover
common stock, to be exchanged for options to purchase approximately
1,189,000 shares of Opus360 common stock. The options have been valued at
approximately $7,875,000 using the Black-Scholes pricing model. Such
shares have an aggregate exercise price of approximately $5,175,000; and
- the Company also anticipates acquisition costs of approximately $300,000
related to the merger.
Approximately 342,000 shares issued to the PeopleMover shareholders are
subject to a three-year restricted stock vesting agreement, whereby, the Company
has the right but not the obligation to repurchase these shares for $0.01 per
share in the event the shareholder is no longer employed by the Company. The
Company will only include the vested portion of the restricted shares for
purposes of calculating basic earnings per share. The Company will also include
the unvested portion of the restricted shares for purposes of calculating
diluted earnings per share, if such amounts are dilutive.
The value of the approximately 342,000 shares, which are subject to the
three-year vesting agreement, is approximately $3,134,000 and will be recorded
to deferred compensation expense and amortized over the term of the vesting
agreement.
F-24
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
In connection with its negotiations to acquire PeopleMover, the Company
entered into an interim funding agreement with PeopleMover pursuant to which the
Company agreed to provide loans to PeopleMover through the earlier of March 3,
2000 or the date that the acquisition agreement is signed. The aggregate amount
of the loans, which have a stated interest rate of 18% cannot exceed
$3.0 million. If the acquisition agreement is executed during the loan period,
the aggregate amount of any outstanding principal and accrued interest will
reduce the purchase price of the acquisition on a dollar for dollar basis. As of
December 31, 1999, the Company had outstanding loans of $575,000 to PeopleMover.
The Company intends to account for the acquisition of PeopleMover using the
purchase method and, accordingly, the results of operations of PeopleMover will
be included in the Company's consolidated financial statements from the date of
acquisition. The purchase price will be preliminarily allocated to PeopleMover's
historical assets and liabilities based on the carrying values of the assets
acquired and liabilities assumed.
The following pro forma financial information represents the preliminary
allocation of the purchase price over historical net book values of the acquired
assets and assumed liabilities of PeopleMover at December 31, 1999, and are for
illustrative purposes only. Goodwill and other intangibles expected to be
created, as a result of the PeopleMover acquisition will be amortized over three
years. Actual fair values will be based on financial information as of the
acquisition date. Assuming the transaction had occurred on December 31, 1999,
the preliminary allocation would have been as follows:
<TABLE>
<S> <C>
Value of shares not subject to restricted stock vesting
agreement $20,880,000
Value of stock options issued, measured using Black-Scholes
pricing model 7,875,000
Estimated costs associated with acquisition 300,000
Conversion of redeemable preferred stock (5,425,000)
Conversion of notes payable into equity (1,375,000)
Negative net assets acquired, as of December 31, 1999 9,371,000
-----------
Excess purchase price over net assets acquired $31,626,000
</TABLE>
The excess purchase price over the net assets acquired in the PeopleMover
transaction has been preliminarily assigned to goodwill, which will be amortized
over three years, and may be subject to change upon evaluation of the fair value
of PeopleMover's acquired assets and liabilities as of the acquisition date as
well as the potential identification of certain intangible assets, including
customer lists and in-process technology. The Company expects to amortize fixed
and intangible assets acquired over the same three-year period of time and
accordingly, any changes from the final allocation of the purchase price is not
expected to have a material impact on the Company's Statement of Operations.
EMPLOYMENT AGREEMENTS:
In connection with the Ithority and PeopleMover transactions, the Company
entered into various three-year employment contracts with certain former
employees which obligate the Company to annual salaries totaling approximately
$630,000 plus the opportunity to participate in the Company's bonus and benefit
plans.
On January 21, 2000, the Company entered into a three-year employment
agreement with Mr. Richard S. Miller, who will assume the role of President and
Chief Operating Officer, which obligates the Company to pay an annual salary of
$250,000. The Agreement further provides that Mr. Miller will be eligible for
annual bonuses of not less than $100,000 per year if certain performance
criteria are met.
In connection with the January 21, 2000 employment agreement, Mr. Miller has
been granted incentive stock options to purchase 32,918 shares of Opus common
stock at fair market value or $9.11 per share and
F-25
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
non-qualified stock options to purchase 1,474,582 shares of common stock of
which 300,000 have a strike price of $2.67 and are immediately vested, 600,000
have a strike price of $2.67 and vest over 3 years and the remaining 574,582
have a strike price of $8.00 and vest over 3 years. The Company will record
deferred compensation of $6,425,000 in connection with Mr. Miller's option
grants and will amortize this amount to compensation expense over the three-year
vesting term of Mr. Miller's options. The non-qualified options issued to Mr.
Miller have been issued outside of the Company's existing Stock Option Plan.
In February 2000, the Company entered into three-year agreements with
several of its employees, who are also stockholders, which obligate the Company
to annual salaries totaling approximately $3.2 million. Pursuant to the terms of
some of these agreements, the Company has the right to purchase 3,787,500 shares
for approximately $140,000 from these individuals at the employees original cost
if these employees are either terminated for cause or resign during the year
ended December 31, 2000.
LUCENT:
On February 7, 2000, the Company entered into a strategic relationship with
Lucent, whereby Lucent will assist the Company in developing its OPUSRM product
for two years in exchange for two warrants to immediately purchase shares of its
common stock. John L. Drew, a member of the Company's board, is the chief
executive officer of the NetCare Professional Services Division of Lucent and an
executive vice president of Lucent. The first warrant entitles Lucent to
purchase up to 225,000 shares of the Company's common stock at the exercise
price of $3.33 per share for one year from the date of grant, subject to
extension if the Company's IPO does not close by March 31, 2000. In connection
with the granting of the first warrant to Lucent on February 7, 2000, the
Company will record prepaid expense of approximately $1,345,000, representing
the fair market value of the warrant calculated using the Black-Scholes pricing
model which will be amortized over the term of the agreement. The second warrant
will be exercisable for a three-year period commencing on the 240th day after
the effective date of the Company's IPO. The exercise price of the second
warrant will be equal to the average market price of the Company's common stock
during the 10 trading days immediately preceding the date the warrant first
becomes exercisable. The number of shares issuable upon the exercise of the
second warrant will be determined by dividing $2,655,000 by the present value of
a warrant to purchase one share of the Company's common stock, as determined by
the Black-Scholes option pricing model, with the strike price assumed to be the
actual exercise price and the volatility rate assumed to be 100%. The Company
will record prepaid expense for the second warrant at the time of issuance which
will represent the then fair market value of the warrant calculated using the
Black-Scholes pricing model and will be amortized over the remaining life of the
original 2-year agreement.
DELL:
On March 1, 2000 the Company entered into a stock purchase agreement with
Dell USA L.P. ("Dell"), an affiliate of Dell Computer Corporation, whereby Dell
agreed to purchase up to $14 million of the Company's common stock at a price
equal to the initial public offering price per share less an amount equal to the
per share underwriting discount and commissions received by the underwriters.
The closing of the concurrent placement is contingent on and will close
simultaneously with the closing of the Company's initial public offering.
The shares being sold in the concurrent placement will not be registered for
immediate sale under the Securities Act and subject to certain limited
exceptions involving a sale of the company or a change of control, Dell has
agreed not to sell the shares it acquires in the concurrent placement for a one
year period.
In connection with Dell's purchase of the Company's common stock, Dell
Marketing LP, the marketing affiliate of Dell Computer Corporation will enter
into a marketing agreement pursuant to which Dell Marketing will provide a
prominent link to the Company's web site on its web site. The marketing
arrangement will become effective with the closing of the concurrent placement
and will be for a period of one year.
F-26
<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-27
<PAGE>
THE CHURCHILL BENEFIT CORPORATION
Balance Sheets
December 31, 1997 and 1998
<TABLE>
<CAPTION>
March 31,
1997 1998 1999
---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash................................................... $ 3,000 $ 84,000 $ 591,000
Accounts receivable.................................... 1,436,000 1,793,000 1,837,000
Other current assets................................... -- 5,000 4,000
---------- ---------- ----------
Total current assets................................. 1,439,000 1,882,000 2,432,000
Property and equipment, net of accumulated depreciation
of $8,000 in 1997 and $27,000 in 1998.................. 10,000 7,000 6,000
---------- ---------- ----------
$1,449,000 $1,889,000 $2,438,000
========== ========== ==========
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable and accrued expenses.................. $ 30,000 $ 11,000 $ 5,000
Accrued wages.......................................... 1,198,000 1,646,000 2,279,000
---------- ---------- ----------
Total current liabilities............................ 1,228,000 1,657,000 2,284,000
---------- ---------- ----------
Stockholder's equity:
Common stock, $1 par value, 1,000 shares authorized,
issued and outstanding............................... 1,000 1,000 1,000
Retained earnings...................................... 220,000 231,000 153,000
---------- ---------- ----------
Total stockholder's equity........................... 221,000 232,000 154,000
---------- ---------- ----------
Commitments.............................................. $1,449,000 $1,889,000 $2,438,000
========== ========== ==========
</TABLE>
See the accompanying notes to financial statements.
F-28
<PAGE>
THE CHURCHILL BENEFIT CORPORATION
Statements of Operations
Years ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
March 31, March 31,
1997 1998 1998 1999
-------- -------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues........................................... $658,000 $799,000 $200,000 $177,000
Cost of revenues................................... 17,000 68,000 17,000 18,000
-------- -------- -------- --------
Gross profit..................................... 641,000 731,000 183,000 159,000
General and administrative expenses................ 525,000 524,000 131,000 237,000
-------- -------- -------- --------
Operating income................................. 116,000 207,000 52,000 (78,000)
Interest income.................................... 3,000 3,000 -- --
-------- -------- -------- --------
Net income (loss)................................ $119,000 $210,000 $ 52,000 $(78,000)
======== ======== ======== ========
Basic and diluted net income (loss) per share...... $ 119.00 $ 210.00 $ 52.00 $ (78.00)
======== ======== ======== ========
Weighted average shares outstanding used in basic
and fully diluted net loss....................... 1,000 1,000 1,000 1,000
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-29
<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 $ 185,000 $ 186,000
Distribution to stockholder........................... -- -- (84,000) (84,000)
Net income............................................ -- -- 119,000 119,000
----- ------ --------- ---------
Balance at December 31, 1997.......................... 1,000 1,000 220,000 221,000
Distribution to stockholder........................... -- -- (199,000) (199,000)
Net income............................................ -- -- 210,000 210,000
----- ------ --------- ---------
Balance at December 31, 1998.......................... 1,000 $1,000 $ 231,000 $ 232,000
===== ====== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
THE CHURCHILL BENEFIT CORPORATION
Statements of Cash Flows
Years ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
Three Months Three Months
Ended March 31 Ended March 31
1997 1998 1998 1999
--------- --------- -------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows provided by operating
activities:
Net income (loss)....................... $ 119,000 $ 210,000 $ 52,000 $ (78,000)
Adjustment to reconcile net income to
net cash provided by operating
activities:
Depreciation.......................... 5,000 19,000 1,000 5,000
Cash provided by (used for) changes
in:
Accounts and unbilled receivables... (427,000) (357,000) 177,000 (44,000)
Other current assets................ -- (5,000) -- 1,000
Accounts payable and accrued
expenses.......................... (13,000) (19,000) (30,000) (6,000)
Accrued labor....................... 517,000 448,000 50,000 633,000
--------- --------- --------- ---------
Net cash provided by operating
activities...................... 201,000 296,000 250,000 511,000
--------- --------- --------- ---------
Cash flows used in investing activities:
Additions to property and equipment..... -- (16,000) -- (4,000)
--------- --------- --------- ---------
Net cash used in investing
activities...................... -- (16,000) -- (4,000)
--------- --------- --------- ---------
Cash flows used in financing activities:
Repayment of stockholder loan........... (22,000) -- -- --
Distributions to stockholders........... (84,000) (199,000) -- --
--------- --------- --------- ---------
Net cash used in financing
activities (106,000) (199,000) -- --
Net increase in cash and cash
equivalents..................... 95,000 81,000 250,000 507,000
Cash and cash equivalents at beginning of
year.................................... (92,000) 3,000 3,000 84,000
--------- --------- --------- ---------
Cash and cash equivalents at end of
year.................................... $ 3,000 $ 84,000 $ 253,000 $ 591,000
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-31
<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) INTERIM FINANCIAL INFORMATION (UNAUDITED)
The statements of operations, and cash flows of the Company for the three
months ended March 31, 1998 and 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 three months ended
March 31, 1998 and 1999 are not necessarily indicative of the results to be
expected for the entire year.
F-32
<PAGE>
THE CHURCHILL BENEFIT CORPORATION
Notes to Financial Statements (Continued)
December 31, 1997 and 1998
(C) CASH
The Company considers all highly liquid securities with original maturities
of three months or less to be cash equivalents.
(D) 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.
(E) REVENUE RECOGNITION
The Company recognizes as revenue the fees it charges to its contract
employees in the period in which it provides its services.
(F) COST OF REVENUES
Cost of revenues primarily includes salaries paid to the Company's staff
that help administer the Company's services.
(G) 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 $5,000 and $20,000 for the years ended
December 31, 1997 and 1998, respectively.
(H) 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.
(I) INCOME TAXES
The Company operates as an S-corporation 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 $71,000 and $126,000, respectively, assuming the Company's income
before taxes was subject to a combined federal and state income tax rate of 40%.
F-33
<PAGE>
THE CHURCHILL BENEFIT CORPORATION
Notes to Financial Statements (Continued)
December 31, 1997 and 1998
(J) 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 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......................................... $ 5,000 $ 10,000
Office furniture......................................... 6,000 6,000
Computer equipment....................................... 7,000 18,000
-------- --------
Total.................................................. 18,000 34,000
Less accumulated depreciation............................ (8,000) (27,000)
-------- --------
Furniture and equipment, net........................... $ 10,000 $ 7,000
======== ========
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1998 totaled
approximately $5,000 and $19,000, respectively, and is included in general and
administrative expense in the accompanying statements of operations.
F-34
<PAGE>
THE CHURCHILL BENEFIT CORPORATION
Notes to Financial Statements (Continued)
December 31, 1997 and 1998
(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........................................................ $28,000
2000........................................................ 16,000
-------
Total minimum lease payments................................ $44,000
=======
</TABLE>
Rental expense for the years ended December 31, 1997 and 1998 were $17,000
and $23,000 respectively.
(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........................ $658,000 $13,220,000 $799,000 $19,682,000
Cost of revenue................ 17,000 12,562,000 68,000 18,883,000
Gross profit................... 641,000 658,000 731,000 799,000
Net income..................... $119,000 $ 119,000 $210,000 $ 210,000
</TABLE>
F-35
<PAGE>
Report of Independent Accountants
Board of Directors and Stockholders
PeopleMover, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' deficit and cash flows present fairly, in all
material respects, the financial position of PeopleMover, Inc. (the "Company"),
at December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
January 14, 2000, except for the subsequent event
described in Note 10, as to which the date
is February 24, 2000, and the commitment of
support described in Note 1, as to which the
date is February 29, 2000
Woodland Hills, California
F-36
<PAGE>
PeopleMover, Inc.
Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Assets
Cash and cash equivalents................................... $ 241,167 $ 4,134,870
Accounts receivable......................................... 624,397 414,924
Prepaid expenses and other current assets................... 214,577 89,912
------------ -----------
Total current assets.................................... 1,080,141 4,639,706
Property and equipment, net................................. 1,215,329 278,495
Other assets................................................ 114,311 --
------------ -----------
Total assets............................................ $ 2,409,781 $ 4,918,201
============ ===========
Liabilities and Stockholders' Deficit
Lines of credit............................................. $ 980,000 $ 171,432
Accounts payable............................................ 712,464 384,130
Accrued liabilities......................................... 512,871 203,982
Deferred revenue and customer deposits...................... 1,686,288 340,127
Capital lease obligations, current portion.................. 186,346 56,948
Notes payable............................................... 1,950,000 --
------------ -----------
Total current liabilities............................... 6,027,969 1,156,619
Capital lease obligations, net of current portion........... 328,425 127,215
------------ -----------
Total liabilities....................................... 6,356,394 1,283,834
Commitments and contingencies (Note 7)
Mandatory redeemable Series A convertible preferred stock,
6,000,000 shares designated, $0.001 par value, 4,935,848
shares issued and outstanding at December 31, 1999 and
1998...................................................... 5,424,709 4,968,500
Stockholders' deficit:
Preferred stock, $0.001 par value; 15,000,000 shares
authorized
Common stock, $0.001 par value; 25,000,000 shares
authorized, 5,488,204 and 5,228,500 shares issued and
outstanding at December 31, 1999 and 1998,
respectively............................................ 5,488 5,229
Additional paid-in capital................................ 1,785,945 101,612
Deferred stock compensation............................... (932,319) --
Accumulated deficit....................................... (10,230,436) (1,440,974)
------------ -----------
Total stockholders' deficit............................. (9,371,322) (1,334,133)
------------ -----------
Total liabilities and stockholders' deficit............. $ 2,409,781 $ 4,918,201
============ ===========
</TABLE>
The following notes are an integral part of these financial statements.
F-37
<PAGE>
PeopleMover, Inc.
Statements of Operations
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
License fees.............................................. $ 457,172 $ 1,759,595
Services.................................................. 844,364 1,834,060
----------- -----------
Total revenues.......................................... 1,301,536 3,593,655
Costs and expenses:
Cost of revenues.......................................... 938,663 1,998,275
General and administrative................................ 2,520,826 1,554,411
Sales and marketing....................................... 1,951,726 594,224
Research and development.................................. 3,824,661 617,481
Employee stock-based compensation charge.................. 325,975 --
----------- -----------
Total costs and expenses................................ 9,561,851 4,764,391
----------- -----------
Loss from operations.................................... (8,260,315) (1,170,736)
Other income (expenses):
Interest expense, net..................................... (71,238) (4,955)
Other expense............................................. (1,700) (23,000)
----------- -----------
Net loss................................................ (8,333,253) (1,198,691)
Preferred dividends......................................... (456,209) --
----------- -----------
Net loss attributable to common stock holders........... $(8,789,462) $(1,198,691)
=========== ===========
Net loss per share--basic and diluted....................... $ (1.67) $ (0.23)
Weighted average number of shares--basic and diluted........ 5,248,554 5,193,208
</TABLE>
The following notes are an integral part of these financial statements.
F-38
<PAGE>
PeopleMover, Inc.
Statements of Stockholders' Deficit
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock Additional Deferred Total
-------------------- Paid-In Stock Accumulated Stockholders'
Shares Amount Capital Compensation Deficit Deficit
--------- -------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997.................. 5,180,000 $5,180 $ 3,061 -- $ (242,283) $ (234,042)
Issuance of common stock.................... 10,000 10 9,990 -- -- 10,000
Issuance of common stock for services....... 38,500 39 38,461 -- -- 38,500
Issuance of stock options for services...... -- -- 50,100 -- -- 50,100
Net loss.................................... -- -- -- -- (1,198,691) (1,198,691)
--------- ------ ---------- ----------- ------------ -----------
Balance at December 31, 1998.................. 5,228,500 5,229 101,612 -- (1,440,974) (1,334,133)
Preferred stock dividends................... -- -- -- -- (456,209) (456,209)
Exercise of stock options and warrants...... 259,704 259 16,450 -- -- 16,709
Unearned compensation relating to stock
options................................... -- -- 1,258,294 $(1,258,294) -- --
Amortization of unearned compensation....... -- -- -- 325,975 -- 325,975
Issuances of stock options and warrants for
services.................................. -- -- 409,589 -- -- 409,589
Net loss.................................... -- -- -- -- (8,333,253) (8,333,253)
--------- ------ ---------- ----------- ------------ -----------
Balance at December 31, 1999.................. 5,488,204 $5,488 $1,785,945 $ (932,319) $(10,230,436) $(9,371,322)
========= ====== ========== =========== ============ ===========
</TABLE>
The following notes are an integral part of these financial statements.
F-39
<PAGE>
PeopleMover, Inc.
Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(8,333,253) $(1,198,691)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 179,667 46,691
Issuance of stock and stock options for services........ 409,589 88,600
Amortization of deferred stock compensation............. 325,975 --
Changes in assets and liabilities:
Increase in accounts receivable....................... (209,473) (414,924)
Increase in prepaid expenses.......................... (124,665) (62,165)
Increase in other assets.............................. (114,311) --
Increase in account payable........................... 328,334 375,897
Increase in accrued liabilities....................... 308,889 146,284
Increase (decrease) in deferred revenue and customer
deposits............................................ 1,346,161 (121,140)
----------- -----------
Net cash used in operating activities............... (5,883,087) (1,139,448)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment........................ (682,065) (94,235)
----------- -----------
Net cash used in investing activities............... (682,065) (94,235)
----------- -----------
Cash flows from financing activities:
Proceeds from the issuance of notes payable............... 1,950,000 500,000
Proceeds from borrowings under line of credit............. 980,000 171,432
Repayments of borrowings under line of credit............. (171,432) --
Net proceeds from issuance of mandatory redeemable
preferred stock......................................... -- 4,468,500
Proceeds from issuance of common stock.................... 16,709 10,000
Payments on capital lease arrangements.................... (103,828) (24,136)
----------- -----------
Net cash provided by financing activities........... 2,671,449 5,125,796
----------- -----------
Net (decrease) increase in cash and cash
equivalents....................................... (3,893,703) 3,892,113
Cash and cash equivalents at beginning of period............ 4,134,870 242,757
----------- -----------
Cash and cash equivalents at end of period.................. $ 241,167 $ 4,134,870
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................ $ 4,955 $ 24,936
Income taxes............................................ $ 800 $ 800
Non-cash transactions:
Equipment under capital lease........................... $ 434,436 $ 208,300
Conversion of notes payable to mandatory redeemable
preferred stock....................................... $ -- $ 500,000
</TABLE>
The following notes are an integral part of these financial statements.
F-40
<PAGE>
PeopleMover, Inc.
Notes to Financial Statements
1. Description of Business and Basis of Presentation
PeopleMover, Inc. (the "Company") designs, develops, markets and supports
integrated enterprise software to the staffing industry through its client
server architecture, and also a browser-based, Internet architecture for
organizations facing workforce allocation challenges.
The Company was originally incorporated in California in August 1983 under
the name Micro J Systems, Inc. and its initial products were PC-based
recruitment management systems and front office desktop software for smaller
temporary help and staffing companies.
On November 24, 1998, the Company completed its merger with
PeopleMover, Inc. to effect the Delaware reincorporation whereby stockholders of
Micro J Systems, Inc. exchanged their shares for a like number of shares of
PeopleMover, Inc.
The Company's financial statements for the year ended December 31, 1999 have
been prepared on a going-concern basis which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course of
business. The Company had negative cash flows from operations, net loss and an
accumulated deficit of $5,883,087, $8,333,253 and $10,230,436, respectively, as
of and for the year ended December 31, 1999. The Company expects to incur
additional expenditures to complete and enhance its product offerings. The
Company's revenues from product sales, maintenance contracts and consulting fees
may not be sufficient to fund its working capital deficit and meet its expansion
objectives over the next twelve months. Management recognizes that the Company
may need to obtain additional financings or consider reductions in its operating
costs to enable it to continue operations with available resources.
In February 2000, the Company was acquired by Opus360 Corporation. Opus360
Corporation has committed to provide the Company with additional financial
support as needed through March 1, 2001.
2. Summary of Significant Accounting Policies
Use of Estimates
In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Accordingly, actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers highly liquid investments with an original maturity of
three months or less to be cash equivalents. Such investments are valued at
cost, which approximates fair market value.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method based upon
the useful economic lives of the assets. Leasehold improvements
F-41
<PAGE>
PeopleMover, Inc.
Notes to Financial Statements (Continued)
2. Summary of Significant Accounting Policies (Continued)
and equipment held under capital leases are amortized over the shorter of the
estimated useful life or lease term. Depreciation and amortization periods by
asset category are as follows:
<TABLE>
<S> <C>
Computer equipment and software............................. 3 years
Furniture, fixtures and office equipment.................... 3 years
Equipment held under capital lease.......................... 3 years
</TABLE>
Maintenance and repairs are charged to expense as incurred while renewals
and improvements are capitalized. Upon the sale or retirement of property and
equipment, the accounts are relieved of the cost and the accumulated
depreciation, with any resulting gain or loss included in the statements of
operations.
Long-Lived Assets
The Company identifies and records impairment losses on long-lived assets
when events and circumstances indicate that such assets might be impaired. To
date, no such impairment has been recorded.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs for
the years ended December 31, 1999 and 1998 totaled $483,209 and $312,713,
respectively.
Research and Development Costs
Research and development costs are expensed as incurred.
Revenue Recognition and Deferred Revenue
The Company recognizes revenue from the sale of its software upon receipt of
an executed sales agreement and delivery to the customer provided there are no
vendor obligations to be fulfilled and collectibility is probable.
The Company also recognizes revenue from contracts that require significant
modification or customization of the software on a percentage of completion
basis based on costs incurred. The Company provides for any anticipated losses
on such contracts in the period in which such losses are first determinable.
Services revenue includes support, education and consulting services. The
Company provides software support and product upgrades to its customers through
separately priced agreements. These support revenues are deferred and recognized
on a straight-line basis over the term of the contract. Revenues from technical
training and consulting services are recognized as these services are provided
to customers.
Product Development
Product development costs are expensed as incurred. Statement of Financial
Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed," requires capitalization of
certain software development costs subsequent to the establishment of
technological feasibility. Based upon the Company's product development process,
technical feasibility is established upon completion of a working model. Costs
incurred by the Company between completion of the working model and the point at
which the product is ready for general release have been insignificant.
F-42
<PAGE>
PeopleMover, Inc.
Notes to Financial Statements (Continued)
2. Summary of Significant Accounting Policies (Continued)
Income Taxes
The Company utilizes the liability method of accounting for income taxes.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and the tax bases of assets and
liabilities using enacted tax rates in effect for the period in which the
differences are expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
Earnings Per Share
Basic net loss per share is computed by dividing the net loss by the
weighted average number of shares of common stock outstanding during the period.
Diluted net loss per share is computed by dividing the net income by the
weighted average number of shares of common stock outstanding and potential
common shares outstanding during the period if their effect is dilutive.
Potential common shares consist of common stock issuable on the exercise of
outstanding options and warrants, on the conversion of Series A preferred stock,
and on conversion of convertible notes payable. At December 31, 1999 and 1998,
10,004,473 and 6,950,743 potential common shares, respectively, are excluded
from the determination of diluted net loss per share as the effect of such
shares on a weighted average basis is anti-dilutive.
Stock-based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation." Under
APB No. 25, compensation cost, if any, is recognized over the respective vesting
period based on the difference, on the date of grant, between the fair value of
the Company's common stock and the grant price. The Company accounts for equity
instruments issued to non-employees in accordance with the provisions of SFAS
No. 123 and EITF No. 96-18.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income generally represents all changes in
stockholders' equity during the period except those resulting from investments
by, or distributions to, stockholders. SFAS No. 130 has no impact on the
Company's financial statements as the Company has no other elements of
comprehensive income other than net income.
Fair Value of Financial Instruments
The estimated fair value of accounts receivable, accounts payable, accrued
liabilities, deferred revenue and notes payable are carried at cost which
approximates their fair market value because of the short-term maturity of these
instruments.
Concentrations of Credit Risk
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents, and trade accounts
receivable. The Company maintains cash and cash equivalents
F-43
<PAGE>
PeopleMover, Inc.
Notes to Financial Statements (Continued)
2. Summary of Significant Accounting Policies (Continued)
with various domestic financial institutions. The Company performs periodic
evaluations of the relative credit standing of these institutions. From time to
time, the Company's cash balances with any one financial institution may exceed
Federal Deposit Insurance Corporation insurance limits.
At December 31, 1999, two customers accounted for 36% and 19% of trade
account receivables. For the year ended December 31, 1999, the same two
customers comprised 34% and 26% of the Company's revenue.
At December 31, 1998, one customer accounted for 73% of trade accounts
receivable. For the year ended December 31, 1998, a different customer accounted
for 73% of the Company's revenue.
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Computer equipment.......................................... $ 382,018 $ 50,885
Furniture and fixtures...................................... 16,569 31,611
Office equipment............................................ 18,756 3,060
Computer software........................................... 356,233 38,800
Leasehold improvements...................................... 32,845 --
Equipment under capital lease............................... 635,266 200,830
---------- --------
1,441,687 325,186
Less, accumulated depreciation and amortization............. (226,358) (46,691)
---------- --------
$1,215,329 $278,495
========== ========
</TABLE>
Accumulated depreciation and amortization on equipment held under capital
leases amounted to $97,752 and $26,837 as of December 31, 1999 and 1998,
respectively.
4. Income Taxes
As a result of the Company's significant operating losses in 1999 and 1998,
the Company has not recorded a provision for income taxes. The Company is a cash
basis taxpayer.
F-44
<PAGE>
PeopleMover, Inc.
Notes to Financial Statements (Continued)
4. Income Taxes (Continued)
Deferred taxes reflect the net tax effects of temporary differences between
the carry amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components for the
Company's deferred taxes consisted of the following at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 3,001,931 $ 430,959
R&E tax credit............................................ 389,250 239,250
Accrual to cash adjustment................................ 887,923 181,386
Less, valuation allowance................................. (4,235,284) (850,730)
----------- ---------
Net deferred tax assets................................. 43,820 865
Deferred tax liabilities:
Depreciation and amortization............................. (43,820) (865)
----------- ---------
Net deferred tax liabilities............................ (43,820) (865)
----------- ---------
Net deferred tax asset.................................. $ -- $ --
=========== =========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. Based upon the level of historical losses and
projections of future taxable income over the periods in which the deferred tax
assets are deductible, a full valuation allowance has been provided as
management believes that it is more likely than not, based upon available
evidence, that the deferred tax assets will not be realized.
As of December 31, 1999, the Company has federal and state net operating
loss carryforwards of approximately $7,796,000 and $3,935,000, respectively. The
federal and state net operating loss carryforwards will begin to expire in 2018
and 2003, respectively. The Company's ability to utilize net operating loss
carryforwards may be limited in the event that a change of ownership, as defined
in the Internal Revenue Code, occurs in the future.
5. Lines of Credit
In June 1999, the Company entered into a $500,000 credit facility with a
bank. The facility comprises in aggregate a $500,000 line of credit consisting
of a non-converting line and a converting line of credit. The Company borrowed
$300,000 under the non-converting line of credit. The non-converting line of
credit bears interest at the bank's prime plus 1.25% (9.75% at December 31,
1999) and is due in full on June 10, 2000. The Company may repay borrowings at
any time.
The converting line of credit is restricted for asset purchases and bears
interest at the bank's prime rate plus 1.25% (9.75% at December 31, 1999). On
November 30, 1999, the amounts borrowed under the line were converted to an
amortizing term loan. The loan is repayable in monthly installments commencing
December 30, 1999 through November 30, 2002. As of December 31, 1999, the
outstanding balance on the equipment line of credit was $180,000.
In November 1999, the Company entered into a $500,000 short-term credit
facility and borrowed the entire $500,000. This line is repayable on
January 25, 2000 and bears interest at the bank's prime rate plus 1.75% (10% at
December 31, 1999).
F-45
<PAGE>
PeopleMover, Inc.
Notes to Financial Statements (Continued)
5. Lines of Credit (Continued)
Under the credit facilities, the Company is required to maintain certain
financial and operating covenants, including liquidity and profitability ratios.
Noncompliance with covenants is an event of default whereby the bank may call
the outstanding balances. The Company was not in compliance with these covenants
as of December 31, 1999, and management does not expect that the Company will be
in compliance during 2000. The outstanding balance under the above facilities
has been classified as a current liability. The credit facility is
collateralized by a first lien on the Company's assets.
The Company also has a $20,000 standby letter of credit in relation to
certain leased equipment. The letter of credit expires on July 31, 2002.
In 1998, the Company had a $500,000 line of credit facility with another
bank. The Company was permitted to borrow against this line up to a maximum of
80% of gross receivables. The Company had outstanding borrowings of $171,432 at
December 31, 1998, which were repaid during 1999.
6. Notes Payable
In July 1998, the Company issued $500,000 8% convertible notes payable. In
connection with the notes payable, the Company issued 123,399 warrants to the
note holders to purchase common stock. The notes payable have been converted to
Series A Preferred Stock on December 18, 1998, as discussed in Note 9. The
warrants have an initial exercise price that will be based on one-tenth of the
price per share of the Preferred Stock sold to the note holders upon conversion
of the notes. Management believes this value approximates fair value. However,
no value was ascribed to the warrants because fair value of the warrants issued
was deemed to be immaterial. The warrants are exercisable from the date of
issuance and expire on the fifth anniversary of the date of issuance. As of
December 31, 1999, 24,680 warrants had been exercised.
In August and September 1999, the Company issued $1,375,000 8% convertible
notes payable. The notes convert automatically in the event of an equity
offering raising more than $4,000,000. The notes are repayable on demand.
In December 1999, the Company entered into discussions with a third party
relating to the sale of the Company (see Subsequent Events, Note 10). In
connection with the discussions, the Company entered into an interim funding
agreement. Pursuant to the terms of the agreement, the third party will provide
loans to the Company from time to time until the earliest of (a) March 3, 2000,
(b) the date the third party completes the acquisition of the Company, and
(c) 10 business days after the third party releases the Company from the
provisions of the acquisition agreement. The maximum facility available to the
Company is $3,000,000, though the Company is restricted such that no loan under
the facility may exceed $250,000 or the aggregate of all loans within a 30-day
period may not exceed $1,000,000. The facility bears interest rate at 18% per
annum payable only in the event the acquisition is not completed. The Company
may repay the loans at any time. In the event of (a) the expiration of the loan
period other than by closing of the acquisition and (b) a consummation of an
equity financing (after the date of the acquisition), the third party will
convert in whole the outstanding principal on the loan into common stock at the
price of shares in the equity offering. Loans under the agreement are
subordinated to the Company's senior indebtedness. As of December 31, 1999, the
Company had borrowed $575,000 under this facility.
F-46
<PAGE>
PeopleMover, Inc.
Notes to Financial Statements (Continued)
7. Commitments and Contingencies
Leases
The Company leases its facility, certain computer equipment and office
equipment under noncancelable leases with terms ranging up to five years.
The future minimum lease payments under noncancelable leases at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ---------
<S> <C> <C>
2000........................................................ $230,345 $363,174
2001........................................................ 203,145 379,197
2002........................................................ 106,386 128,179
2003........................................................ 37,112 --
2004........................................................ 18,866 --
-------- --------
Total minimum lease payments................................ 595,854 $870,550
========
Less, amount representing interest.......................... (81,083)
--------
Present value of net lease payments......................... $514,771
========
</TABLE>
Lease expense for the years ended December 31, 1999 and 1998 amounted to
$444,180 and $72,756, respectively.
8. Capitalization
Stock Split
In July 1998, the Board of Directors approved a 10,000 to 1 common stock
split which was effected July 28, 1998. In addition, the par value of the
Company's common stock was changed from $1.00 to $.001 per share and the
authorized shares of common stock were increased from 2,500 to 25 million
shares. All references in the accompanying financial statements related to
common stock have been adjusted to reflect the stock split.
Stock Options
The Company's Stock Option Plan permits the granting of incentive and
nonqualified stock options to employees, consultants, directors and officers of
the Company. The Board of Directors approved up to an aggregate of 4,407,500
shares for issuance under this plan. Options were granted at prices that
management believes approximate fair market value. Stock options generally vest
over four years and have a life of 10 years.
F-47
<PAGE>
PeopleMover, Inc.
Notes to Financial Statements (Continued)
8. Capitalization (Continued)
The following summarizes activity for stock options granted to employees
under the Plan for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
----------- --------
<S> <C> <C>
Outstanding at December 31, 1997............................ 890,000 $ 0.05
Granted..................................................... 745,500 0.10
Forfeited................................................... (115,000) (0.10)
----------- ------
Outstanding at December 31, 1998............................ 1,520,500 0.07
Granted..................................................... 2,803,000 0.32
Forfeited................................................... (1,002,000) (0.13)
Exercised................................................... (14,375) (0.12)
----------- ------
Outstanding at December 31, 1999............................ 3,307,125 0.27
===========
Options exercisable at December 31, 1999.................... 514,125 0.06
Options exercisable at December 31, 1998.................... 361,875 0.07
Options available for future grant.......................... 1,100,375
Weighted average fair value of options granted in the year
ended
December 31, 1998......................................... 0.02
Weighted average fair value of options granted in the year
ended
December 31, 1999......................................... $ 0.36
</TABLE>
The following table summarizes information about employee stock options
outstanding at December 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding at December 31, 1999 Options Exercisable at
----------------------------------------- December 31, 1999
Weighted ------------------------
Average Weighted Weighted
Number of Remaining Average Number of Average
Exercise Shares Contractual Exercise Shares Exercise
Price Outstanding Life (Years) Price Exercisable Price
- ------------------ ------------ ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$0.01 450,000 7.00 $0.01 337,500 $0.01
$0.10--$0.11 778,500 8.91 $0.11 122,438 $0.11
$0.30 1,946,125 9.68 $0.30 54,187 $0.30
$1.60 132,500 9.98 $1.60 -- $1.60
--------- -------
3,307,125 514,125
========= =======
</TABLE>
As of December 31, 1998 and 1999, options outstanding to directors totaled
175,000 and 225,000, respectively. 175,000 and 50,000 options were granted at
exercise prices of $0.10 and $0.30 per share, respectively. As of December 31,
1999, 130,729 options are vested.
F-48
<PAGE>
PeopleMover, Inc.
Notes to Financial Statements (Continued)
8. Capitalization (Continued)
Fair Value Disclosures
The Company calculated the fair value of each option granted on the date of
grant using the Black-Scholes option pricing model as prescribed by SFAS
No. 123 using the following assumptions:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Risk-free interest rate..................................... 5.75% 5.75%
Expected lives (years)...................................... 3.5 3.5
Dividend yield.............................................. 0.0% 0.0%
Expected volatility......................................... 0.0% 0.0%
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123. If
compensation cost associated with the Company's stock-based compensation plan
had been determined using the fair value method prescribed by SFAS No. 123, the
Company's net loss would have increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net loss:
As reported....................................... $(8,333,253) $(1,198,691)
Pro forma......................................... $(8,526,031) $(1,209,285)
Loss per share:
As reported....................................... $ (1.67) $ (0.23)
Pro forma......................................... $ (1.71) $ (0.23)
</TABLE>
Deferred Stock Compensation
In connection with certain stock option grants during the year ended
December 31, 1999, the Company recognized deferred stock compensation totaling
$1,258,294, which is being amortized over the vesting period of the related
options. Amortization of deferred stock compensation recognized during the year
ended December 31, 1999 totaled approximately $325,975 and is included in
employee stock-based compensation in the accompanying statements of operations.
Stock Options and Warrants Issued to Service Providers
The Company issues stock options and warrants to service providers. During
the years ended December 31, 1999 and 1998, the Company granted options and
warrants to purchase 327,718 and 258,400 shares of common stock, respectively.
The options and warrants are exercisable at exercise prices ranging from $0.11
to $0.30 per share. As of December 31, 1999, the Company had options and
warrants to service providers outstanding to purchase 402,127 shares of common
stock, of which 356,029 were vested. The Company recorded charges of $409,589
and $50,100 in 1999 and 1998, respectively, for the value of services provided.
In December 1999, 220,649 options were exercised.
9. Mandatory Redeemable Series A Convertible Preferred Stock
In December 1998, the Company issued 4,935,848 shares of Series A
Convertible Preferred Stock ("Preferred Stock") for $4,500,000 cash and the
conversion of the outstanding notes payable in the amount of $500,000 into
Series A Convertible Preferred Stock. The Preferred Stock was issued at $1.013
per share.
F-49
<PAGE>
PeopleMover, Inc.
Notes to Financial Statements (Continued)
9. Mandatory Redeemable Series A Convertible Preferred Stock (Continued)
Each share of Preferred Stock is convertible into common stock at the option of
the holder and all shares of Preferred Stock are convertible into common stock
at the request of the holders of at least sixty percent of the Preferred Stock.
In addition, the Preferred Stock automatically converts into common stock upon
the closing of an effective Initial Public Offering ("IPO") defined as an IPO
where the Company receives aggregate gross proceeds of at least $25 million at a
price per share to the public that yields a market capitalization for the
Company in excess of $75 million. The initial conversion ratio will be
approximately .9872 shares of common stock for each share of Preferred Stock.
The Preferred Stock has the same voting rights as common stock, preference
in liquidation over common stock, and preferential cumulative dividend rights
over common stock. Dividends on the Preferred Stock accrue at 8 1/2% per annum
and will be payable on the first day of the months of March, June, September and
December each year. Unpaid dividends will be accumulated until paid. Unpaid
dividends for the year ended December 31, 1999 were $456,209.
The Preferred Stock has been accounted for as mandatory redeemable preferred
stock as it is mandatorily redeemable in the event of noncompliance with certain
covenants beyond the control of the Company. The covenants include restrictions
on capital expenditures, preparation of financial statements and restrictions on
changes in management.
The liquidation value of the Preferred Stock is two times the conversion
price until December 2001 and three times the conversion price thereafter.
10. Subsequent Events
The Company increased the authorized number of shares available for grant
under the stock option plan to 5,414,375 shares. In January 2000, the Company
granted to employees 2,097,500 stock options.
On January 30, 2000, the Company signed an acquisition agreement with a
third party, whereby the outstanding shares of capital stock of the Company will
be converted into shares of the third party based on an exchange ratio, as
defined. The acquisition closed in February 2000.
F-50
<PAGE>
INSIDE BACK COVER
Large circular Opus360 logo with the logos for OPUSRM, OPUS XCHANGE, and
FREEAGENT.COM below it.
Centered on the bottom of page is the statement: "Putting People and Projects
Together."
OUTSIDE FLAP
On top of page is circular Opus360 logo. Middle left of page is the statement:
"B2B e-Commerce Solution for Procurement Across the Labor Supply Chain."
Middle, lower half of page contains a oval. Top section of oval contains
sepia-toned pictures of four individuals. Middle section of oval contains logos
for OPUSRM, OPUS XCHANGE, and FREEAGENT.COM. Lower section of oval contains
monochrome picture of large city office buildings.
<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........................................ $25,715
NASD filing fee............................................. 10,241
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
All share information set forth below has been adjusted to reflect a 3-for-2
stock split to be effective prior to completion of this offering.
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, the Registrant's co-founder as the initial capitalization of the
Registrant. The issuance of this share was made in reliance on Section 4(2)
under the Securities Act.
2. On December 24, 1998, the Registrant sold 9,498,729 shares of common stock,
at prices ranging from $.03 per share to $.23 per share, to its founders,
three officers of the Registrant and eight individual investors. The sale of
these shares was made in reliance on Section 4(2) and/or Rule 506 of
Regulation D under the Securities Act.
3. On December 24, 1998 the Registrant sold 407,656 shares of common stock to
USWeb/CKS Corporation in exchange for certain prototype technology valued at
$95,120. The sale of these shares was made in reliance on Section 4(2) under
the Securities Act.
4. On December 24, 1998, the Registrant issued warrants to purchase 852,000
shares of common stock at an exercise price of $0.83 per share to one former
and two current directors and three other individual investors. The issuance
of these warrants was made in reliance on Section 4(2) and/or Rule 506 of
Regulation D under the Securities Act.
5. 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
fifteen venture capital funds, two directors and one former director, their
family members and affiliates, family members of officers of the Company and
twenty-seven other individual investors. The sale of these preferred shares
was made in reliance on Section 4(2) and/or Rule 506 of Regulation D under
the Securities Act.
6. On February 24, 1999, the Registrant issued a warrant to purchase 2,400
shares of common stock at an exercise price of $0.83 per share to an
individual in consideration for services (valued at $1,008) rendered to the
Registrant. The issuance of this warrant was made in reliance on
Section 4(2) under the Securities Act.
7. On May 3, 1999, the Registrant issued a warrant to purchase 120,000 shares
of common stock at an exercise price of $0.83 per share to Sapient
Corporation. The issuance of this warrant was made in reliance on
Section 4(2) under the Securities Act.
8. On May 14, 1999, the Registrant issued a warrant to purchase 22,500 shares
of common stock at an exercise price of $0.83 per share to Silicon Valley
Bank. The issuance of this warrant was made in reliance on Section 4(2)
under the Securities Act.
9. On May 27, 1999, the Registrant issued 946,474 shares of common stock to the
former owner of The Churchill Benefit Corporation in connection with the
acquisition of Churchill. An additional 405,631 shares of common stock were
issued and placed in escrow in connection with the acquisition. The issuance
of these shares was made in reliance on Section 4(2) under the Securities
Act.
II-2
<PAGE>
10. On July 5, 1999, the Registrant issued a warrant to purchase 3,787 shares of
common stock at an exercise price of $1.85 per share to an individual in
consideration for services (valued at $3,447) rendered to the Registrant.
The issuance of this warrant was made in reliance on Section 4(2) under the
Securities Act.
11. On August 17, 1999, the Registrant issued a warrant to purchase 24,000
shares of common stock at an exercise price of $1.85 per share to Silicon
Valley Bank. The issuance of this warrant was made in reliance on
Section 4(2) under the Securities Act.
12. On August 31, 1999, the Registrant issued a warrant to purchase 29,674
shares of common stock at an exercise price of $.01 per share to Kirshenbaum
Bond & Partners in consideration for advertising services (valued at
$89,915) rendered to the Registrant. The issuance of this warrant was made
in reliance on Section 4(2) under the Securities Act.
13. 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 twenty-eight
venture capital funds, three corporate investors, four directors, their
affiliates and members of their families, members of the families of
officers of the Company and fifty-one individual investors. The sale of
these preferred shares was made in reliance on Section 4(2) and/or Rule 506
of Regulation D under the Securities Act.
14. On October 15, 1999, the Registrant issued a warrant to purchase 450,000
shares of common stock at an exercise price of $3.07 per share to Greenhill
& Co. L.L.C. in consideration for and in connection with financial advisory
services (valued at $554,000) rendered to the Registrant. The issuance of
this warrant was made in reliance on Section 4(2) under the Securities Act.
15. On November 30, 1999, the Registrant issued a warrant to purchase 11,185
shares of common stock at an exercise price of $.01 per share to Kirshenbaum
Bond & Partners in consideration for advertising services (valued at
$91,125) rendered to the Registrant. The issuance of this warrant was made
in reliance on Section 4(2) under the Securities Act.
16. On December 21, 1999, the Registrant issued 120,000 shares of common stock
to Sapient Corporation upon exercise of a warrant. The issuance of the
shares were made in reliance on Section 4(2) under the Securities Act.
17. On December 15, 1999, the Registrant issued 245,355 shares of common stock
to CareerPath.com in connection with the establishment of a distribution,
co-branding and other similar arrangement. The issuance of the shares was
made in reliance on Section 4(2) under the Securities Act.
18. On December 15, 1999, the Registrant issued 39,000 shares of common stock to
J.P. Morgan Corporation in connection with establishment of a distribution,
co-branding or other similar arrangement. The issuance of this warrant was
made in reliance on Section 4(2) under the Securities Act.
19. On December 30, 1999, the Registrant issued 28,437 shares of common stock to
a former employee upon exercise of an option. The issuance of the shares
were made in reliance on Section 4(2) and/or Rule 701 under the Securities
Act.
20. On January 1, 2000, the Registrant issued 67,500 shares of common stock to a
director upon exercise of an option. The issuance of these shares was made
in reliance on Section 4(2) and/or Rule 701 under the Securities Act.
21. On January 5, 2000, the Registrant issued 30,000 shares of common stock to
the father of its Chairman and Chief Executive Officer upon exercise of a
warrant. The issuance of the shares were made in reliance on Section 4(2)
under the Securities Act.
22. On January 10, 2000, the Registrant issued an aggregate of 720,000 shares of
common stock to two directors and a former director upon exercise of
warrants. The issuance of the shares were made in reliance on Section 4(2)
and/or Rule 506 of Regulation D under the Securities Act.
II-3
<PAGE>
23. On January 12, 2000, the Registrant issued 90,000 shares to a partnership of
which one of the Registrant's directors is the general partner upon exercise
of a warrant. The issuance of the shares were made in reliance on
Section 4(2) under the Securities Act.
24. On January 20, 2000, the Registrant issued 243,474 shares of common stock to
the former owners of Ithority Corporation in connection with the acquisition
of Ithority. An additional 182,599 shares of common stock were issued and
placed in escrow in connection with the acquisition. The issuance of the
shares was made in reliance on Section 4(2) and/or Rule 506 of Regulation D
under the Securities Act.
25. On January 20, 2000, the Registrant issued a warrant to purchase 450,000
shares of common stock at an exercise price of $8.21 per share to
Greenhill & Co., L.L.C. in consideration for and in connection with
financial advisory services (valued at $832,500) rendered to the Registrant.
The issuance of the warrant was made in reliance on Section 4(2) and/or
Rule 506 of Regulation D under the Securities Act.
26. On January 28, 2000, the Registrant issued 30,000 shares of common stock to
a former employee upon exercise of an option. The issuance of the shares
were made in reliance on Section 4(2) and/or Rule 701 under the Securities
Act.
27. On January 31, 2000, the Registrant issued 30,000 shares of common stock to
a former director upon exercise of an option. The issuance of the shares was
made in reliance on Section 4(2) and/or Rule 701 under the Securities Act.
28. On February 1, 2000, the Registrant issued to an employee 78,000 shares of
Common Stock upon exercise of an option. The issuance of the shares was made
in reliance on Section 4(2) and/or Rule 701 under the Securities Act.
29. On February 7, 2000, the Registrant issued to Lucent Technologies Inc. a
warrant to purchase 225,000 shares of common stock at an exercise price of
$3.33 per share in connection with their agreeing to use its OPUSRM and OPUS
XCHANGE services, assist it in the further development of its services and
to direct free agents who provide services to Lucent's NetCare Division to
FREEAGENT. The issuance of the warrant was made in reliance on Section 4(2)
under the Securities Act.
30. On February 7, 2000, the Registrant issued to Lucent Technologies Inc. in
connection with the establishment of the foregoing arrangements, a second
warrant to purchase shares of the Registrant's Common Stock, commencing on
the 240th day after the effective date of this registration statement,
exercisable for that number of shares of common stock having a fair value no
greater than $2,655,000 using the Black-Scholes option-pricing model, at an
exercise price equal to the average market price of the common stock during
the 10 trading days immediately prior to the date the warrant first becomes
exercisable. The issuance of the warrant was made in reliance on
Section 4(2) under the Securities Act.
31. On February 24, 2000, the Registrant issued 2,633,359 shares of common stock
to the former owners of PeopleMover, Inc. in connection with the acquisition
of PeopleMover and assumed options to purchase 1,189,078 shares of common
stock. The issuance of these shares was made in reliance on Section 4(2)
and/or Regulation D under the Securities Act.
32. On February 28, 2000, the Registrant issued a warrant to purchase 9,120
shares of common stock at an exercise price of $0.01 per share to
Kirshenbaum Bond & Partners in consideration for advertising services
(valued at $91,109) rendered to the Registrant. The issuance of this warrant
was made in reliance on Section 4(2) under the Securities Act.
Between October 14, 1998 and February 29, 2000, the Registrant granted stock
options to purchase 11,515,378 of shares of common stock at exercise prices
ranging from $0.33 to $11.00 per share to employees, consultants, officers and
directors. The grant of the options was made in reliance on Section 4(2) and/or
Rule 701 under the Securities Act.
II-4
<PAGE>
With respect to each transaction listed above, no general solicitation was
made by either the Registrant or any person acting on its behalf; the securities
sold are subject to transfer restrictions, and the certificates for the shares
contained an appropriate legend stating such securities have not been registered
under the Securities Act and may not be offered or sold absent registration or
pursuant to an exemption therefrom. 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** Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.1A* Certificate of Merger dated January 19, 2000 relating to the
acquisition of Ithority Corporation.
3.1B* Certificate of Merger dated February 24, 2000 relating to
the acquisition of PeopleMover, Inc.
3.2 Amended and Restated Certificate of Incorporation of the
Registrant.
3.3 Bylaws of the Registrant.
3.4 Amended 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.
10.3A* Amendment to Employment Agreement of Ari B. Horowitz dated
September 2, 1999.
10.4** Amended and Restated Employment Agreement dated February 7,
2000, 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 Form of Amended and Restated Registration Rights Agreement
dated February , 2000, among the Registrant and the
Securityholders 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.
10.15 Agreement and Plan of Merger dated January 30, 2000 among
the Registrant, Opus PM Acquisition Corp., PeopleMover, Inc.
and the other parties thereto.
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
10.16 Agreement and Plan of Merger dated January 19, 2000 among
the Registrant, Ithority Corporation and the other parties
thereto.
10.17 Asset Purchase Agreement dated as of January 12, 2000 among
Brainstorm Interactive, Inc., the Registrant and the other
parties thereto.
10.18* Escrow Agreement dated as of February 24, 2000 among the
Registrant, Suntrust Bank and James L. Jonassen and
Ali Behnam.
10.19 Escrow and Pledge Agreement dated as of January 19, 2000
among SunTrust Bank, the Registrant and the other parties
thereto.
10.20 Amended and Restated Employment Agreement dated February 2,
2000, between the Registrant and Richard S. Miller.
10.21* Agreement between The Churchill Benefit Corporation and
Automatic Data Processing.
10.22* Employment Agreement dated February 29, 2000, between the
Registrant and Allen Berger.
10.23 Strategic Partner Registration Rights Agreement dated
February 7, 2000 between the Registrant and Lucent
Technologies Inc.
10.24** The Registrant's 2000 Stock Option Plan.
10.25** The Registrant's 2000 Stock Option Plan for Non-Employee
Directors.
10.26** The Registrant's 2000 Employee Stock Purchase Plan.
10.27 Form of Registration Rights Agreement dated February ,
2000 between the Registrant and the PM Securityholders.
10.28* PeopleMover, Inc. 1999 Stock Incentive Plan.
10.29* Stock Purchase Agreement dated February 28, 2000, between
the Registrant and Dell USA L.P.
10.30* Form of Strategic Partner Registration Rights Agreement
dated between the Registrant and Dell USA L.P.
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.
23.3* Consent of PricewaterhouseCoopers LLP, independent
accountants.
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, Safeguard
Scientifics and CompuCom relating to the Safeguard
Subscription Program.
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
+ We have requested 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.
II-6
<PAGE>
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-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Opus360 Corporation has duly caused this Amendment No. 2 to 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 March 1, 2000.
<TABLE>
<S> <C> <C>
OPUS360 CORPORATION
By: /s/ ARI B. HOROWITZ
-----------------------------------------
Ari B. Horowitz
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</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
Amendment No. 2 to 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>
** Chairman of the Board and Chief
- ------------------------------------ Executive Officer (Principal March 1, 2000
Ari B. Horowitz Executive Officer)
** President, Chief Operating Officer
- ------------------------------------ and Director March 1, 2000
Richard S. Miller
Senior Vice President, Chief
** Financial Officer, and Secretary
- ------------------------------------ (Principal Financial Officer and March 1, 2000
Richard McCann Principal Accounting Officer)
** Director
- ------------------------------------ March 1, 2000
James Cannavino
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
** Director
- ------------------------------------ March 1, 2000
Irwin Lieber
** Director
- ------------------------------------ March 1, 2000
Roger J. Weiss
** Director
- ------------------------------------ March 1, 2000
Barry Rubenstein
** Director
- ------------------------------------ March 1, 2000
William R. Nuti
** Director
- ------------------------------------ March 1, 2000
John K. Halvey
** Director
- ------------------------------------ March 1, 2000
John L. Drew
</TABLE>
<TABLE>
<C> <S> <C>
/s/ RICHARD MCCANN
------------------------------------
**By Richard McCann
ATTORNEY-IN-FACT
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- --------------------- ------------------------------------------------------------ --------
<C> <S> <C>
1.1** Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.1A* Certificate of Merger dated January 19, 2000 relating to the
acquisition of Ithority Corporation.
3.1B* Certificate of Merger dated February 24, 2000 relating to
the acquisition of PeopleMover, Inc.
3.2 Amended and Restated Certificate of Incorporation of the
Registrant.
3.3 Bylaws of the Registrant.
3.4 Amended 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, as amended.
10.3A* Amendment to Employment Agreement of Ari B. Horowitz dated
September 2, 1999.
10.4** Amended and Restated Employment Agreement dated February 7,
2000, 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 Form of Amended and Restated Registration Rights Agreement
dated February , 2000, among the Registrant and the
Securityholders 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.
10.15 Agreement and Plan of Merger dated January 30, 2000 among
the Registrant, Opus PM Acquisition Corp., PeopleMover, Inc.
and the other parties thereto.
10.16 Agreement and Plan of Merger dated January 19, 2000 among
the Registrant, Ithority Corporation and the other parties
thereto.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page
- --------------------- ------------------------------------------------------------ --------
<C> <S> <C>
10.17 Asset Purchase Agreement dated as of January 12, 2000 among
Brainstorm Interactive, Inc., the Registrant and the other
parties thereto.
10.18* Escrow Agreement dated as of February 24, 2000 among the
Registrant, Suntrust Bank and James L. Jonassen and Ali
Behnam.
10.19 Escrow and Pledge Agreement dated as of January 19, 2000
among SunTrust Bank, the Registrant and the other parties
thereto.
10.20 Amended and Restated Employment Agreement dated February 2,
2000, between the Registrant and Richard S. Miller.
10.21* Agreement between The Churchill Benefit Corporation and
Automatic Data Processing.
10.22* Employment Agreement dated February 29, 2000, between the
Registrant and Allen Berger.
10.23 Strategic Partner Registration Rights Agreement dated
February 7, 2000 between the Registrant and Lucent
Technologies Inc.
10.24** The Registrant's 2000 Stock Option Plan.
10.25** The Registrant's 2000 Stock Option Plan for Non-Employee
Directors.
10.26** The Registrant's 2000 Employee Stock Purchase Plan.
10.27 Form of Registration Rights Agreement dated February ,
2000 between the Registrant and the PM Securityholders.
10.28* PeopleMover, Inc. 1999 Stock Incentive Plan.
10.29* Stock Purchase Agreement dated February 28, 2000, between
the Registrant and
Dell USA L.P.
10.30* Form of Strategic Partner Registration Rights Agreement
dated between the Registrant and Dell USA L.P.
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.
23.3* Consent of PricewaterhouseCoopers LLP, independent
accountants.
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, Safeguard
Scientifics and CompuCom relating to the Safeguard
Subscription Program.
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
+ We have requested 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(a)
MERGER AGREEMENT
This MERGER AGREEMENT is made and entered into as of this 19th
day of January, 2000, by and among OPUS360 CORPORATION, a Delaware corporation
("PARENT") ITHORITY ACQUISITION CORP., a Delaware corporation ("ACQUISITION
SUB"), ITHORITY CORPORATION, a California corporation (the "COMPANY"), and
George Constable, III, as attorney-in-fact (the "SELLER'S REPRESENTATIVE") for
the following stockholders of the Company: Jeremy Epstein, William Herndon,
Matthew Carden and George Constable, III (collectively, the "INDEMNIFYING
SELLERS").
R E C I T A L S :
A. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
full corporate power and authority to carry on its business as presently
conducted and to enter into this Merger Agreement.
B. The Stockholders own in the aggregate in excess of 50% of
the capital stock of the Company.
C. Acquisition Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
full corporate power and authority to carry on its business as presently
conducted and to enter into this Merger Agreement.
D. Parent is the sole stockholder of Acquisition Sub.
E. The respective boards of directors of the Company and
Acquisition Sub deem it advisable and in the best interests of the Company and
Acquisition Sub, and their respective stockholders, that Acquisition Sub be
merged with and into the Company as authorized by the provisions of this Merger
Agreement and the laws of the States of California and Delaware (the "MERGER"),
and each such board of directors has duly approved this Merger Agreement.
F. The respective shareholders of the Company and Acquisition
Sub have duly approved, in accordance with the applicable laws of the State of
Delaware and the State of California, respectively, the principal terms and
provisions of this Merger Agreement.
NOW, THEREFORE, in consideration of the promises and the
mutual covenants and agreements herein set forth and for the purpose of
prescribing the terms and conditions of the Merger, the parties hereto agree as
follows:
SECTION 1. THE MERGER. Acquisition Sub shall be merged with and into
the Company, which, at and after the Effective Time, shall be and is hereinafter
sometimes referred to as the
<PAGE>
"SURVIVING CORPORATION." Acquisition Sub and the Company are hereinafter
sometimes collectively referred to as the "CONSTITUENT CORPORATIONS."
SECTION 2. EFFECTIVE TIME OF THE MERGER. The Merger shall become
effective upon the filing of an executed copy of this Merger Agreement and all
requisite accompanying certificates with the Secretary of State of the State of
California. The time when the Merger shall become effective is referred to
herein as the "EFFECTIVE Time."
SECTION 3. EFFECT OF THE MERGER. At the Effective Time, the identity,
existence, corporate organization, purposes, powers, objects, franchises,
privileges, rights, immunities, restrictions, debts, liabilities and duties
(collectively, the "CORPORATE RIGHTS") of the Company shall continue in effect
and be unimpaired by the Merger, and the Corporate Rights of Acquisition Sub
shall be merged with and into the Company, which shall, as the Surviving
Corporation, be fully vested therewith. At the Effective Time, the separate
existence and corporate organization of Acquisition Sub shall cease, and
Acquisition Sub shall be merged with and into the Surviving Corporation.
SECTION 4. ARTICLES; OFFICERS AND DIRECTORS OF SURVIVING CORPORATION.
From and after the Effective Time, (a) the articles of incorporation of the
Company shall be amended and restated in its entirety to read as set forth in
EXHIBIT A attached hereto and, as so amended, such articles of incorporation
shall be the articles of incorporation of the Surviving Corporation until
altered, amended or repealed as provided in the California General Corporation
Law (the "CALIFORNIA STATUTE"); and (b) the officers and directors of
Acquisition Sub shall become the officers and directors of the Surviving
Corporation, respectively, unless and until removed or until their respective
terms of office shall have expired in accordance with the California Statute or
the Surviving Corporation's articles of incorporation or by-laws, as applicable.
SECTION 5. EFFECT OF THE MERGER ON CAPITAL STOCK. (a) The following
terms used in this Agreement shall have the following respective meanings:
"ACCRUED BONUS AMOUNT" means the aggregate amount of all
accrued but unpaid bonus amounts due to employees of the Company as of the
Closing Date, which amount equals the sum of $48,335.00 and the applicable
amounts for the employer federal and state withholding taxes due on such amount.
"ADDITIONAL SHARES" means that number of shares of Parent
Common Stock determined by dividing (x) an amount equal to $4,000,000 by (y) the
Parent Additional Share Price.
"CASH CONSIDERATION" means the sum of the Closing Amount and
the Deferred Amount.
"CLOSING AMOUNT" means $250,000.
2
<PAGE>
"CLOSING SHARES" means that number of shares of Parent Common
Stock determined by dividing (i) an amount equal to $2,000,000 by (ii) the
Parent Initial Share Price.
"DEFERRED AMOUNT" means $250,000.
"DEFERRED PAYMENT" means an amount equal to the Deferred
Amount less the Accrued Bonus Amount.
"MERGER CONSIDERATION" means the Cash Consideration and the
Stock Consideration.
"MERGER SHARE ADDITIONAL SHARES" means the Additional Shares
less the Nonconsenting Share Additional Shares.
"MERGER SHARE NUMBER" means the Share Number less the
Nonconsenting Share Number.
"MERGER SHARE RESERVED SHARES" means the Reserved Shares less
the Nonconsenting Share Reserved Shares.
"MERGER SHARES" means the Shares beneficially owned by the
Indemnifying Sellers.
"NONCONSENTING SELLERS" means all stockholders of the Company
other than the Indemnifying Sellers.
"NONCONSENTING SHARE ADDITIONAL SHARES" means the Per
Nonconsenting Share Additional Shares times the Nonconsenting Share Number.
"NONCONSENTING SHARE NUMBER" means the number of Nonconsenting
Shares PLUS the number of shares of Company Common Stock issuable upon exercise
of the Options and Warrants held by Nonconsenting Sellers.
"NONCONSENTING SHARE RESERVED SHARES" means the Per
Nonconsenting Share Reserved Shares times the Nonconsenting Share Number.
"NONCONSENTING SHARES" means the Shares beneficially owned by
any Nonconsenting Seller.
"OPTIONS" means the options to purchase shares of Company
Common Stock under the Company's 1998 Stock Plan that are outstanding
immediately prior to the Effective Time.
"PARENT ADDITIONAL SHARE PRICE" as of the Escrow Release Date,
means the value of a share of Parent Common Stock determined in accordance with
the following: (i) if the Parent Common Stock is then listed on the NASDAQ Stock
Market, the average closing price per share of Parent Common Stock as reported
by the NASDAQ Stock Market for the ten trading days
3
<PAGE>
immediately preceding the Escrow Release 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; or (ii) if the Parent Common
Stock is not then listed on the NASDAQ Stock Market, the fair market value of a
share of Parent Common Stock as determined by the Board of Directors of Parent
in good faith at such time.
"PARENT INITIAL SHARE PRICE" of a share of Parent Common Stock
means $350,000,000 divided by the number of shares of Parent Common Stock
outstanding on a Fully Diluted Basis immediately prior to the Effective Time,
using the treasury method of accounting.
"PER MERGER SHARE ADDITIONAL SHARES" means a number of shares
of Parent Common Stock equal to (i) the number of Additional Shares less the
Nonconsenting Share Additional Shares divided by (ii) the Merger Share Number.
"PER MERGER SHARE RESERVED SHARES" means a number of shares of
Parent Common Stock equal to the number of Merger Share Reserved Shares divided
by the Merger Share Number.
"PER NONCONSENTING SHARE ADDITIONAL SHARES" means a number of
shares of Parent Common Stock equal to the number of Additional Shares divided
by the Share Number.
"PER NONCONSENTING SHARE RESERVED SHARES" means a number of
shares of Parent Common Stock equal to the number of Reserved Shares divided by
the Share Number.
"PER SHARE CLOSING AMOUNT" means an amount in cash equal to
the quotient obtained by dividing Closing Amount by the Share Number, rounded to
the nearest $.0001.
PER SHARE CLOSING SHARES" means a number of shares of Parent
Common Stock equal to the number of Closing Shares divided by the Share Number.
"RESERVED SHARES" means that number of shares of Parent Common
Stock determined by dividing an amount equal to $1,500,000 by the Parent Initial
Share Price.
"SELLERS" means the Indemnifying Sellers and the Nonconsenting
Sellers.
"SHARE NUMBER" means the number of Shares PLUS the number of
shares of Company Common Stock issuable upon exercise of the Options and
Warrants.
"SHARES" means the shares of Company Common Stock that are
issued and outstanding immediately prior to the Effective Time that are owned by
any Person other than the Company.
"STOCK CONSIDERATION" means the Closing Shares, the Reserved
Shares and the Additional Shares.
"WARRANTS" means the warrants to purchase shares of Company
Common Stock that are outstanding immediately prior to the Effective Time.
4
<PAGE>
(b) The manner and basis of converting, exchanging or canceling the
shares of capital stock of each of the Constituent Corporations into or for cash
(or the contingent right to receive cash) or securities of the Surviving
Corporation shall be as follows:
(i) each share of common stock, $.01 par value, of Acquisition
Sub issued and outstanding immediately prior to the Effective Time
shall be converted into one share of common stock, $.01 par value, of
the Surviving Corporation;
(ii) each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time and owned directly or
indirectly by the Company (whether as treasury stock or otherwise)
shall, by virtue of the Merger and without any action on the part of
the holder thereof, be canceled and no consideration shall be delivered
in exchange therefor;
(iii) each Merger Share shall, by virtue of the Merger and
without any action on the part of the holder thereof, cease to be
outstanding and be converted into (A) the right to receive, at the
Effective Time, the Per Share Closing Amount; (B) the right to receive,
at the Effective Time, the Per Share Closing Shares; (C) the right to
receive, pursuant to Section 7 hereof an amount equal to the Deferred
Payment divided by the Share Number; (D) the right to receive, subject
to the terms and conditions of this Merger Agreement and the Escrow
Agreement (as hereinafter defined), the Per Merger Share Reserved
Shares, if any; and (E) the right to receive, subject to the terms and
conditions of this Agreement, the Per Merger Share Additional Shares,
if any;
(iv) each Nonconsenting Share shall, by virtue of the Merger
and without any action on the part of the holder thereof, cease to be
outstanding and be converted into (A) the right to receive, at the
Effective Time, the Per Share Closing Amount; (B) the right to receive,
at the Effective Time, the Per Share Closing Shares; (C) the right to
receive, pursuant to Section 7 hereof an amount equal to the Deferred
Payment divided by the Share Number; (D) the right to receive at the
Effective Time, subject to the terms and conditions of this Merger
Agreement, the Per Nonconsenting Share Reserved Shares; and (E) the
right to receive, subject to the terms and conditions of this
Agreement, the Per Nonconsenting Share Additional Shares;
(v) each Option shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into (A) the
right to receive, at the Effective Time, an amount in cash equal to (1)
the Per Share Closing Amount per share of Company Common Stock issuable
upon the exercise of such Option LESS (2) the exercise price for each
such share, which exercise price will be deducted from the amount of
Closing Amount otherwise payable to the holder thereof; (B) the right
to receive, the Per Share Closing Shares per share of Company Common
Stock issuable upon the exercise of such Option; (C) the right to
receive, pursuant to Section 7 hereof, an amount in cash equal to the
Deferred Payment divided by the Share Number per share of Company
Common Stock issuable upon the exercise of such Option; (D) the right
to receive, subject to the terms and conditions of this Merger
Agreement and the Escrow Agreement, the Per Merger Share Reserved
Shares, if any; or the Per Nonconsenting Share Reserved
5
<PAGE>
Shares, as applicable, per share of Company Common Stock issuable upon
the exercise of such Option and (E) the right to receive, subject to
the terms and conditions of this Agreement, the Per Merger Share
Additional Shares, if any, or the Per Nonconsenting Share Additional
Shares, as applicable, per share of Company Common Stock issuable upon
the exercise of such Option; and
(vi) each Warrant shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into (A) the
right to receive, at the Effective Time, an amount in cash equal to (1)
the Per Share Closing Amount per share of Company Common Stock issuable
upon the exercise of such Warrant LESS (2) the exercise price for each
such share, which exercise price will be deducted from the amount of
Closing Amount otherwise payable to the holder thereof; (B) the right
to receive, the Per Share Closing Shares per share of Company Common
Stock issuable upon the exercise of such Warrant; (C) the right to
receive, pursuant to Section 7 hereof, an amount in cash equal to the
Deferred Payment divided by the Share Number per share of Company
Common Stock issuable upon the exercise of such Warrant; (D) the right
to receive, subject to the terms and conditions of this Agreement and
the Escrow Agreement, the Per Merger Share Reserved Shares, if any, or
the Per Nonconsenting Share Reserved Shares, as applicable, per share
of Company Common Stock issuable upon the exercise of such Warrant; and
(E) the right to receive, subject to the terms and conditions of this
Merger Agreement, the Per Merger Share Additional Shares, if any, or
the Per Nonconsenting Share Additional Shares, as applicable, per share
of Company Common Stock issuable upon the exercise of such Warrant.
SECTION 6. DELIVERY OF CLOSING AMOUNT; EXCHANGE OF CERTIFICATES. At the
Effective Time, upon surrender by each Seller to the Surviving Corporation of
the certificate(s) which, immediately prior to the Effective Time, represented
Shares and Options and Warrants, Parent shall deliver to each such Seller in
exchange therefor (a) an amount equal to the Closing Amount due such Seller; (b)
a certificate representing the number of Closing Shares due such Seller; (c) if
such Seller is a Nonconsenting Seller, a certificate representing the number of
Nonconsenting Share Reserved Shares due such Seller; and (d) pursuant to the
provisions of Section 10, cash in lieu of fractional shares which such Seller
would otherwise have the right to receive; PROVIDED THAT the Sellers'
Representative may direct Parent to deliver a portion of the Closing Amount to
certain third parties for fees, expenses, costs or other obligations arising out
of or in connection with the transactions contemplated in this Merger Agreement.
Until surrendered as contemplated by this Section 6, each certificate
representing Shares and each Option and Warrant shall be deemed, at and after
the Effective Time, to represent only the right to receive upon such surrender
cash and shares of Parent Common Stock as contemplated by this Merger Agreement
and the California Statute.
SECTION 7. DELIVERY OF DEFERRED AMOUNT.
(a) Within five Business Days after the earlier to occur of (i) the
date on which the integration results described on SCHEDULE II attached hereto
are attained and (ii) the date that is 120 days after the Closing Date
(regardless of whether the above-referenced integration has been
6
<PAGE>
completed), Parent shall pay the Sellers in the aggregate an amount equal to the
Deferred Payment in accordance with Section 2.1(b), rounded to the nearest
$.0001.
(b) Subject to the further provisions of this Section 2.3, the
Indemnifying Sellers hereby instruct Parent to pay the accrued Bonus Amount to
Matthew Carden, and, within two Business Days after the Effective Time, Parent
shall pay the Accrued Bonus Amount in accordance with such instructions;
PROVIDED, HOWEVER, that Parent shall deduct from such payment the applicable
amount of withholding for income and employment Tax purposes (which amounts
shall be paid to the Company to be applied to such Taxes for the benefit of the
employees receiving such payments). The payment of the Accrued Bonus Amount by
the Parent pursuant to the foregoing sentence shall be treated as (i) a payment
on behalf of the Sellers to the Company and (ii) a payment by the Company of
bonuses payable.
SECTION 8. ESCROW; MERGER SHARE RESERVED SHARES.
(a) Prior to the Closing, Parent and Acquisition Sub shall appoint an
entity reasonably acceptable to the Sellers' Representative to act as escrow
agent (the "ESCROW AGENT") pursuant to an escrow agreement (the "ESCROW
AGREEMENT") in connection with the Merger and the other transactions
contemplated hereby. At the Closing, Parent will deliver to the Escrow Agent a
certificate or certificates representing the Merger Share Reserved Shares.
(b) The Escrow Agreement shall provide that the Escrow Agent will
deliver certificates representing the Merger Share Reserved Shares to Parent or
the Sellers' Representative (on behalf of the Indemnifying Sellers) in
accordance with the terms and conditions set forth therein, provided that, any
Indemnifying Seller entitled to receive fractional shares shall, upon
distribution of the Merger Share Reserved Shares at the Escrow Release Date,
receive cash in lieu thereof pursuant to the provisions of Section 10.
SECTION 9. ADDITIONAL SHARES.
(a) On the Escrow Release Date, Parent shall deliver to the Sellers'
Representative (i) certificates registered in the names of the Nonconsenting
Sellers in accordance with their respective Percentage Interests, representing
in the aggregate the Nonconsenting Share Additional Shares and (ii) pursuant to
the provisions of Section 10, cash in lieu of fractional shares which each such
Nonconsenting Seller would otherwise have the right to receive.
(b) On the Escrow Release Date, Parent shall also deliver to the
Sellers' Representative (i) certificates registered in the names of the
Indemnifying Sellers in accordance with their respective Proportionate
Percentages, representing in the aggregate the Merger Share Additional Shares
remaining after deduction of any Merger Share Additional Shares (and/or shares
of Parent Common Stock derived from or issued in respect of the Merger Share
Additional Shares) that have been forfeited and (ii) pursuant to the provisions
of Section 10, cash in lieu of fractional shares which each such Indemnifying
Seller would otherwise have the right to receive.
7
<PAGE>
(c) The Sellers' Representative shall deliver the foregoing
consideration to the Sellers in accordance with the terms of this Merger
Agreement.
SECTION 10. FRACTIONAL SHARES. Notwithstanding any other provision of
this Merger Agreement, no certificates or scrip representing fractional shares
of Parent Common Stock shall be issued to any Seller 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 or the Parent Additional Share Price, as applicable.
SECTION 11. NO FURTHER OWNERSHIP.
(a) Until surrendered as contemplated by Section 6, each certificate
representing shares of Company Common Stock and each Option and Warrant shall be
deemed, at and after the Effective Time, to represent only the right to receive
upon such surrender cash and Parent Common Stock as contemplated by this Merger
Agreement and the California Statute.
(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) The Merger Consideration paid in respect of the surrender of
Options, Warrants and certificates representing shares of Company Common Stock
in accordance with the provisions of this Agreement shall be deemed to have been
paid in full satisfaction of all rights pertaining to such Options, Warrants and
shares of Company Common Stock. 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, Warrants
or certificates for the Company Common Stock 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.
8
<PAGE>
(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.
SECTION 12. OTHER PROVISIONS WITH RESPECT TO THE MERGER.
(a) The principal terms of this Merger Agreement may not be amended,
modified or supplemented without the approval of the shareholders of Acquisition
Sub and the Company. Except as set forth in the preceding sentence, the Company
and Acquisition Sub, by mutual consent of their respective boards of directors,
to the extent permitted by law, may amend, modify, supplement and interpret this
Merger Agreement in such manner as may be mutually agreed upon by them in
writing at any time and, in the case of an interpretation, the actions of such
boards of directors shall be binding; PROVIDED, HOWEVER, that no amendment,
modification or supplement shall affect the rights of the shareholders of
Acquisition Sub or the Company in any manner which is materially adverse to such
shareholders in the judgment of such respective boards of directors.
(b) The captions of this Merger Agreement are for convenience of
reference only and shall not restrict or modify the meaning of any terms or
provisions hereof.
(c) Whenever the context of this Merger Agreement requires, the gender
of all words used herein shall include the masculine, feminine and neuter, and
the number of all words shall include the singular and plural.
(d) This Merger Agreement may be executed in counterparts, each of
which when so executed shall be deemed an original and such counterparts shall
together constitute one and the same instrument.
* * * *
9
<PAGE>
SCHEDULE II
INTEGRATION REQUIREMENTS
1. e*Portfolio: Freeagent.com members will have a single profile within the
system. e*Portfolio will also integrate to the Company's reputation system
data so users can properly qualify each other. The Company's reputation
system will be one component of the overall FreeAgent.com
reputation/certification system.
2. Authorization system will be merged. Freeagent.com members will have a
single username/password for logging into the system and accessing the
Ithority functionality.
3. Billing system: The Company will pass Freeagent.com billing events for
completed transactions, which will be processed by Freeagent.com. The
Company needs to be able to support FreeAgent.com's multiple billing
scenarios (up front listing payment, subscription, invoicing, credit card,
and account balance). Account management information will be consolidated
into one single display across all services for FreeAgent.com users.
4. The systems will appear as one system through unified design.
5. The Ithority functionality will be accessible through the same overall
Xchange interface, "questions" or "expert advice" should be a type
accessible, browseable, searchable, in the vein of all of the other Xchange
opportunities.
<PAGE>
IN WITNESS WHEREOF, the parties, pursuant to approval and authority
duly given by resolutions adopted by their respective boards of directors, have
each caused this Merger Agreement to be signed by their respective officers duly
authorized, all as of the date first written above.
ITHORITY CORPORATION ITHORITY ACQUISITION CORP.
a California corporation a Delaware corporation
By: /s/ George Constable, III By: /s/ Ari Horowitz
------------------------------ ------------------------------
Name: George Constable, III Name: Ari Horowitz
Title: President Title: President
ITHORITY CORPORATION ITHORITY ACQUISITION CORP.
a California corporation a Delaware corporation
By: /s/ Jeremy Epstein By: /s/ Richard McCann
------------------------------ ------------------------------
Name: Jeremy Epstein Name: Richard McCann
Title: Secretary Title: Secretary
OPUS360 CORPORATION OPUS360 CORPORATION
a Delaware corporation a Delaware corporation
By: /s/ Ari Horowitz By: /s/ Richard McCann
------------------------------ ------------------------------
Name: Ari Horowitz Name: Richard McCann
Title: Chief Executive Officer Title: Secretary
/s/ George Constable III
------------------------------
George Constable, III,
as the Sellers' Representative
10
<PAGE>
Exhibit 3.1(b)
CERTIFICATE OF MERGER
OF
OPUS PM ACQUISITION CORP.
INTO
PEOPLEMOVER, INC.
Pursuant to Section 251 of the General
Corporation Law of the State of Delaware
PeopleMover, Inc., a Delaware corporation ("PeopleMover"),
does hereby certify:
FIRST: The names and states of incorporation of the
constituent corporations (the "Constituent Corporations") to this merger are as
follows:
<TABLE>
<S> <C>
Opus PM Acquisition Corp. Delaware
PeopleMover, Inc. Delaware
</TABLE>
SECOND: An agreement and plan of merger, dated as of January
30, 2000, as amended on February 14, 2000 (the "Merger Agreement"), by and among
Opus360 Corporation, a Delaware Corporation ("Opus360"), Opus PM Acquisition
Corp., a wholly owned subsidiary of Opus360, PeopleMover, the Stockholder
Representative (as defined in Section 8.5 of the Merger Agreement), and the
stockholders of PeopleMover (as to Article II, Section 4.2 and Article IX, and
as to certain stockholders of PeopleMover, Article VIII), has been approved,
adopted, certified, executed and acknowledged by each of the Constituent
Corporations in accordance with Section 251 of the General Corporation Law of
the State of Delaware.
THIRD: The name of the corporation surviving the merger is
PeopleMover, Inc.
FOURTH: The restated certificate of incorporation of
PeopleMover shall be restated to read in its entirety as set forth on Exhibit A
attached hereto.
FIFTH: The executed Merger Agreement is on file at the office
of PeopleMover, the address of which is:
<PAGE>
1500 Rosecrans Avenue
Suite 310
Manhattan Beach, California 90266
SIXTH: A copy of the Merger Agreement will be provided by
PeopleMover, upon request and without cost, to any stockholder of either
Constituent Corporation.
IN WITNESS WHEREOF, PeopleMover, Inc. has caused this
Certificate of Merger to be duly executed in its corporate name this 24th day of
February, 2000.
PEOPLEMOVER, INC.
By: /s/ Ari B. Horowitz
-------------------------
Name: Ari B. Horowitz
Title: President
2
<PAGE>
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
PEOPLEMOVER, INC.
FIRST: The name of the Corporation is PeopleMover, Inc.
(hereinafter the "Corporation").
SECOND: The address of the registered office of the
Corporation in the State of Delaware is 9 East Loockerman Street, in the City of
Dover, County of Kent. The name of its registered agent at that address is
National Registered Agents, Inc.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code (the "GCL").
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is one thousand (1000) shares of
Common Stock, each having a par value of $0.001.
FIFTH: The following provisions are inserted for the
management of the business and the conduct of the affairs of the Corporation,
and for further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
(1) The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the
stockholders to make, alter, amend, change, add to or repeal the
By_Laws of the Corporation.
(3) The number of directors of the Corporation shall be as
from time to time fixed by, or in the manner provided in, the
3
<PAGE>
By_Laws of the Corporation. Election of directors need not be by
written ballot unless the By_Laws so provide.
(4) No director shall be personally liable to the Corporation
or any of 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) pursuant to Section 174
of the GCL or (iv) for any transaction from which the director derived
an improper personal benefit. Any repeal or modification of this
Article SIXTH by the stockholders of the Corporation shall not
adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification with
respect to acts or omissions occurring prior to such repeal or
modification.
(5) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation, subject, nevertheless,
to the provisions of the GCL, this Restated Certificate of
Incorporation, and any By_Laws adopted by the stockholders; provided,
however, that no By_Laws hereafter adopted by the stockholders shall
invalidate any prior act of the directors which would have been valid
if such By_Laws had not been adopted.
SIXTH: Meetings of stockholders may be held within or without
the State of Delaware, as the By_Laws may provide. The books of the Corporation
may be kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By_Laws of the Corporation.
SEVENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
4
<PAGE>
Exhibit 4.1
OPUS360 CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
OP
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 68400F 10 9
COMMON STOCK
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE PER SHARE,
OF
OPUS360 CORPORATION
transferable only on the books of the Corporation in person or by attorney upon
surrender of this Certificate properly endorsed.
This Certificate is not valid unless countersigned and registered by the
Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Corporation and signatures of its duly
authorized officers.
Dated:
SECRETARY
CHAIRMAN OF THE BOARD
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(New York, NY)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM-D
TEN ENT-D
JT TEN-D
as tenants in common
as tenants by the entireties
as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT-D......................Custodian......................
(Cust)
(Minor)
under Uniform Gifts to Minors
Act........................................................
(State)
UNIF TRF MIN ACT-D.................Custodian (until age...........)
(Cust)
.......................under Uniform Transfers
(Minor)
<PAGE>
to Minors Act.................................
(State)
Additional abbreviations may also be used though not in the above list.
For value
received,
hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares
of the Series A Convertible Preferred Stock represented by the within
Certificate, and do hereby irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises. Dated NOTICE: The signature to this
assignment must correspond with the name as written upon the face of the
certificate, in every particular, without alteration or
enlargement, or any change whatever.
SIGNATURE(S) GUARANTEED:
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE>
New Exhibit 10.3A
OPUS360 CORPORATION
733 THIRD AVENUE, 17TH FLOOR
NEW YORK, NEW YORK 10017
September 2, 1999
Mr. Ari Horowitz
c/o Opus360 Corporation
733 Third Avenue, 17th Floor
New York, NY 10017
AMENDMENT TO EMPLOYMENT AGREEMENT
Dear Ari:
Reference is made to the Employment Agreement dated as of April__,
1999 (the "Employment Agreement"), between you and Opus360 Corporation (the
"Company"). Capitalized terms used but not defined herein have the meanings
ascribed thereto by the Employment Agreement.
Pursuant to the Securities Purchase Agreement dated as of the date
hereof (the "Purchase Agreement") among the Company and the purchasers party
thereto (collectively, the "Purchasers"), the Purchasers are acquiring shares
of the Company's Series B Convertible Preferred Stock (the "Series B
Shares"). As an inducement to the Purchasers to enter into the Purchase
Agreement and purchase the Series B Shares, you hereby agree to amend the
Employment Agreement in accordance with the following:
1. TIME DEVOTED TO THE COMPANY. Section 3 of the Employment Agreement is
hereby amended by deleting the third sentence and inserting in lieu thereof
the following: "The Employee shall devote all of his loyalty and skill to the
business of the Company and a preponderance of his business and professional
time, attention and energy as may be reasonably necessary to carry on the
business of the Company and to perform his duties under this Agreement,
PROVIDED HOWEVER, that in no event shall the Employee devote less of his
business and professional time, attention, and energy as is customary for a
senior executive of comparable position as the Employee in companies
similarly situated as the Company at such time."
2. TERMINATION FOR CAUSE. Section 8(a) of the Employment Agreement is
amended and restated in its entirety to read as follows:
"(a) In the event that the Employee's employment with the
Company is terminated for any reason (including by reason of the death
or incapacity of the Employee), other than a Termination for Cause or a
resignation by the Employee without Good Reason (a "Termination of
Employment"), (i) the Employee shall be entitled to certain Rights (as
such term is defined in clause (c) below), and (ii) the options granted
to the Employee pursuant to the Option Agreement shall
<PAGE>
become immediately exercisable and the Employee shall have at least
180 days from the date the Employee's employment with the Company
ended in which to exercise such options."
3. GOOD REASON; CAUSE.
(a) Section 8(b)(ii) of the Employment Agreement is hereby amended
by adding at the end thereof the following: ", unless the Employee has
voluntarily consented in writing to such diminution of title, authority or
duties in order to place another individual in the position of Chief Executive
Officer."
(b) Section 8 of the Employment Agreement is hereby amended by
adding a new Section 8(d) at the end thereof to read in its entirety as
follows:
"(d) "Cause" means (i) the Employee's disregard of his
duties, where such action would be in the ordinary course of
the Employee's duties and such failure to act is reasonably likely
to cause or has caused a material adverse effect on the Company;
(ii) gross negligence or willful misconduct by the Employee in the
performance of his duties which is reasonably likely to have or has
had a material adverse effect on the Company; (iii) the commission
by the Employee of any act of fraud or financial dishonesty with
respect to the Company; or (iv) any felony conviction, provided
that the decision to terminate the Employee for Cause (as described
in clause (i), (ii) (iii) or (iv) must be approved by the unanimous
consent of the board of directors of the Company (excluding the
Employee if he is a director at such time)."
4. NONCOMPETITION. Section 10 of the Employment Agreement is amended
to read in its entirety as follows:
"9. COVENANTS AGAINST COMPETITION.
In the event that the Employee ceases to be an employee
of the Company during the Term for any reason, then until the
second anniversary of the termination date, the 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 as of the termination date. Notwithstanding the foregoing,
the Employee may own less than two percent (2%) of the issued and
outstanding capital stock of any publicly traded company."
5. Except as amended hereby, the Employment Agreement shall remain in
full force and effect.
2
<PAGE>
If the foregoing is acceptable to you, please sign a copy of this
letter agreement in the space provided below and return a copy of the
executed letter to the undersigned.
Very truly yours,
/s/ Rich McCann
-----------------
Rich McCann
Chief Financial Officer
AGREED TO AND ACKNOWLEDGED
/s/ Ari Horowitz
- --------------------------
Ari Horowitz
3
<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. The presumed number of requisitions for JP
Morgan is approximately [***] based on the following breakout: [***]
Additional requisitions for full-time recruiting requirements will also be
included.
PRICING
Opus 360 will charge JP Morgan a [***] for usage of the Opus Xchange service
plus a [***] and will encompass requisitions for both full-time and T & M
contractors.
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. Should JP Morgan
elect not to continue with the Opus Xchange service after the trial period
phase, JP Morgan will [***] .
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:______________________
[***] Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
<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. ("Launch Date"), it will not, co-brand or
license its FreeAgent subscription services (e-office and
e-portfolio, excluding buyer's co-op and content), or its
Xchange service with the companies listed on Schedule A
hereto, and will not co-brand its Xchange service with the
companies listed on Schedule A. CareerPath agrees that
during the Exclusivity Period it will not license, co-brand
its services with the companies listed on Schedule __
hereto, or allow such companies to feature their services
on any of the CareerPath websites or co-branded sites with
its affiliates (to the extent of CareerPath's control)
CareerPath further agrees that it will not co-brand or
license its services with the companies listed on Schedule A.]
The parties agree to update these lists quarterly as set forth
in the definitive agreement.
2
<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).
3
<PAGE>
- FreeAgent will pay to CareerPath a fee equal to
[***] from all advertising, promotional,
sponsorship, and similar rights sold or licensed
on the Co-branded Site during the term of the
agreement. [***]
- 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 [***] derived from
projects originating from CareerPath and
transacted through the Xchange service (subject to
the minimums described in Section 6 below) on the
Co-Branded Site as follows;
- CareerPath will receive [***] for each CareerPath
customer who registers as a user on the Co-Branded
Site.
- Subject to compliance with its privacy policies,
CareerPath will auto-convert its resume database on
FreeAgent.com to drive Xchange transactions.
CareerPath will receive [***]
- CareerPath will receive [***] from silver level
back office service subscriptions for each
CareerPath customer who subscribes through the
Co-Branded Site [***]
[***] Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
4
<PAGE>
- CareerPath will receive [***] from gold level back
office service subscriptions for each CareerPath
customer who subscribes through the Co-Branded Site
[***]
- CareerPath will receive [***] generated from
products and services sold, from time to time, in
the "Buyer's Co-op" section of the Co-Branded Site.
- 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. [***]
[***] Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
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:
[***] Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
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
9
<PAGE>
SCHEDULE A
CareerPath.com Competitors:
1) Tier 1 [***]
2) Tier 2 [***]
Opus360/FreeAgent Competitors:
1) Tier 1 [***]
[***] Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
<PAGE>
2) Tier 2 [***]
[***] Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
<PAGE>
Exhibit 10.18
EXECUTION COPY
----------------------------------------------------
ESCROW AGREEMENT
dated as of February 24, 2000
by and among
OPUS360 CORPORATION,
SUNTRUST BANK
AND
JAMES L. JONASSEN and ALI BEHNAM
----------------------------------------------------
<PAGE>
Escrow Agreement (this "Escrow Agreement"), dated as of February 24,
2000, by and among Opus360 Corporation, a Delaware Corporation ("OPUS360"),
Suntrust Bank, a Georgia banking corporation (the "ESCROW AGENT"), and each of
James L. Jonassen ("Jonassen") and Ali Behnam ("Behnam" and together with
Jonassen, the "ESCROW STOCKHOLDERS").
WHEREAS, this Agreement is being executed in accordance with Section
2.1(g) of the Agreement and Plan of Merger dated as of January 30, 2000, as
amended on February 14, 2000 (the "MERGER AGREEMENT"), by and among Opus360,
Opus PM Acquisition Corp., a Delaware corporation and a wholly owned subsidiary
of Opus360, PeopleMover, Inc., a Delaware corporation ("PEOPLEMOVER"), the
Stockholder Representative (as defined in Section 8.5 of the Merger Agreement),
and the stockholders of PeopleMover (as to Article II, Section 4.2 and Article
IX, and as to certain stockholders of PeopleMover, Article VIII);
WHEREAS, Section 2.1(g) of the Merger Agreement provides for Opus360 or
the American Stock Transfer & Trust Company (the "EXCHANGE AGENT") on behalf of
Opus360 to deposit into escrow (i) 199,991 shares of common stock, par value
$0.001 per share ("OPUS360 COMMON STOCK"), of Opus360 on behalf of James L.
Jonassen (the "JONASSEN ESCROW SHARES") and (ii) 29,066 shares of Opus360 Common
Stock on behalf of Ali Behnam (the "BEHNAM ESCROW SHARES" and together with the
Jonassen Escrow Shares the "INDEMNIFICATION ESCROW SHARES") to be maintained as
security for the indemnification of any Opus360 Indemnified Party (as defined in
Section 8.2 of the Merger Agreement) pursuant to Article VIII of the Merger
Agreement and that the Indemnification Escrow Shares be held in accordance with
the terms hereof;
WHEREAS, Opus360 and the Escrow Stockholders wish to enter into this
Escrow Agreement providing for the terms and conditions upon which the
Indemnification Escrow Shares shall be held and released by the Escrow Agent,
and the Escrow Agent has agreed to act as Escrow Agent pursuant to the terms and
conditions of this Escrow Agreement; and
WHEREAS, each of the Escrow Stockholders as a condition to the
consummation of the merger (the "Merger") is entering into (i) a restricted
stock vesting agreement in respect of the Jonassen Escrow Shares in the case of
Jonassen and the Behnam Escrow Shares in the case of Behnam (collectively, the
"Restricted Stock Vesting Agreements"), and (ii) employment agreements with
PeopleMover, as the surviving corporation in the Merger (the "Employment
Agreements").
2
<PAGE>
NOW THEREFORE, in consideration of the mutual covenants
contained herein and in the Merger Agreement and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Section APPOINTMENT OF ESCROW AGENT.
The Escrow Agent is hereby appointed to act as escrow agent hereunder,
and the Escrow Agent agrees to act as such.
2. Section DELIVERY OF INDEMNIFICATION ESCROW SHARES.
As soon as reasonably practicable after the Effective Time (as defined
in Section 1.3 of the Merger Agreement) as contemplated in Section 2.1(g) of the
Merger Agreement and at any time thereafter until the termination of this Escrow
Agreement in accordance with Section 7 hereof, Opus360 or the Exchange Agent on
behalf of Opus360 shall deposit with the Escrow Agent (i) one or more stock
certificates evidencing the 199,991 shares of Opus360 Common Stock representing
the Jonassen Escrow Shares and one or more stock certificates evidencing the
29,066 shares of Opus360 Common Stock representing the Behnam Escrow Shares and
(ii) all securities and other property received by the Escrow Stockholders
pursuant to Section 3(a) hereof, and the Escrow Agent is accepting such property
for deposit in escrow pursuant to the provisions of this Escrow Agreement.
3. Section ESCROW.
(a) As general and continuing collateral security for the payment and
performance by each of the Escrow Stockholders of all of their Secured
Obligations (as defined in subsection (b) below), each of the Escrow
Stockholders hereby pledges, hypothecates, assigns, transfers, sets over and
delivers unto Opus360, and grants to Opus360 a security interest in, all of
their respective rights, titles and interests in and to (i) the Indemnification
Escrow Shares, (ii) any and all securities (whether or not securities of
Opus360) which the Escrow Stockholders otherwise would be entitled to receive in
connection with any dividend or distribution on or with respect to, any stock
split, combination, recapitalization, reclassification, merger, consolidation or
other event relating to or affecting, any securities then held as
Indemnification Escrow Shares for the account of the Escrow Stockholders
(collectively, the " PLEDGED SHARES") and any cash or other property at any time
and from time to time receivable or otherwise distributable in respect of, in
exchange for, or in substitution of, the Pledged Shares and any and all products
and proceeds therefrom, together with and all other rights, titles, interests,
powers, privileges and preferences pertaining to said property (the "PLEDGED
COLLATERAL").
(b) The security interest created hereby is granted to Opus360, to
secure the prompt performance and payment in full of the following
(collectively, the "SECURED OBLIGATIONS"): (i) the several obligations of each
of the Escrow Stockholders under the Merger Agreement and (ii) expenses incurred
by any Opus360 Indemnified Party or such party's counsel in connection with the
realization of the security provided under this Escrow Agreement, including,
without limitation, any reasonable costs or expenses of any proceedings to which
this Escrow Agreement may give rise, and reasonable fees, disbursements and
other charges of counsel and of any experts or agents, and its fully allocated
internal
3
<PAGE>
costs, that any Opus360 Indemnified Party may incur in connection with (A) the
exercise or enforcement of any of the rights of such Opus360 Indemnified Party
under this Escrow Agreement and the Merger Agreement and (B) damages arising out
of the failure of either Escrow Stockholder to perform or observe any of the
provisions of this Escrow Agreement or the Merger Agreement.
(c) Each Escrow Stockholder hereby represents and warrants to Opus360
as follows:
(i) such Escrow Stockholder, is, and will at all times
continue to be, the legal and beneficial owner of the Pledged
Collateral. No financing statement under the Uniform Commercial Code of
any jurisdiction which names such Escrow Stockholder as debtor or
covers any of the Pledged Collateral, or any other notice filed in the
public records indicating the existence of a Lien (as defined in
Section 3.1(d) of the Merger Agreement) thereon, has been filed and is
still effective in any state or other jurisdiction and such Escrow
Stockholder has not signed any such financing statement or notice or
any security agreement authorizing the filing of any such financing
statement or notice;
(ii) the social security number of such Escrow Stockholder is
set forth on Schedule I attached hereto;
(iii) such Escrow Stockholder (A) has the power and authority
to pledge the Pledged Collateral in the manner provided herein or as
contemplated hereby and (B) will defend his title thereto or interest
therein against any and all Liens of all persons (as defined in Section
9.2(c) of the Merger Agreement) other than the Liens created by this
Escrow Agreement; and
(iv) no consent or approval of any Governmental Entity (as
defined in Section 3.1(d) of the Merger Agreement) or any securities
exchange was or is necessary for the validity of the pledge effected
hereby.
(d) Each Escrow Stockholder hereby unconditionally covenants and agrees
as follows:
(i) such Escrow Stockholder will not create, assume, incur or
permit or suffer to exist or to be created, assumed or incurred, any
Lien on any of the Pledged Collateral (or any interest therein) and
will not, sell, lease, assign, transfer or otherwise dispose of all or
any portion of the Pledged Collateral (or any interest therein); and
(ii) until this Escrow Agreement has terminated in accordance
with Section 7 hereof, any certificates, instruments, documents or
property constituting Pledged Collateral as contemplated by Section
3(a) hereof shall be delivered to the Escrow Agent and shall be subject
to the terms and conditions of this Escrow Agreement. Each of the
Escrow Stockholders shall take such further actions to vest in Opus360
the security interest provided hereunder with respect to all such
Pledged Collateral whether now existing or hereafter created.
4
<PAGE>
(e) Each of the Escrow Stockholders shall take all actions that may be
necessary or desirable in Opus360's sole discretion, so as at all times to
maintain the validity, perfection, enforceability and priority of Opus360's
security interest in the Pledged Collateral, or to enable any Opus360
Indemnified Party to exercise or enforce its rights hereunder, including without
limitation (i) delivering to Opus360, endorsed or accompanied by such
instruments of assignment as Opus360 may specify, any and all chattel paper,
instruments, letters of credit and all other advices of guaranty and documents
evidencing or forming a part of the Pledged Collateral and (ii) executing and
delivering financing statements, pledges, designations, notices and assignments,
in each case in form and substance satisfactory to Opus360, relating to the
creation, validity, perfection, priority or continuation of the security
interest granted hereunder. Each of the Escrow Stockholders agrees to take, and
authorizes Opus360 to take on such Escrow Stockholder's behalf, any or all of
the following actions with respect to any Pledged Collateral as Opus360 shall
deem necessary to perfect the security interest and pledge created hereby or to
enable any Opus360 Indemnified Party to enforce its rights and remedies
hereunder and under the Merger Agreement: (A) to register in the name of Opus360
any Pledged Collateral in certificated or uncertificated form; (B) to endorse in
the name of Opus360 any Pledged Collateral issued in certificated form; (C) by
book entry or otherwise, identify as belonging to Opus360 a quantity of
securities that constitutes all or part of the Pledged Collateral; and (D) to
hold or possess any other property (including cash) that constitutes Pledged
Collateral. As a point of clarification, each of the Escrow Stockholders agrees
that Pledged Collateral which is not in certificated form or is otherwise in
book-entry form shall be held for the account of Opus360. Each of the Escrow
Stockholders hereby authorizes Opus360 to execute and file in all necessary and
appropriate jurisdictions (as determined by Opus360) one or more financing or
continuation statements (or any other document or instrument referred to in the
immediately preceding clause (B)) in the name of such Escrow Stockholder and to
sign such Seller's name thereto as power of attorney on behalf of such Escrow
Stockholder. Each of the Escrow Stockholders authorizes Opus360 to file any such
financing statement, document or instrument without the signature of such Escrow
Stockholder to the extent permitted by applicable law. To the extent permitted
by applicable law, a carbon, photographic, xerographic or other reproduction of
this Escrow Agreement or any financing statement is sufficient as a financing
statement. Any property comprising part of the Pledged Collateral required to be
delivered to Opus360 pursuant to this Escrow Agreement shall be accompanied by
proper instruments of assignment duly executed by such Escrow Stockholder and by
such other instruments or documents as Opus360 may reasonably request.
(f) This Escrow Agreement shall create a continuing security interest
in the Pledged Collateral and shall remain in full force and effect until it
terminates in accordance with Section 7 hereof. Each of the Escrow Stockholders
and Opus360 hereby agree that the security interest in the Pledged Collateral
created by this Section 3 shall not terminate and shall continue and remain in
full force and effect notwithstanding the transfer to any Opus360 Indemnified
Party of a portion of the Pledged Collateral.
(g) All rights of any Opus360 Indemnified Party hereunder, the grant of
a security interest in the Pledged Collateral and all obligations, duties and
liabilities of each of the Escrow Stockholders hereunder, shall be absolute and
unconditional irrespective of any lack of validity or enforceability of the
Merger Agreement or any document, schedule, exhibit, instrument, certificate,
document or agreement related to or contemplated by the Merger Agreement or this
Escrow Agreement.
5
<PAGE>
4. Section RIGHTS TO PLEDGED COLLATERAL.
(a) The Pledged Collateral shall be held for the exclusive benefit of
any Opus360 Indemnified Party and each of the Escrow Stockholders and their
respective successors, assigns, heirs, administrators and estates, and no other
person shall have any right, title or interest therein. Any claim of any person
to the Pledged Collateral, or any part thereof, shall be subject and subordinate
to the prior right thereto of any Opus360 Indemnified Party and each of the
Escrow Stockholders.
(b) So long as no action, proceeding, complaint or litigation is
commenced by a third party involving a claim for which the PeopleMover
Indemnifying Stockholders (as defined in Section 8.2(a) of the Merger Agreement)
may be liable to an Opus360 Indemnified Party or a claim by an Opus 360
Indemnified Party against a PeopleMover Indemnifying Stockholder shall have been
asserted (a "Claim Notice"), an Escrow Stockholder shall be entitled to exercise
any and all voting rights and powers accruing to an owner of the Pledged Shares
for any purpose not inconsistent with the terms and conditions of this Escrow
Agreement, the Restricted Stock Vesting Agreements or any agreement giving rise
to or otherwise relating to any of the Secured Obligations, including, with
limitation their respective Restricted Stock Vesting Agreements and Employment
Agreements; PROVIDED, HOWEVER, that the Escrow Stockholders shall not exercise,
shall refrain from exercising, or shall cause not to be exercised any such
voting right or power if any such action could have an adverse effect on the
value of such Pledged Shares in the reasonable judgment of Opus360. Upon the
occurrence and during the continuance of a Claim Notice, all rights of the
Escrow Stockholders to exercise the voting rights and powers which the Escrow
Stockholders are entitled to exercise pursuant to this Section 4 shall cease,
and all such rights thereupon shall become immediately vested in Opus360 or its
nominee, which shall have, to the extent permitted by law, the sole and
exclusive right and authority to exercise such voting rights and powers which
the Escrow Stockholders shall otherwise be entitled to exercise pursuant to this
Section 4. During the term of this Escrow Agreement, the Escrow Stockholders
shall not be entitled to retain in their possession or control or use any cash
dividends paid on the Pledged Collateral, including any stock and/or liquidating
dividends, other distributions in property, return of capital or other
distributions made on or in respect of Pledged Shares, whether resulting from a
subdivision, combination or reclassification of outstanding securities which are
pledged hereunder or received in exchange for Pledged Collateral or any part
thereof or as a result of any merger, consolidation, acquisition or other
exchange of assets or on the liquidation, whether voluntary or involuntary, of
Opus360, or otherwise, such property being Pledged Collateral hereunder. If
either Escrow Stockholder shall receive any dividends or other property which he
is not entitled to receive under this Escrow Agreement, such Escrow Stockholder
shall hold the same in trust for Opus360, without commingling the same with
other funds or property of or held by such Escrow Stockholder, and shall
promptly deliver the same to the Escrow Agent upon receipt by him in the
identical form received, together with any necessary endorsements.
6
<PAGE>
5. Section CLAIMS.
(a) In the event an Opus360 Indemnified Party asserts a claim for
indemnification under the Merger Agreement, the Opus360 Indemnified Party shall
execute and deliver to the Escrow Agent and the Stockholders' Representative a
Claim Notice setting forth the factual basis for such claim and the amount of or
estimated amount of such claim (which estimate shall not be conclusive of the
final amount of such claim) and instructing the Escrow Agent to deliver, in
accordance with Section 6 below, that portion of the Pledged Collateral having a
value equal to the amount set forth in the Claim Notice (or, if the amount set
forth the Claim Notice shall be greater than the aggregate value of the Pledged
Collateral, the balance of the Pledged Collateral) to the Opus360 Indemnified
Party. An Opus360 Indemnified Party shall deliver to the Stockholders'
Representative a copy of each Claim Notice on or prior to the date of the
delivery thereof to the Escrow Agent. For purposes of this Escrow Agreement, the
liability of an Escrow Stockholder shall be on a several basis as provided in
Section 8.2(a) of the Merger Agreement to the full extent of the Escrow
Stockholder's proportionate ownership of the remaining Indemnification Escrow
Shares which in the case of Jonassen would be the remaining Jonassen Escrow
Shares and in the case of Behnam would be the remaining Behnam Escrow Shares
prior to any other remedy (including any request for indemnification in cash)
being pursued by an Opus360 Indemnified Party; PROVIDED, HOWEVER, nothing
contained herein shall limit any right of an Opus360 Indemnified Party to seek
or collect the deficiency. The Indemnification Escrow Shares shall be valued at
$13.67 for the purposes of satisfying any Losses (as defined in Section 8.7 of
the Merger Agreement), such per share amount subject to stock splits,
recombinations, reclassifications and the like.
(b) The Stockholders' Representative may object to any Claim Notice by
delivering to the Opus360 Indemnified Party (and to Opus360 if Opus 360 is not
the Opus360 Indemnified Party in such Claim Notice) and the Escrow Agent, within
the Notice Period (as defined in Section 8.4(a) of the Merger Agreement), a
written notice (an "OBJECTION NOTICE") stating that all or a portion of the
amount specified in such Claim Notice should not be released to the Opus360
Indemnified Party. The Stockholders' Representative and the Opus360 Indemnified
Party shall use commercially reasonable best efforts (as defined in Section 5.4
of the Merger Agreement) to resolve any and all disputes set forth in any
Objection Notice.
6. Section RELEASE OF PLEDGED COLLATERAL.
(a) The Escrow Agent shall release the Pledged Collateral as follows:
(i) promptly upon receipt of executed joint written
instructions, substantially in the form of EXHIBIT A hereto, executed
by the Opus360 Indemnified Party (and Opus360 if Opus360 is not the
Opus360 Indemnified Party in such Claim Notice) and acknowledged by the
Stockholders' Representative ("JOINT INSTRUCTIONS") in accordance with
and to the person(s) set forth in such Joint Instructions;
(ii) on the expiration of the Notice Period following the
receipt of a Claim Notice which is received by the Escrow Agent on or
prior to February 24, 2001 and which is not the subject of an Objection
Notice, to the Opus360 Indemnified Party in accordance with the Claim
Notice; or
7
<PAGE>
(iii) on March 14, 2001, the balance of the Pledged
Collateral, if any, which is not subject to an Unresolved Claim (as
defined below), if any, in accordance with and to the persons set forth
in written instructions provided by the Stockholders' Representative.
As used herein, "UNRESOLVED CLAIM" means the amount of a claim stated in a Claim
Notice or, following delivery of an Objection Notice, the disputed portion
thereof, which amount shall be deemed outstanding from the date such Claim
Notice or Objection Notice, as applicable, is given until the date such claim is
resolved in accordance with the terms of Section 6(b) below.
(b) In the event that the Escrow Agent receives an Objection Notice
from the Stockholders' Representative, that portion of the Pledged Collateral
having a value approximately equal to the Unresolved Claim (as set forth in such
Objection Notice) shall be held by the Escrow Agent in trust for the Opus360
Indemnified Party which filed such Claim Notice or the Escrow Stockholders, as
the case may be, until the occurrence of one of the following events:
(i) receipt by the Escrow Agent of executed Joint Instructions
instructing the Escrow Agent to release the disputed portion of the
Pledged Collateral to such party or parties and in such amount or
amounts as is specified in such Joint Instructions; or
(ii) receipt by the Escrow Agent of a written notice (a
"CERTIFIED JUDGMENT NOTICE"), substantially in the form of EXHIBIT B
hereto, from the Opus360 Indemnified Party or the Stockholders'
Representative certifying that a final, nonappealable court judgment or
settlement with respect to the claim covered by the Claim Notice is
attached to such Certified Judgment Notice, in which case the Escrow
Agent shall distribute the disputed portion of the Pledged Collateral
in accordance with such judgment on the tenth (10) day following the
receipt of any Certified Judgment Notice, unless prior to such date the
Escrow Agent receives a written notice (an "APPEAL NOTICE"),
substantially in the form of EXHIBIT C hereto, from the party not
submitting such Certified Judgment Notice, stating that the judgment
has or can and will be appealed under applicable law. A party
delivering a Certified Judgment Notice or an Appeal Notice shall
deliver to the other party hereto a copy thereof on or prior to the
date of delivery thereof to the Escrow Agent, and the Escrow Agent
shall use reasonable efforts also to deliver a copy of each Certified
Judgment Notice or Appeal Notice to the party which did not deliver the
same promptly after the Escrow Agent's receipt thereof (provided that
the failure of the Escrow Agent to make such delivery shall not affect
the obligation of the Escrow Agent to release funds pursuant to this
Section 6(b)). If the judgment is appealed, no release of the disputed
portion of the Pledged Collateral will be made until delivery of a
subsequent Certified Judgment Notice to the Escrow Agent, which notice
is not the subject of a subsequent Appeal Notice delivered in
accordance with this Section 6(b)(ii). The requirement of the posting
of any surety bond for appeal or other requirements for appeal,
including, but not limited to the production of a certified court
transcript, shall not be the basis for an extension of the ten (10) day
period to deliver to the Escrow Agent an Appeal Notice.
8
<PAGE>
(c) Any release of the Pledged Collateral to an Opus360 Indemnified
Party pursuant to this Section 6 shall be accompanied by a stock power in
respect of all securities to be forfeited, duly endorsed for transfer to such
Opus360 Indemnified Party.
7. Section TERMINATION.
This Escrow Agreement shall terminate upon the release by the Escrow
Agent of all of the Pledged Collateral in accordance with the terms of this
Escrow Agreement.
8. Section ESCROW AGENT.
(a) OBLIGATIONS.
(i) The sole obligations of the Escrow Agent are those
specifically provided in this Escrow Agreement and the Escrow Agent
shall have no liability under, or duty to inquire into, the terms and
provisions of any agreement between the parties hereto, including but
not limited to the Merger Agreement and the Restricted Stock Vesting
Agreements. The duties of the Escrow Agent are purely ministerial in
nature and the Escrow Agent shall not incur any liability whatsoever,
EXCEPT for its own willful misconduct or gross negligence.
(ii) The Escrow Agent shall not have any responsibility for
the genuineness or validity of any document or other item deposited
with it or of any signature thereon reasonably believed by the Escrow
Agent to be signed by the proper parties and shall not have any
liability for acting in accordance with any written instructions or
certificates given to it hereunder and reasonably believed by it to be
signed by the proper parties.
(b) RESIGNATION AND REMOVAL. The Escrow Agent may resign and be
discharged from its duties hereunder at any time by giving at least thirty (30)
days written notice of such resignation to Opus360 and the Stockholders'
Representative, specifying a date upon which such resignation shall take effect
which such date shall be at least thirty (30) days subsequent to the latest date
such written notice is provided to Opus360 and the Stockholders' Representative;
PROVIDED, HOWEVER, that the Escrow Agent shall continue to serve until its
successor accepts the Pledged Collateral and assumes all responsibilities as
escrow agent hereunder. Upon receipt of such written notice, a successor escrow
agent shall be appointed by Opus360 and such escrow agent shall be reasonably
acceptable to the Stockholders' Representative, such successor escrow agent to
become the escrow agent hereunder on the effective resignation date specified in
such written notice, subject to the proviso in the previous sentence. If an
instrument of acceptance by a successor escrow agent shall not have been
delivered to the resigning Escrow Agent within sixty (60) days after the giving
of such written notice of resignation, the resigning Escrow Agent may tender
into the registry or custody of any court of competent jurisdiction located in
the Borough of Manhattan, City of New York any part or all of the Pledged
Collateral and thereafter be relieved of its duties and obligations hereunder.
Opus360 may at any time substitute a new Escrow Agent which escrow agent shall
be reasonably satisfactory to the Stockholders' Representative by giving ten
(10) days written notice thereof to the existing Escrow Agent
9
<PAGE>
and paying all fees and expenses of such Escrow Agent incurred to the date of
the substitution.
(c) INDEMNIFICATION. The Escrow Stockholders shall hold the Escrow
Agent harmless from, and shall indemnify the Escrow Agent against, any loss,
liability, expense (including attorney's fees and expenses), claim or demand (a
"Loss") arising out of or in connection with the performance of its obligations
in accordance with the provisions of this Escrow Agreement or which are
attributable to any act or omission of the Escrow Stockholders or the
Stockholders' Representative, except for any of the foregoing arising out of the
gross negligence or willful misconduct of the Escrow Agent. Opus360 shall hold
the Escrow Agent harmless from, and indemnify the Escrow Agent against, any Loss
arising out of or in connection with the performance of its obligations in
accordance with the provisions of this Escrow Agreement and which are
attributable to any act or omission of Opus360 or any affiliate of Opus360,
except for any of the foregoing arising out of the gross negligence or willful
misconduct of the Escrow Agent. The Escrow Stockholders shall hold the
Stockholders' Representative harmless from, and shall indemnify the
Stockholder's Representative against, any Loss arising out of or in connection
with the performance of his obligations in accordance with the provisions of
this Escrow Agreement or which are attributable to any act or omission of the
Escrow Stockholders, except for any of the foregoing arising out of the gross
negligence or willful misconduct of the Stockholders' Representative. The
foregoing indemnities in this subsection (c) shall survive the resignation or
substitution of the Escrow Agent and shall terminate on the termination of this
Escrow Agreement in accordance with Section 7 hereof.
(d) FEES AND EXPENSES OF ESCROW AGENT. For its services hereunder, the
Escrow Agent shall be entitled to a fee of $2,500 per annum, pro rated for any
shorter period for which the Escrow Agent shall act hereunder, payable on a
monthly basis. No increase in the rate of any fee charged by the Escrow Agent
shall be valid hereunder unless previously approved in writing by Opus360. Such
fees shall be paid or satisfied by Opus360. In addition, the Escrow Agent shall
be reimbursed for all reasonable out-of-pocket expenses, reasonable
disbursements and reasonable advances (including, but not limited to postage,
courier, overnight mail insurance, money wire transfer, long distance telephone
charges, facsimile and travel expenses), and including reasonable attorneys'
fees and reasonable accounting fees, incurred by the Escrow Agent not in the
ordinary course of the Escrow Agent's business. The amount of such reimbursement
shall be paid or satisfied by Opus360; PROVIDED, HOWEVER, to the extent such
fees are attributable to a Claim Notice pursuant to Section 6 hereof in which an
Opus360 Indemnified Party ultimately prevails whether pursuant to a Certified
Judgment Notice, Joint Instructions or settlement, the amount of such fees shall
be paid by the Escrow Stockholders and Opus360 shall not be responsible or
liable for the payment or satisfaction of any such fees. The fees described in
this subsection (d) do not include extraordinary services which will be priced
according to the required time and scope of duties and shall be previously
approved in writing by Opus360. The fees described in this subsection (d) shall
be deemed earned in full upon receipt by the Escrow Agent, and no portion shall
be refundable for any reason, including without limitation, termination of this
Escrow Agreement.
(e) RELIANCE ON COUNSEL. The Escrow Agent may from time to time consult
with legal counsel of its own choosing in the event of any disagreement,
controversy, question or doubt as to the construction of any of the provisions
hereof or its duties hereunder, and it shall incur no liability and shall be
fully protected in acting in good faith in accordance with the opinion or
instructions of such counsel. Any such fees and expenses of
10
<PAGE>
such legal counsel shall be considered part of the fees and expenses of the
Escrow Agent described in subsection (d) above.
9. Section INVESTMENTS.
(a) Initially the Escrow Agent will invest all cash included in the
Pledged Collateral in commercial paper with maturities not to exceed ninety (90)
days given on the date of such investment a credit rating of at least P-1 by
Moody's Investors Service, Inc. or A-1 by the Standard & Poor's Corporation. The
Escrow Agent will invest the cash included in the Pledged Collateral in such
other Permitted Investments as directed by Opus360 from time to time pursuant to
written instructions signed by Opus360 and referencing the desired Permitted
Investments and the maturity date thereof. As used in this Agreement, "PERMITTED
INVESTMENTS" means any of the following:
(i) direct obligations of, or obligations fully guaranteed by,
the United States of America or any authorized agency thereof;
(ii) bonds, debentures, notes or other evidence of
indebtedness issued by any of the following agencies: Federal Farm
Credit System; Federal Home Loan Bank System; Export-Import Bank of the
United States; Federal National Mortgage Association; Government
National Mortgage Association; Federal Financing Bank; or any agency or
instrumentality of the Federal government which shall be established
for the purpose of acquiring the obligations of any of the foregoing or
otherwise providing financing therefor;
(iii) direct and general obligations of, or obligations
unconditionally guaranteed by, any state of the United States or
political subdivision of such state, but only if (A) such obligations
or guarantees are entitled to the full faith and credit of such state
or political subdivision of such state, respectively, and such
obligations provide that the state or political subdivision has the
obligation to repay, in full and on a timely basis, such obligations
and (B) at the time of their purchase under this Escrow Agreement, such
obligations are rated in any of the two highest rating categories by a
nationally recognized bond rating service selected by Opus360;
(iv) certificates of deposit, whether negotiable or
non-negotiable, of any bank, trust company or national banking
association, provided that such certificates of deposit shall be (A)
issued by a bank, trust company or national banking association having
capital stock and surplus of more than $500,000,000 or (B) fully
insured by the Federal Deposit Insurance Corporation or (C) fully and
continuously secured by direct obligations of, or obligations
unconditionally guaranteed by, the United States of America, which (1)
shall have a market value (exclusive of accrued interest) at all times
at least equal to the principal amount of such certificates of deposit,
(2) shall be lodged with the Escrow Agent (or any correspondent bank or
trust company designated by the Escrow Agent), as custodian, by the
bank, trust company or national banking association issuing such
certificate of deposit and (3) the bank, trust company or national
banking association issuing each certificate of deposit required to be
so secured shall furnish the Escrow Agent with an undertaking that the
aggregate market value of such
11
<PAGE>
obligations securing each such certificate of deposit will at all
times be an amount equal to the principal amount of each such
certificate of deposit (and the Escrow Agent shall be entitled to rely
on each such undertaking);
(v) a readily redeemable interest bearing "money market
account" sponsored by a bank described in clause (iv)(A) above and
having on the date of such investment total assets of at least
$1,000,000,000;
(vi) any repurchase agreement with any bank or trust company
organized under the laws of any state of the United States or any
national banking association or any government securities dealer which
is listed as reporting to the market statistics division of the Federal
Reserve Bank of New York secured by any one or more of the securities
described in clauses (i) or (ii) above;
(vii) readily marketable commercial paper of corporations
doing business in and incorporated under the laws of the United States
of America or any state thereof or of any corporation that is the
holding company for a bank described in clause (iv)(A) above given on
the date of such investment a credit rating of at least P-1 by Moody's
Investors Service, Inc. or A-1 by Standard & Poor's Corporation, in
each case due within ninety (90) days after the date of the making of
the investment; and
(viii) a readily redeemable "money market mutual fund"
sponsored by a bank described in clause (iv) (A) above, or a registered
broker or dealer described in clause (vi) above, that has and maintains
an investment policy limiting its investments primarily to instruments
of the types described in clauses (i) through (vii) above and having on
the date of such investment total assets of at least $1,000,000,000.
(b) Maturities or unexpired terms of maturities of instruments in which
the cash included in the Pledged Collateral shall be invested shall not exceed
ninety (90) days. The Escrow Agent is authorized to sell such investments as may
be required to make any payment under this Escrow Agreement (except the Pledged
Securities), and the Escrow Agent shall not be liable for any loss due to early
redemption. In the event that no such written instructions are given by Opus360
as to any uninvested portion of the cash included in the Pledged Collateral,
such portion shall be invested by the Escrow Agent in commercial paper for a
thirty (30) day period given on the date of such investment a credit rating of
at least P-1 by Moody's Investors Service, Inc. or A-1 by the Standard & Poor's
Corporation; PROVIDED, HOWEVER, that if such period is not available, such
portion shall be invested for the closest period of shorter duration.
12
<PAGE>
10. Section DISPUTES.
If any dispute should arise with respect to the payment or ownership or
right of possession of the Pledged Collateral, the Escrow Agent is authorized
and directed to retain in its possession, without liability to anyone, all or
any part of the Pledged Collateral until such dispute shall have been settled
either by mutual agreement of the parties concerned or by the final order,
decree or judgment of a court of competent jurisdiction in the Borough of
Manhattan, City of New York (the time for appeal having expired with no appeal
having been taken) in a proceeding to which Opus360 and one or more of the
Escrow Stockholders and/or the Stockholders' Representative are parties, but the
Escrow Agent shall be under no duty whatsoever to institute or defend any such
proceedings. Promptly after receipt of any such final order, decree or judgment,
Opus360 and the Stockholders' Representative shall deliver a copy thereof to the
Escrow Agent, together with instructions as to the release of the Pledge
Collateral in accordance with such final order, decree or judgement.
11. Section NOTICES.
All notices and other communications required hereunder or in
connection herewith shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally-recognized overnight
courier, by facsimile, or by registered or certified mail, return receipt
requested and postage prepaid, addressed as follows:
if to the Stockholder Representative, to:
Lee Miller
c/o Williams & Kilkowski
1900 Avenue of the Stars
25th Floor
Los Angeles, California 90067
Facsimile: (310) 282-8930
if to Opus360, to:
Opus360 Corporation Attention: Ari B. Horowitz, Chief
Executive Officer
733 Third Avenue, 17th Floor New York, New York 10017
Facsimile: (212) 301-2201
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Attention: Thomas H. Kennedy, Esquire
Four Times Square
New York, New York 10036
Facsimile: (917) 777-2526
13
<PAGE>
if to the Escrow Agent, to:
SunTrust Bank
Attention: Rebecca Fischer
Corporate Trust Division
25 Park Place
24th Floor
Atlanta, Georgia 30303-2900
Facsimile: (404) 588-7335
, or to such other address as the parties hereto to whom notice is to be given
may have previously furnished in writing to each of the other parties hereto.
Any such notice or communication shall be deemed to have been received (a) in
the case of personal delivery, on the date and at the time of such delivery, (b)
in the case of a nationally-recognized overnight courier, on the next business
day after the date when sent, (c) in the case of a facsimile transmission, when
a printed confirmation indicating a successful transmission is received by the
sender and (d) in the case of a mailing, on the third (3rd) business day (as
defined in Section 9.2(f) of the Merger Agreement) following that on which the
piece of mail containing such communication is posted.
12. Section COUNTERPARTS.
This Escrow Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that not all parties
need to sign the same counterpart.
13. Section GOVERNING LAW.
This Escrow Agreement shall 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 shall control the interpretation and
construction of this Escrow 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. It is the intention of the parties hereto
that the situs of the Pledged Collateral is and shall be administered in the
state in which the principal office of the Escrow Agent from time to time acting
hereunder is located.
14. Section ENFORCEMENT. The parties agree that irreparable damage would occur
and that the parties would not have any adequate remedy at law in the event that
any of the provisions of this Escrow Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Escrow Agreement and to enforce specifically the terms and
provisions of this Escrow Agreement in any federal court located in the Borough
of Manhattan, City of New York or any New York state court located in the
Borough of Manhattan, City of New York, this being in addition to any other
remedy to which they are entitled at law or in equity. In addition, each of the
parties hereto (a) consents to submit itself to the personal jurisdiction of any
federal court located in the Borough of Manhattan, City of New York or any event
any dispute arises out of this Escrow Agreement or any of the transactions
contemplated by this Escrow Agreement, (b) agrees that it shall not attempt to
deny or defeat such personal
14
<PAGE>
jurisdiction by motion or other request for leave from any such court and
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of venue of any such suit, action or proceeding
which is brought in any such court or that any such suit, action or proceeding
which is brought in any such court has been brought in an inconvenient forum and
(c) agrees that it shall not bring any action relating to this Escrow Agreement
or any of the transactions contemplated by this Escrow Agreement in any court
other than a federal court located in the Borough of Manhattan, City of New York
or any New York state court located in the Borough of Manhattan, City of New
York. Process, in any such suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the jurisdiction of any such
court. Without limiting the foregoing, each party agrees that service of process
on such party as provided in Section 11 hereof shall be deemed effective service
of process on such party.
15. Section BENEFITS OF AGREEMENT.
All the terms and provisions of this Escrow Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, including, without limitation, any Opus360 Indemnified
Party. Anything contained herein to the contrary notwithstanding, this Escrow
Agreement nor any of the rights, interests or obligations under this Escrow
Agreement shall be assigned, in whole or in part, by operation of law or
otherwise without the prior written consent of Opus360 in each instance.
16. Section MODIFICATION.
This Escrow Agreement shall not be altered or otherwise amended, except
pursuant to an instrument in writing signed by the Escrow Agent, Opus360 and the
Stockholders' Representative in each instance. The failure of any party to this
Escrow Agreement to assert any of its rights under this Escrow Agreement or
otherwise shall not constitute a waiver of such rights. The single instance of a
waiver by a party of its rights under this Escrow Agreement shall not be taken
nor construed as a continuing waiver of such rights and it is the intention of
the parties that all rights hereunder are specifically reserved.
17. Section HEADINGS.
The headings contained in this Escrow Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Escrow Agreement.
18. Section ENTIRE AGREEMENT.
This Escrow Agreement and the Merger Agreement, the Restricted Stock
Vesting Agreements and the Employment Agreements, as applicable, constitute the
entire agreement among other parties with respect to the subject matter hereof,
and supercede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
19. Section FURTHER ASSURANCES. From time to time after the date of this Escrow
Agreement, at the request of any party hereto and at the expense of such party,
the parties hereto shall execute and deliver to such requesting party such
documents and take such other action as such requesting party may reasonably
request in order to consummate more effectively the transactions contemplated by
this Escrow Agreement.
20. Section NO STRICT CONSTRUCTION. The language used in this Escrow Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rules of strict construction shall be applied against any
party.
15
<PAGE>
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be executed and delivered on the date first above written.
OPUS360 CORPORATION
By: /s/ Ari Horowitz
--------------------
Name: Ari Horowitz
Title:
SUNTRUST BANK
By: /s/ Rebecca Fischer
--------------------
Name: Rebecca Fischer
Title: Trust Officer
IN WITNESS WHEREOF, each of the Escrow Stockholders has duly set forth
his hand as of the date first above written. Each of the Escrow Stockholders
represents that he is authorized to enter into this Escrow Agreement and that
this Escrow Agreement is a valid, binding and enforceable obligation of such
Escrow Stockholder.
JAMES L. JONASSEN
/s/ James L. Jonassen
--------------------------------
ALI BEHNAM
/s/ Ali Behnam
--------------------------------
Acknowledged and Agreed:
/s/ Lee Williams
- ------------------------------------
Lee Williams, as Stockholder Representative
17
<PAGE>
POWER OF ATTORNEY
KNOWN BY ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below, constitutes and appoints Mark Yosowitz and Richard
McCann of Opus360 Corporation and Lee Williams as the Stockholders'
Representative, or any of them, acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for such person and in his name, place and stead, in any and all capacities, in
connection with the performance and obligations of each of the undersigned
pursuant to the Escrow Agreement and the transactions contemplated thereby
(including Article VIII of the Merger Agreement), including, without limiting
the generality of the foregoing, to execute stock powers, financing statements
and any other documents or instruments reasonably required to effect the
purposes and intent of the Escrow Agreement and to file the same, with all
exhibits thereto, and other documents in connection therewith with any Federal,
state, local or municipal agencies or departments as required thereby and
granting unto said attorney-in-fact and agent or any of them, acting alone, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done 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 he might or could do in person, thereby ratifying, confirming and
adopting all that said attorney-in-fact and agent or his or her substitute or
substitutes, may lawfully do or cause to done by virtue hereof.
JAMES L. JONASSEN
/s/ James L. Jonassen
--------------------------------
Date:
ALI BEHNAM
/s/ Ali Behnam
--------------------------------
Date:
18
<PAGE>
SCHEDULE I
NAMES AND SOCIAL SECURITY NUMBERS OF ESCROW STOCKHOLDERS
ESCROW STOCKHOLDER SOCIAL SECURITY NUMBER
James L. Jonassen ###-##-####
Ali Behnam ###-##-####
S_1
<PAGE>
EXHIBIT A
[Date]
SunTrust Bank
Attention: Rebecca Fischer
Corporate Trust Division
25 Park Place
24th Floor
Atlanta, Georgia 30303-2900
Re: JOINT INSTRUCTIONS FOR RELEASE OF PLEDGED COLLATERAL
Ladies and Gentlemen:
Reference is made to the Escrow Agreement, dated as of February __,
2000 (the "ESCROW AGREEMENT"), by and among Opus360 Corporation, the
Stockholders' Representative, you and the other parties thereto. Capitalized
terms used herein but not otherwise defined shall have the meanings ascribed to
them in the Escrow Agreement.
In accordance with Section 6(a)(i) of the Escrow Agreement, the
undersigned hereby instructs you to disburse from the Pledged Collateral to the
following persons the items set forth opposite their respective names:
NAMES ITEMS
- ------------------------ ------------------------
- ------------------------ ------------------------
OPUS360 CORPORATION INDEMNIFIED PARTY
By:_____________________________
Name:
Title:
Acknowledged and Agreed:
- ------------------------------------
Lee Williams, as Stockholder Representative
EA_1
<PAGE>
EXHIBIT B
[Date]
SunTrust Bank
Attention: Rebecca Fischer
Corporate Trust Division
25 Park Place
24th Floor
Atlanta, Georgia 30303-2900
Re: NOTICE OF CERTIFIED JUDGMENT
Ladies and Gentlemen:
Reference is made to the Escrow Agreement, dated as of February __,
2000 (the "ESCROW AGREEMENT"), by and among Opus360 Corporation, the
Stockholders' Representative, you and the other parties thereto. Capitalized
terms used herein but not otherwise defined shall have the meanings ascribed to
them in the Escrow Agreement.
In accordance with Section 6(b)(ii) of the Escrow Agreement, the
undersigned hereby instructs you to disburse from the Pledged Collateral to the
persons named in the final court judgment (a certified copy of which is attached
hereto) the amounts set forth therein.
OPUS360 CORPORATION INDEMNIFIED PARTY
By:______________________________
Name:
Title:
- - or-
---------------------------------
Lee Williams, as Stockholder Representative
EB_1
<PAGE>
EXHIBIT C
[Date]
SunTrust Bank
Attention: Rebecca Fischer
Corporate Trust Division
25 Park Place
24th Floor
Atlanta, Georgia 30303-2900
Re: NOTICE OF APPEAL
Ladies and Gentlemen:
Reference is made to the Escrow Agreement, dated as of February __,
2000 (the "ESCROW AGREEMENT"), by and among Opus360 Corporation, the
Stockholders' Representative, you and the other parties thereto. Capitalized
terms used herein but not otherwise defined shall have the meanings ascribed to
them in the Escrow Agreement.
In accordance with Section 6(b)(ii) of the Escrow Agreement, the
undersigned hereby instructs you not to disburse from the Pledged Collateral to
the persons named in the court judgment certified to you as final pursuant to a
notice dated ______________, _____ . This judgment has or can and will be
appealed under applicable law.
----------------------------------
Lee Williams, as Stockholder Representative
EC_1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
...........................Section 1. APPOINTMENT OF ESCROW AGENT..............................................3
...........................Section 2. DELIVERY OF INDEMNIFICATION ESCROW SHARES................................3
...........................Section 3. ESCROW...................................................................3
...........................Section 4. RIGHTS TO PLEDGED COLLATERAL.............................................7
...........................Section 5. CLAIMS...................................................................8
...........................Section 6. RELEASE OF PLEDGED COLLATERAL............................................9
...........................Section 7. TERMINATION.............................................................11
...........................Section 8. ESCROW AGENT............................................................11
...........................Section 9. INVESTMENTS.............................................................13
..........................Section 10. DISPUTES................................................................16
..........................Section 11. NOTICES.................................................................16
..........................Section 12. COUNTERPARTS............................................................18
..........................Section 13. GOVERNING LAW...........................................................18
..........................Section 14. ENFORCEMENT.............................................................18
..........................Section 15. BENEFITS OF AGREEMENT...................................................19
..........................Section 16. MODIFICATION............................................................19
..........................Section 17. HEADINGS................................................................20
..........................Section 18. ENTIRE AGREEMENT........................................................20
..........................Section 19. FURTHER ASSURANCES......................................................20
..........................Section 20. NO STRICT CONSTRUCTION..................................................20
</TABLE>
<PAGE>
SCHEDULES AND EXHIBITS
SCHEDULES
Schedule I - Names and Social Security Numbers of Escrow Stockholders
EXHIBITS
Exhibit A - Joint Instructions for Release of Pledged Collateral
Exhibit B - Notice of Certified Judgment
Exhibit C - Notice of Appeal
ii
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Exhibit 10.21
Automatic Data Processing
Miami Region
7007 North West 77th Avenue
Miami, Florida 33166-2898
305-882-7300
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Re: Company Code: SKK
Dear Client:
Welcome to ADP's Total Tax Filing Services. Your first payroll with Total Tax
Services scheduled to process with a paydate of 1/8/99 is quarter 1. The
current level of service you have chosen is:
|X| Deposit and File (ADP files and deposits for you)
|_| Deposit Only (ADP deposits only, you will be responsible for
annual filing)
Since ADP will now assume the responsibility of making your tax deposits
effective with the above date, please inform the appropriate personnel in your
company in order to avoid any duplicate deposits.
As a reminder, you will receive a STATISTICAL SUMMARY with each payroll
informing you of the total tax amount which will be withdrawn from your
specified bank account. The total tax amount which will be impounded is located
at the bottom of the column titled "IMPOUNDED". Any amounts appearing in the
column titled "MEMO" are taxes which will not be impounded since ADP is not
responsible for these items.
Adequate funds to cover the amount of taxes which will be impounded must be
available in your specified bank account 24 WORKING HOURS prior to that
particular payroll's paydate in order for taxes to be impounded and deposited
properly. This information is also stated on the back of your "Client Account
Agreement" should you need any further clarification. Should you have any
additional questions regarding these or any other issues, please feel free to
contact your Account Manager.
Total Tax is the most complete payroll tax filing services available in the
industry. It is the only service designed to not only deposit, reconcile, and
file your taxes, but to also help you manage the only tax rule you can directly
controls your SUI tax rate. Enclosed is a client booklet which outlines the
material provided to you by ADP's Total Tax Service. Please take some time to
read the booklet as it may answer many of your questions and save you time.
Also, please find some Total Tax Separation Forms whose use is explained in the
booklet. If you should ever have any questions regarding instances when claims
are filed, notices are received, or for any general questions regarding Total
Tax only, please feel free to call (800) 959-6246 to receive instructions.
Automatic Data
Attn: Total Tax
P.O. Box 6501
Diamond Bar, CA 91765-8501
Thank you!
Automatic Data Processing
<PAGE>
CLIENT ACCOUNT AGREEMENT AND AUTHRORIZATION TO DEBIT
CLIENT NAME: THE CHURCHILL BENEFIT CORPORATION DUNS #_________ BRANCH___________
ADDITIONAL APPLICABLE
CO CODE________________________ COMPANY CODES___________________________________
CLIENT agrees to one of the debit methods listed below for collection of (1)
payroll tax obligations related to ADP's Tax Filing Services, (2) the applicable
fees for ADP's services, (3) payroll obligations related to ADB's FSDD, ADPCheck
or TotalPay services, (4) Wage Garnishment deduction amounts related to ADP's
WGPS services, and/or (5) business tax deposit obligations related to ADP's
Electronic Business Tax Service. Such debits will be initiated by ADP, Inc.
("ADP") out of CLIENT's applicable account specified below (the "DDA Account")
at the financial institution specified below ("BANK").
DEBIT METHOD (CHECK APPLICABLE BOX): NOTE: THE REVERSE WIRE METHOD WILL BE
USED FOR AMOUNTS EXCEEDING $500,000,
EXCEPT THAT THE ACH METHOD WILL BE USED
TO COLLECT ALL SERVICE FEES.
|X| ACH or PRE-AUTHORIZED DRAFT Bank is authorized to charge the DDA
ACCOUNT in accordance with the ACH
provisions ons the back of this
Agreement.
|_| REVERSE WIRE ADP will initiate a request for a wire
transfer of funds from the DDA ACCOUNT in
accordance with the Reverse Wire
instructions on the back of this
Areement.
<TABLE>
<CAPTION>
BANK INFORMATION: ("FSDD & ADPCheck funds must be debited from a single account)
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------------
|_| Payroll Taxes |_| Fees for Services |_| FSDD |_| ADPCheck |X| Total Pay |_| WGPS |_| EBTS
|_| Other _________
- --------------------------------------------------------------------------------------------------------------------------------
Bank Transit/ABA #: 0212 02162 Bank Account (DDA) #:
- --------------------------------------------------------------------------------------------------------------------------------
Bank Name: Summit Bank Bank Contact:
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Bank Address: Bank Phone:
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
|_| Payroll Taxes |_| Fees for Services |_| FSDD |_| ADPCheck |_| Total Pay |_| WGPS |_| EBTS
|_| Other __________
- --------------------------------------------------------------------------------------------------------------------------------
Bank Transit/ABA #: Bank Account (DDA) #:
- --------------------------------------------------------------------------------------------------------------------------------
Bank Name: Bank Contact:
- --------------------------------------------------------------------------------------------------------------------------------
Bank Address: Bank Phone:
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
|_| Payroll Taxes |_| Fees for Services |_| FSDD |_| ADPCheck |_| Total Pay |_| WGPS |_| EBTS
|_| Other __________
- --------------------------------------------------------------------------------------------------------------------------------
Bank Transit/ABA #: Bank Account (DDA) #:
- --------------------------------------------------------------------------------------------------------------------------------
Bank Name: Bank Contact:
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Bank Address: Bank Phone:
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COMPLETE THIS SECTION ONLY IF FSDD, ADPCHECK, OR TOTALPAY IS INDICATED ABOVE:
Federal ID #
- --------------------------------------------------------------------------------------------------------------------------------
Has the Business or Principal/Owner ever declared bankuptcy? |_| Yes |X| No 22-2747692
-
- --------------------------------------------------------------------------------------------------------------------------------
FSDD Est. No. of Employees: 60 FSDD Est. $$ per Payroll: $50,000 FSDD Start Date:
- --------------------------------------------------------------------------------------------------------------------------------
ADPCheck Est. No. of Employees: 20 ADPCheck Est. $$ per Payroll: $40,000 ADPCheck Start Date:
- --------------------------------------------------------------------------------------------------------------------------------
NOTE: ENTER INFORMATION FOR BOTH FSDD AND ADPCHECK IF CLIENT IS TOTALPAY
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In consideration of BANK's compliance with this authorization, CLIENT agrees
that BANK's treatment of any charge, and the BANK's rights with respect thereto,
shall be the same as if the charge were initiated personally by CLIENT, and that
if any charge is dishonored, whether with or without cause, BANK shall be under
no liability whatsoever.
In the event of any conflict between the terms and conditions of this Agreement
and the terms and conditions of any Price Quotation, Sales Order, National
Account Agreement, or ADP Terms and Conditions attached to any proposal given to
CLIENT, this Agreement shall control.
This authorization shall remain in effect unless and until revoked in writing by
an authorized representaitve of CLIENT and until BANK and ADP have each received
such notice and have had reasonable time to act upon such notice.
CLIENT Signature________________________________ Date________________________
CLIENT Representative Name & Title______________________________________________
(Must be an authorized signatory on
the acounts listed above)
<PAGE>
LIMITED POWER OF ATTORNEY AND
TAX INFORMATION AUTHORIZATION
(in accordance with Internal Revenue Service Revenue Procedures)
<TABLE>
<CAPTION>
TAX FILING SERVICE
--------------------------------------------------
1. 2. 3.
COMPANY CODE BRANCH FEDERAL ID NUMBER
--------------------------------------------------
<S> <C> <C>
SKK 07 22-2747692
--------------------------------------------------
</TABLE>
4. TAXPAYER LEGAL NAME (Include spaces, ampersands, and hyphens. Do not enter
any other punctuation.):
CHURCHILL BENEFIT CORPORATION
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5. DBA NAME (Include spaces, ampersands, and hyphens. Do not enter any other
punctuation.):
- --------------------------------------------------------------------------------
ADP is hereby appointed Reporting Agent with the authority to sign and file
employment tax returns and make deposit electronically, on magnetic media, or on
paper, for the above stated taxpayer to Federal, State, and Local jurisdictions.
ADP is authorized as a designee of the taxpayer to receive notices,
correspondence, transcripts, deposit frequency data, or other information with
respect to employment tax returns filed and deposits made by the designee.
This authorization shall include the appropriate State and Local forms and the
following Federal forms, beginning with the tax period indicated and remaining
in effect through subsequent periods until the taxpayer or designee notifies IRS
that this authorization is terminated or revoked. If the taxpayer is required to
file a return electronically or to submit federal tax deposit data
electronically, ADP is required to file the return and submit the deposit data
electronically for the taxpayer. If the taxpayer is not required to file or
deposit electronically, ADP may file or make deposits on their behalf in one of
the filing methods indicated below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6. Forms 940 941 943 FTD
E = Electronic
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7. Filing Method E.M.P. E.M.P. E.M.P. E.M.
M = Magnetic Media
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8. Beginning Period (Tax Year) (Qtr/Yr) (Tax Year) (Qtr/Yr)
1997 1999 ________ ___/____ P = Paper
- ---------------------------------------------------------------------------------------
</TABLE>
9. FOR ADP USE ONLY: |X| PAYROLL/TAX FILING SERVICE
|X| ELECTRONIC BUSINESS TAX SERVICES
The Limited Power of Attorney and Tax Information Authorization revokes all
earlier tax filing powers of attorney and tax information authorizations on file
with respective taxing authorities with respect to the same tax matters and tax
periods covered hereby, but has no effect on any other Power of Attorney or
authorization.
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10. SIGNATURE OF TAXPAYER OR AUTHORIZED REPRESENTATIVE
I understand that this authorization does not absolve me as the
taxpayer of the responsibility to ensure that all returns are filed
and all taxes are paid on time. I authorize the taxing authorities
to disclose otherwise confidential tax information to ADP as
necessary to discuss or provide filing or account information
relating to employment tax returns filed or to be filed and/or
deposits made or to be made by ADP (including information relating to
any penalty resulting from such deposits) as well as deposit
requirements. I certify that I have the authority to authorize the
disclosure of otherwise confidential tax data on behalf of the
taxpayer.
William G. Bahr
--------------------------------------
Name (Required)
President
--------------------------------------
Title
/s/ William G. Bahr
--------------------------------------
Signature (Required)
11/19/98
--------------------------------------
Date (Required)
/s/ Jan Tomborn
--------------------------------------
Reporting Agent Signature
<PAGE>
POWER OF ATTORNEY
TO REPRESENT EMPLOYING UNIT IN ITS RELATIONS
WITH THE TEXAS WORKFORCE COMMISSION
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ATTORNEY IN FACT: 3. EMPLOYER'S TWC ACCT #: 06-666692-1
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1. TWC ACCT #: 019717992 4. EMPLOYER'S FED ID #: 22-2747692
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2. ADDRESS: P.O. BOX 6501 5. CONTACT NAME: R. Harris
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Diamond Bar, CA 91765-8501 6. CONTACT PHONE #: (561) 278-1351
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BY THIS INSTRUMENT, (7) THE CHURCHILL BENEFIT CORPORATION, an employing unit
which is a (8) CORPORATION, whose address is on (9) 100 EAST LINTON BLVD., SUITE
401A, DELRAY BEACH, FLORIDA 33483, appoints (10) ADP INC. its lawful attorney to
represent it in its relations with the Texas Workforce Commission, and
specifically authorizes said attorney to transact any and all business as
between grantor of said power and said Commission and to do any and all acts
necessary.
This Power of Attorney shall be in full force and effect until such time as a
Revocation of Power of Attorney form, Form C-43, revoking it is filed in the
offices of said Commission at Austin, Texas.
(11) /s/ R. Harris
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Signature and title, (owner, partner, or officer, etc.) of persons signing for
employing unit
(12) SUBSCRIBED AND SWORN to before me on this 12TH day of MARCH, 1999
(13) ____________________________________
(Signature of Notary)
(14) Notary Public, State of ____________
My Commission expires __________, 19___
NOTICE: This power of attorney should be executed in duplicate. Original to be
filed with the Texas Workforce Commission, Austin, Texas. Duplicate to be
retained by the employer for his files.
<PAGE>
Exhibit 10.22
EMPLOYMENT AGREEMENT
dated as of February 29, 2000 (the
"AGREEMENT"), between OPUS360
CORPORATION, a Delaware corporation
(the "COMPANY"), and ALLEN BERGER
(the "EMPLOYEE").
Prior to the date hereof, the Employee has been employed by
the Company. The Company and the Employee are entering into this Agreement to
set forth the terms of the Employee's continued employment with the Company.
In consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT.
The Company shall employ the Employee, and the Employee
accepts employment with the Company, upon the terms and conditions set forth in
this Agreement.
2. TERM.
The Employee's employment hereunder shall be for the period
(including any extensions thereof, the "EMPLOYMENT PERIOD") commencing on the
date of this Agreement (the "EFFECTIVE DATE") and terminating on the earlier of
(i) the 36-month anniversary of the Effective Date or (ii) the early termination
pursuant to SECTION 5 of the Employee's employment hereunder; PROVIDED, HOWEVER,
the Employment Period shall be extended automatically on each 12-month
anniversary of the Effective Date, beginning with the 36-month anniversary
thereof, in each case for an additional period of 12 months, unless the Company
or the Employee notifies the other party at least 30 days prior to any such
anniversary date of its or his election that the Employment Period not be so
extended. The final date of the actual term of the Employee's employment with
the Company hereunder is referred to as the "TERMINATION DATE."
3. POSITION, DUTIES AND RESPONSIBILITIES.
(a) During the Employment Period, the Employee shall serve as Senior
Vice President, Chief Marketing Office of the Company or in such other position
as shall be determined by the Board or the Chief Executive Officer or President
of the Company from time to time.
(b) During the Employment Period, the Employee will devote his full
time and best efforts to the business and affairs of the Company and its
Subsidiaries. The Employee shall use his best efforts to perform his duties and
responsibilities in a diligent, trustworthy and efficient manner.
(c) Notwithstanding anything contained in SECTION 3(b) to the
contrary, during the Employment Period, the Employee shall not be prohibited
from (i) serving as an officer, director, trustee or otherwise participating in
purely educational, welfare, social, charitable, religious and civic
organizations, or (ii) managing personal and family investments or serving as an
executor
<PAGE>
or trustee or in a similar fiduciary capacity, in each case to the extent such
activities (A) do not interfere or conflict in any material respect with the
performance of his duties and responsibilities hereunder and (B) are conducted
in accordance with the limitations of SECTION 10. Except with the prior written
approval of the Board (excluding the Employee if he should be a member of the
Board at the time of such determination), which the Board may grant or withhold
in its sole and absolute discretion, the Employee, during the Employment Period,
will not serve on the board of directors or similar body of any business entity
other than the Company or any Subsidiary thereof (other than with respect to any
directorship held by the Employee on or prior to the Effective Date, all of
which, if any, have been disclosed in writing by the Employee to the Company).
4. BASE SALARY, FRINGE BENEFITS AND OPTION.
(a) During the Employment Period, the Employee's base salary shall be
$150,000 per annum or such higher rate as the Board or its designee may specify
from time to time (the "BASE SALARY"). The Employee's Base Salary will be
payable in equal installments in accordance with the general policies of the
Company regarding compensation of senior executives of the Company. During the
Employment Period, in addition to the Base Salary, the Employee shall be
entitled to receive an annual bonus (the "BONUS") as determined by the Board or
its designee (in its sole discretion). In making its determination of the Bonus,
the Board or its designee may rely on the quality and level of the Employee's
performance in excess of the high level of reasonably achievable performance
which the Company requires of all of its employees at substantially the same
employment level as the Employee and the overall profitability and operating
condition of the Company, taking into account to what extent the Company has
achieved its financial and operating targets as specified by the Board in its
annual budgeting process.
(b) During the Employment Period, the Employee shall be eligible to
participate in all Company-sponsored employee benefit plans (the "EMPLOYEE
BENEFIT PLANS"), including all employee retirement income and welfare benefit,
pension, disability, group life, sickness or accident or health insurance
policies, plans, programs or arrangements, if any, that are generally available
to other employees of the Company at substantially the same employment level as
the Employee for their participation, subject to the terms and conditions of
such plans, as they may be amended from time to time (collectively, the
"EMPLOYEE BENEFITS").
(c) During the Employment Period, the Employee shall be entitled to
two weeks of vacation during each 12-month period worked, commencing on the
Effective Date. Such vacation shall be in accordance with the terms generally
applicable to other employees of the Company at substantially the same
employment level as the Employee, as in effect from time to time. The Employee
may take his vacation at such time or times as shall not interfere with the
performance of his duties under this Agreement. The Employee shall be entitled
to paid sick leave and holidays in accordance with the sick leave and holiday
policies as may be generally applicable to senior executives of the Company, as
in effect from time to time.
(d) The Company shall reimburse the Employee for all reasonable travel
and other business expenses incurred by him in the course of performing his
duties under this Agreement in accordance with the Company's policies and rules
in effect from time to time relating to the reimbursement of such expenses.
2
<PAGE>
(e) The Employee authorizes the Company to deduct from any amounts
payable to him hereunder such sums as may be required to be deducted or withheld
under the provisions of any federal, state or local law or regulation now in
effect or hereafter put into effect during the term of this Agreement,
including, without limitation, social security and income withholding taxes.
5. EARLY TERMINATION OF EMPLOYMENT.
(a) The early termination of the Employee's employment hereunder shall
result upon the first to occur of (i) the termination of such employment by the
Company, at any time, for Cause, without Cause or by reason of the Disability of
the Employee, (ii) the death of the Employee and (iii) the resignation of the
Employee from such employment, at any time, for Good Reason or without Good
Reason.
(b) For purposes of this Agreement, the term "CAUSE" means (i) the
gross negligence or willful misconduct by the Employee in the performance of his
duties, (ii) the commission by the Employee of any act of fraud, theft or
financial dishonesty with respect to the Company or any of its Subsidiaries or
if Employee is convicted of a felony, (iii) the material breach by the Employee
of this Agreement (including, but not limited to, any breach or threatened
breach by the Employee of the provisions of SECTIONS 7, 8, 9 or 10), (iv) the
willful disregard, or failure to follow written instructions from, the
President, Chief Operating Officer of the Company, the Board or any of their
designees, to perform any legal act relating to the business of the Company or
its Subsidiaries which would be commensurate with the usual and customary
duties, responsibilities and authority of Senior Vice President, Chief Marketing
Officer of the Company or such other position held by the Employee as may be
determined by the Board or the Chief Executive Officer or President of the
Company from time to time or otherwise consistent with such position, or (v) the
habitual failure of the Employee to perform his work in any material respect or
(vi) the repeated inexcusable absence from work of the Employee or the absence
of the Employee for a prolonged period of time (other than as a result of, or in
connection with, a disability or a legally protected leave). Before the
Employee's employment with the Company hereunder may be terminated by the
Company for Cause, the Employee shall have 10 days after written notice of such
basis for termination to cure such basis for termination; PROVIDED, HOWEVER, no
such right to cure shall exist if the basis for such termination is incurable or
if otherwise any of the acts referred to in CLAUSE (i) of the definition of
"CAUSE" have been committed by the Employee.
(c) Any determination as to whether the Employee is subject to a
Disability shall first be made by the Board (excluding the Employee if he should
be a member of the Board at the time of such determination) in its good faith
judgment; PROVIDED, HOWEVER, if any such determination is disputed by the
Employee, the matter shall be referred to a licensed physician practicing within
the Borough of New York in the State of New York or a 50-mile radius thereof and
selected by the Board and the Employee, and the determination of Disability made
by such physician shall be final and binding on both the Employee and the
Company. For purposes of this Agreement, the term "DISABILITY" means any
long-term disability or incapacity which renders, or would be reasonably
expected to render, the Employee unable to substantially perform his duties and
responsibilities hereunder for a cumulative total of 90 days during any 12-month
period.
3
<PAGE>
(d) For purposes of this Agreement, "GOOD REASON" means (i) a material
reduction in the Base Salary of the Employee as in effect on the Effective Date
or (ii) a material breach by the Company of this Agreement, which breach is
incurable or otherwise not cured within 10 days after written notice thereof by
the Employee to the Company, in each case without the prior written consent or
waiver of the Employee.
6. EFFECT OF TERMINATION.
(a) Upon the termination (x) pursuant to SECTION 2 of the Employee's
employment with the Company hereunder based on the election of the Company or
the Employee under SECTION 2 not to extend the Employment Period or (y) pursuant
to SECTION 5 of the Employee's employment with the Company hereunder either by
the Company with Cause or by reason of the Employee's resignation without Good
Reason, neither the Employee nor the Employee's Representatives shall have any
further rights under this Agreement or any claims against the Company arising
under this Agreement, except the right to receive, upon the Termination Date:
(i) the unpaid portion of the Base Salary provided for in SECTION
4(a), computed on a PRO RATA basis through the Termination Date;
(ii) reimbursement for any expenses for which the Employee shall
not have theretofore been reimbursed, as provided in SECTION 4(d); and
(iii) the unpaid portion of any amounts earned by the Employee
prior to the Termination Date pursuant to any Employee Benefit Plan in
which the Employee participated during the Employment Period
(PROVIDED, HOWEVER, that neither the Employee nor the Employee's
Representatives shall be entitled to receive any benefits under any
Employee Benefit Plan that have accrued during any period if the terms
of such Employee Benefit Plan require that the Employee be employed by
the Company or any Subsidiary thereof as of the end of such period).
(b) Upon the termination pursuant to SECTION 5 of the Employee's
employment with the Company hereunder either by the Company without Cause or by
reason of the Employee's resignation with Good Reason, neither the Employee nor
the Employee's Representatives shall have any further rights under this
Agreement or any claims against the Company arising under this Agreement, except
the right to receive the amounts described in CLAUSES (i) and (ii) below when
due thereunder and the right to the continued vesting and exercisability of
certain securities as described in CLAUSE (iii) below (subject to the additional
agreements set forth therein):
(i) upon the Termination Date, the payments, if any, referred to
in SECTION 6(a);
(ii) the Base Salary and the Employee Benefits, payable
periodically at the same intervals as if the Employment Period had not
ended and the Base Salary and the Employee Benefits otherwise
continued to be paid, up to (and including) the first one-year
anniversary of the Termination Date; PROVIDED, HOWEVER, that neither
the Employee nor the Employee's Representatives shall not be entitled
to receive any Employee Benefits under any Employee Benefit Plan at
any time after the Termination Date if the
4
<PAGE>
terms of such Employee Benefit Plan require that the Employee be
employed by the Company or any Subsidiary thereof as of such time; and
PROVIDED, FURTHER, HOWEVER, that (x) the Employee's right to continue
to receive the Base Salary and the Employee Benefits as specified in
this SECTION 6(b)(ii) shall be subject (1) to the Employee's continued
compliance with the provisions of SECTIONS 7, 8, 9 and 10 and (2) the
good faith efforts of the Employee to obtain replacement employment
during such 12-month period at a comparable salary, and (y) any salary
payments received by Employee from such replacement employment during
such 12-month period shall reduce, dollar for dollar, the amount of
the continued payments of the Base Salary.
(iii) notwithstanding anything to the contrary contained herein
or in any stock option agreement or other applicable agreement,
between the Company and the Employee, as amended, supplemented or
otherwise modified from time to time and in effect on the Termination
Date, that number of options for the purchase of Common Stock issued
by the Company that are subject to vesting and held by the Employee on
the Termination Date (but before giving effect to any applicable
forfeiture, repurchase or other similar rights arising on such date in
favor of the Company or any other Person) shall become vested and
exercisable as would have become vested and exercisable if the
Employee's employment continued until the first anniversary of the
Termination Date; PROVIDED, HOWEVER, that each option that becomes
exercisable as a result of this Section 6(b)(iii) or has previously
vested must be exercised within 90 days after the Termination Date or
otherwise expire.
(c) Upon the termination pursuant to SECTION 5 of the Employee's
employment with the Company hereunder either by the Company by reason of the
Disability of the Employee or by reason of the death of the Employee, neither
the Employee nor the Employee's Representatives shall have any further rights
under this Agreement or any claims against the Company arising under this
Agreement, except the right to receive the amounts described in CLAUSES (i) and
(ii) below when due thereunder:
(i) upon the Termination Date, the payments, if any, referred to
in SECTION 6(a); and
(ii) the Base Salary and the Employee Benefits, payable
periodically at the same intervals as if the Employment Period had not
ended and the Base Salary and the Employee Benefits otherwise
continued to be paid, up to (and including) the 3-month anniversary of
the Termination Date; PROVIDED, HOWEVER, that neither the Employee nor
the Employee's Representatives shall not be entitled to receive any
Employee Benefits under any Employee Benefit Plan at any time after
the Termination Date if the terms of such Employee Benefit Plan
require that the Employee be employed by the Company or any Subsidiary
thereof as of such time.
(d) Except to the extent requested by the Board, upon the Termination
Date, the Employee shall immediately resign all positions and directorships with
the Company and each Subsidiary thereof.
7. NONDISCLOSURE AND NONUSE OF CONFIDENTIAL INFORMATION.
5
<PAGE>
The Employee shall not, whether during or at any time after
the Employment Period, disclose or use (except to the extent required by an
order of a court having competent jurisdiction or otherwise under subpoena from
the appropriate government agency) any secret or confidential information
concerning the business, clients or affairs of the Company or any of its
Subsidiaries, or of any Person which the Company or any of its Subsidiaries is
under an obligation to keep secret or confidential (in each case, including, but
not limited to, trade secrets, customer lists, employment records, marketing
plans and related information, sales plans and related information, pricing
schedules, operating policies and manuals, business plans, financial records or
management methods, know-how or techniques) (the "CONFIDENTIAL INFORMATION"),
except to the extent such disclosure or use is directly related to and required
by the Employee's performance in good faith of his duties as an employee of the
Company during the Employment Period pursuant to the terms and conditions of
this Agreement. The Employee shall take all appropriate steps to safeguard the
Confidential information and protect the Confidential Information against
disclosure, misuse, loss and theft.
8. OWNERSHIP OF WORK PRODUCT AND BUSINESS OPPORTUNITIES.
The Employee acknowledges and agrees that, during the
Employment Period, (i) he may conceive of, discover, invent or create
inventions, improvements, technical information, methods and suggestions
relating to the actual or anticipated business or existing or future products or
services of the Company or any of its Subsidiaries (collectively, the
"INVENTIONS"), and (ii) various business opportunities relating to the actual or
anticipated business of the Company or any of its Subsidiaries may be presented
to him by reason of his employment by the Company (collectively, the "BUSINESS
OPPORTUNITIES"). The Employee acknowledges that all such Inventions, together
with all patent, trademark, service mark and copyright applications, patents,
trademarks, service marks and copyrights and reissues thereof that may at any
time be granted for or upon any of such Inventions, (collectively, the "WORK
PRODUCT") and all such Business Opportunities shall be owned by and belong
exclusively to the Company, and he shall have no personal interest therein,
regardless of whether conceived, discovered, invented, created or presented
during usual business hours or alone or in conjunction with any other Person.
The Employee shall (i) promptly disclose to the Board any such Work Product and
Business Opportunities, (ii) assign to the Company, upon the request of the
Company and without additional compensation (whether during or after the
Employment Period), the entire rights to such Work Product and Business
Opportunities, and (iii) perform all actions reasonably requested by the Company
(whether during or after the Employment Period) to establish, confirm and
protect such ownership in the Company (including, but not limited to, the
signing of assignments, consents, powers of attorney, applications and other
instruments and the giving of testimony in support of his conception, discovery,
invention or creation thereof). The Employee agrees he will not assert any
rights to any Work Product or Business Opportunity as having been conceived,
discovered, invented, created or obtained by him before the Effective Date
(whether during his prior period of employment with the Company or otherwise),
except for Work Product or Business Opportunities, if any, specifically
disclosed to and specifically acknowledged by the Company in writing before his
prior period of employment with the Company first began.
9. DELIVERY OF MATERIALS UPON TERMINATION OF EMPLOYMENT
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<PAGE>
The Employee shall deliver to the Company at the termination
of the Employment Period, or upon the request of the Company, at any time, all
memoranda, notes, plans, records, reports, computer tapes and software and other
documents and data (and copies thereof) relating to the Confidential
Information, Work Product, Business Opportunities or the business of the Company
or any of its Subsidiaries, which he may then possess or have under his control,
regardless of the location or form of such material and, if requested by the
Company, shall provide the Company with written confirmation that all such
materials have been delivered to the Company.
10. NONCOMPETITION; NONSOLICITATION.
(a) The Employee acknowledges he has received Confidential Information
of the Company and its Subsidiaries (including of their respective predecessors)
from time to time prior to the Effective Date in connection with, among other
things, his employment with the Company prior to the Effective Date and is
familiar with such Confidential Information. The Employee also acknowledges, in
the course of his employment with the Company or any of its Subsidiaries on or
after the Effective Date, he shall continue to receive and become familiar with
the Confidential Information (whether now existing or hereafter existing) of the
Company and its Subsidiaries. The Employee acknowledges that the Confidential
Information referred to in this SECTION 10(a) has been and shall be of special,
unique and extraordinary value to the Company and its Subsidiaries. In
consideration of the compensation and other benefits to be provided to the
Employee hereunder (including, but not limited to, the employment by the
Employee with the Company hereunder, the Base Salary, the Employee Benefits and
the Severance Payments), during the Employment Period and the Non-Compete
Period, the Employee shall not, directly or indirectly, own, manage, control,
participate in, be connected with, consult with, render services for, give or
lend funds to or otherwise finance, be employed by, have a financial or other
interest in, or in any manner engage in or represent any business which is
competing with any business of the Company or any Subsidiary thereof as such
business of the Company or such Subsidiary exists, or is in the process of being
formed or acquired, at any time from the date on which the Employee's employment
with the Company first began (whether on or before the Effective Date) up to
(and including) the Termination Date, within any Restricted Territory. Nothing
herein shall prohibit the Employee from being a passive owner of not more than
1% of the outstanding stock of any class of a corporation which is publicly
traded, so long as the Employee has no active participation in the business of
such corporation.
(b) During the Employment Period and the Non-Compete Period, the
Employee agrees that he shall not, individually, or as an agent, employee,
partner, principal, consultant, stockholder, director, officer, trustee, advisor
or in any other capacity, directly or indirectly, for himself or for any other
Person, (i) solicit or entice, or attempt to solicit or entice, any employee of,
consultant to, or independent contractor of the Company or any of its
Subsidiaries to terminate his or her employment, engagement or affiliation with
the Company or any of its Subsidiaries, or in any way interfere with the
relationship between the Company or any of its Subsidiaries, on the one hand,
and any employee of, consultant to, or independent contractor of the Company or
any of its Subsidiaries on the other hand (including making any negative
statements or comments about the Company or any of its Subsidiaries), (ii)
employ or retain any such employee, consultant, independent contractor during
his or her employment, engagement or affiliation with the Company or any of its
Subsidiaries or for a period of one year after such
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individual's employment, engagement or affiliation with the Company or any of
its Subsidiaries has terminated, or (iii) solicit or entice, or attempt to
solicit or entice, any customer or licensee of the Company or any of its
Subsidiaries (including any Person that has been contacted by, solicited by or
referred to the Company or any of its Subsidiaries for purposes of becoming any
of the foregoing) to cease doing business with, or otherwise reduce or terminate
its, his or her involvement with, the Company or any of its Subsidiaries.
(c) The Employee understands that the restrictions set forth in this
SECTION 10 may limit his ability to earn a livelihood in a business similar to
the business of the Company or any of its Subsidiaries, but the Employee
nevertheless believes that he has received and shall receive sufficient
consideration and other benefits as provided hereunder and pursuant to other
agreements to which he and the Company are parties, which in any event he does
not believe (given his education, skills and ability) would prevent him from
otherwise earning a living.
11. INSURANCE.
The Company shall have the right to secure, in its own name or
otherwise, its own life, disability, accident or other insurance covering the
Employee, and the Employee shall have no right, title or interest in or to such
insurance. The Employee shall cooperate with the Company and provide such
information or other assistance as the Company may reasonably request in
connection with the Company obtaining and maintaining such policies, including,
but not limited to, submitting to reasonable examinations and signing such
applications and other instruments as may be required by the insurance carriers
to which application is made for any such insurance.
12. CONFLICTS.
The Employee represents and warrants to the Company that he is
not a party to or bound by any employment contract, consultancy agreement,
non-competition agreement or any other agreement (written or oral) or other
arrangement which contains any restrictions or limitations on the ability of the
Employee to enter into and perform this Agreement or exercise all the powers,
functions, duties and responsibilities contemplated by this Agreement, and the
execution, delivery and performance of this Agreement by the Employee will not
result in a violation of or constitute a default under any contract, agreement
or other arrangement to which the Employee is a party or by which the Employee
is bound.
13. DEFINITIONS.
"BOARD" means the Board of Directors of the Company.
"BUSINESS DAY" means any day, other than a Saturday, Sunday or
a day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"GOVERNMENTAL ENTITY" means any government or political
subdivision or department thereof, any governmental or regulatory body,
commission, board, bureau, agency or instrumentality, or any court or arbitrator
or alternative dispute resolution body, in each case whether federal, state,
local or foreign.
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"NON-COMPETE PERIOD" means the period beginning on the
Termination Date and ending on the first anniversary of the Termination Date.
"PERSON" shall be construed as broadly as possible and shall
include an individual, a corporation, a company, an association, a joint stock
company, a partnership (including a limited liability partnership), a limited
liability company, a joint venture, a trust or an unincorporated organization
and a Governmental Entity.
"REPRESENTATIVES" means, with respect to the Employee, the
Employee's assigns, personal and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees, as determined from
time to time.
"RESTRICTED TERRITORY" means (i) any county in the State of
New York or Florida, (ii) any county in any other state in the continental
United States, (iii) Alaska and Hawaii, (iv) any other territory or possession
of the United States, (v) any province in Canada, and (vi) any country other
than the United States, Canada or any state, province, territory, possession or
political subdivision thereof.
"SUBSIDIARY" means, as to any Person, any other Person of
which more than 50% of the shares of the voting stock or other voting interests
are owned or controlled, or the ability to select or elect 50% or more of the
directors or similar managers is held, directly or indirectly, by such first
Person or one or more of its Subsidiaries.
14. POST-TERMINATION ASSISTANCE.
The Employee agrees that after his employment with the Company
has terminated he will provide, upon reasonable notice, such information and
assistance to the Company as may reasonably be requested by the Company in
connection with any third-party litigation to which the Company or any of its
Subsidiaries is or may become a party.
15. INDEMNIFICATION.
The Company shall indemnify, defend and hold harmless the
Employee (in his status as an officer, director and employee of the Company) in
respect of acts or omissions occurring on or after the Effective Date to the
fullest extent permitted or provided under the Company's Certificate of
Incorporation and Bylaws as in effect on the Effective Date.
16. NOTICES.
All notices, demands or other communications to be given or delivered
under or by reason of the provisions of this Agreement shall be in writing and
shall be deemed to have been given or made when (i) delivered personally to the
recipient, (ii) transmitted by facsimile or electronic mail (with hard copy sent
to the recipient by reputable overnight courier service (charges prepaid) that
same day and, in the latter case, with receipt acknowledged by the recipient by
return electronic mail) if faxed or e-mailed before 5:00 p.m. (New York, New
York time) on a Business Day, and otherwise on the next Business Day, (iii) two
Business Days after being sent to the recipient by reputable overnight courier
service (charges prepaid), or (iv) five Business Days after being sent to the
recipient by registered or certified mail (postage prepaid
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and return receipt requested). Such notices, demands and other communications
shall be sent to the address for such recipient as set forth below (or to such
other address or to the attention of such other person as the recipient party
has specified by like notice):
(i) if to the Company, to
Opus360 Corporation
733 Third Avenue, 17th Floor
New York, New York 10017
Attention: Secretary of the Company
Telephone: (212) 687-6787
Facsimile: (212) 301-2842
E-Mail:
with a copy (which shall not constitute notice) to:
Opus360 Corporation
733 Third Avenue, 17th Floor
New York, New York 10017
Attention: General Counsel
Telephone: (212) 687-6787
Facsimile: (212) 301-2842
E-Mail:
(ii) if to the Employee, to
Allen Berger
15 Fernwood Road, P.O. Box 171, Wainscott, NY 11975
Telephone: 516-537-2976
Facsimile: 516-537-2864
E-Mail: [email protected]
17. GENERAL PROVISIONS.
(a) SEVERABILITY/ENFORCEMENT.
(i) It is the desire and intent of the parties hereto 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.
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Without limiting the generality of the preceding sentence, if at the time
of enforcement of SECTIONS 7, 8, 9 or 10 of this Agreement, a court holds
that the restrictions stated therein are unreasonable under circumstances
then existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted
for the stated period, scope or area.
(ii) The Company and the Employee 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 to enforce or prevent any violations of the
provisions of this Agreement. Because the Employee's services are unique
and because the Employee has access to Confidential Information and Work
Product, the parties hereto agree that money damages would be an inadequate
remedy for any breach of this Agreement. Therefore, in the event of a
breach or threatened breach by the Employee of SECTIONS 7, 8, 9 or 10, the
Company or its successors or assigns may, in addition to any other rights
and remedies existing in their favor, apply to any court of competent
jurisdiction for specific performance and/or injunctive or other relief in
order to enforce, or prevent any violations of, such provisions (without
posting a bond or other security) or require the Employee to account for
and pay over to the Company all compensation, profits, moneys, accruals and
increments derived or received by him as a result of any transactions
constituting a breach of such provisions.
(iii) In addition to the foregoing, and not in any way in limitation
thereof, or in limitation of any right or remedy otherwise available to the
Company, if the Company shall determine that the Employee is in violation
of any provision of SECTIONS 7, 8, 9 or 10 of this Agreement (such
determination being made before any judgment or decision with respect to
such question shall be made by a court of competent jurisdiction), the
Company may withhold any severance payments then or thereafter due from the
Company to the Employee, until there shall be a final judgment or decision
by a court of competent jurisdiction that no such violation shall have
occurred, in which case (A) the Company shall pay to the Employee, within
five (5) Business Days after such judgment or decision, such amounts of
severance under this Agreement previously withheld from payment by the
Company, together with interest on such amounts withheld at a floating rate
per annum equal to the prime rate announced from time to time by the Wall
Street Journal as the prevailing "PRIME RATE" at U.S. money center banks,
and (B) the Company shall reimburse the Employee for his reasonable
attorneys fees and expenses incurred in connection with the issuance of
such judgment or decision within five (5) Business Days of the receipt by
the Company of reasonable supporting documentation therefor. If the
Employee is determined by a judgment or decision of a court of competent
jurisdiction to have violated any provision of SECTIONS 7, 8, 9 or 10 of
this Agreement, the Company's obligation to pay and the Employee's right to
receive any severance payments under this Agreement on or after the date on
which such violation shall have first occurred (whether already paid or
otherwise) shall terminate and be of no further force or effect, and,
within five (5) Business Days of any such judgment or decision, the
Employee shall return to the Company any such severance payments already
made by the Company.
(iv) The Employee's obligations under SECTIONS 7, 8, 9 or 10 shall not
be limited or affected by, and such provisions shall remain in full force
and effect
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notwithstanding, the termination of any severance payments by the Company
in accordance with SECTION 17(a)(iii). The exercise of by the Company of
its right to terminate such payments pursuant to SECTION 17(a)(iii) shall
not be deemed to be an election of remedies by the Company and shall not in
any manner modify, limit or preclude the Company from exercising any other
rights or seeking any other remedies available to it at law or in equity.
(b) COMPLETE AGREEMENT. This Agreement constitutes the sole and entire
agreement between the parties hereto with respect to the subject matter hereof
and thereof and supersede and preempt all prior or contemporaneous
understandings, agreements or representations by or between the Company and the
Employee, written or oral, which may have related to the subject matter hereof
or thereof in any way.
(c) RIGHT OF SET OFF. The Company is authorized, on or after the
termination of the Employment Period by the Company for Cause, to the fullest
extent permitted by law, to set off and apply any and all amounts at any time
payable by the Company to the Employee under this Agreement, against any and all
of the obligations of the Employee to the Company now or hereafter existing
under this Agreement or any other agreement or contract between the Employee on
the one hand and the Company or any of its Subsidiaries on the other hand.
(d) SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and
inure to the benefit of the Company, the Employee and each of their respective
successors, assigns, personal and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees, as applicable;
PROVIDED, HOWEVER, that neither this Agreement nor any rights or obligations
hereunder will be assignable or otherwise subject to hypothecation by the
Employee (except by will or by operation of the laws of intestate succession).
(e) GOVERNING LAW; CHOICE OF JURISDICTION AND VENUE. THE PROVISIONS OF
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO CONTRACTS ENTERED INTO AND FULLY PERFORMED
WITHIN THE STATE OF NEW YORK BY RESIDENTS OF THE STATE OF NEW YORK. WITH RESPECT
TO ANY LAWSUIT OR PROCEEDING BROUGHT WITH RESPECT TO THIS AGREEMENT, EACH OF THE
PARTIES HERETO IRREVOCABLY (I) SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK OR FEDERAL COURT OF THE UNITED STATES OF AMERICA
SITTING IN NEW YORK, (II) WAIVES ANY OBJECTION IT MAY HAVE AT ANY TIME TO THE
LAYING OF VENUE OF ANY PROCEEDING BROUGHT IN ANY SUCH COURT, (III) WAIVES ANY
CLAIM THAT SUCH PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, AND (IV)
FURTHER WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO SUCH PROCEEDINGS, THAT SUCH
COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY.
(f) WAIVER OF JURY TRIAL. Each of the parties hereto hereby
irrevocably waives all right to trial by jury in any action proceeding or
counterclaim arising out of or relating to this Agreement.
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(g) AMENDMENT AND WAIVER. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Company (upon the
written approval of the Board (excluding the Employee if he should be a member
of the Board at the time of such determination)) and the Employee, and no course
of conduct or failure or delay in enforcing the provisions of this Agreement
shall affect the validity, binding effect or enforceability of this Agreement or
any provision hereof.
(h) HEADINGS. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(i) COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
(j) BUSINESS DAYS. If any time period for giving notice or taking
action hereunder expires on a day which is not a Business Day, the time period
for giving notice or taking action shall be automatically extended to the
immediately following Business Day.
(k) SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements contained herein shall survive in
perpetuity the consummation of the transactions contemplated hereby.
(l) NOUNS AND PRONOUNS. Whenever the context may require, any pronouns
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns and pronouns shall include the plural and
vice-versa.
CONSTRUCTION. Where specific language (such as the word
"INCLUDING") 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 hereto to express their mutual intent, and no rule of strict
construction shall be applied against any party hereto. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.
* * * *
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IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement as of the date first written above.
OPUS360 CORPORATION
By: /s/ ARI HOROWITZ
-------------------------------
Name: Ari Horowitz
Title:
/s/ ALLEN BERGER
-----------------------------------
Allen Berger
<PAGE>
Exhibit 10.28
PEOPLEMOVER, INC.
1999 STOCK INCENTIVE PLAN
ARTICLE 1
GENERAL PURPOSE OF PLAN
The name of this plan is the PeopleMover, Inc. 1999 Stock Incentive
Plan (the "PLAN"). The purpose of the Plan is to enable PeopleMover, Inc., a
Delaware corporation (the "COMPANY"), and any Parent or any Subsidiary to obtain
and retain the services of the types of employees, consultants, officers and
Directors who will contribute to the Company's long range success and to provide
incentives which are linked directly to increases in share value which will
inure to the benefit of all shareholders of the Company.
ARTICLE 2
DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set
forth below:
"ADMINISTRATOR" shall have the meaning as set forth in ARTICLE 3.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor thereto.
"COMMITTEE" means a committee of the Board designated by the Board to
administer the Plan.
"COMPANY" means PeopleMover, Inc., a corporation organized under the
laws of the State of Delaware (or any successor corporation).
"DATE OF GRANT" means the date on which the Administrator adopts a
resolution expressly granting a Right to a Participant, or if a different date
is set forth in such resolution as the Date of Grant, then such date as is set
forth in such resolution.
"DIRECTOR" means a member of the Board.
"DISABILITY" means permanent and total disability as defined by the
Administrator.
"ELECTION" shall have the meaning set forth in SECTION 11.3(D).
"ELIGIBLE PERSON" means an employee, officer, consultant or Director of
the Company, any Parent or any Subsidiary.
<PAGE>
"FAIR MARKET VALUE" per share at any date means (i) if the Stock is
listed on an exchange or exchanges, or admitted for trading in a market system
which provides last sale data under Rule 11Aa3-1 of the General Rules and
Regulations of the Securities and Exchange Commission under the Securities and
Exchange Act of 1934, as amended (a "MARKET SYSTEM"), the last reported sales
price per share on the last business day prior to such date on the principal
exchange on which it is traded, or in such a Market System, as applicable, or if
no sale was made on such day on such principal exchange or in such a Market
System, as applicable, the last reported sales price per share on the most
recent day prior to such date on which a sale was reported on such exchange or
such Market System, as applicable; or (ii) if the Common Stock is not then
traded on an exchange or in such a Market System, the average of the closing bid
and asked prices per share for the Common Stock in the over-the-counter market
as quoted on NASDAQ on the day prior to such date; or (iii) if the Common Stock
is not listed on an exchange or quoted on NASDAQ, an amount determined in good
faith by the Administrator, based on a price at which one could reasonably
expect such stock to be sold in an arm's length transaction, for cash, other
than on an installment basis, to a person not employed by, controlled by, in
control of or under common control with the issuer of such stock.
"FIRST REFUSAL RIGHT" shall have the meaning set forth in SECTION
8.1(c) of the Plan.
"INCENTIVE STOCK OPTION" means a Stock Option intended to qualify as an
"incentive stock option" as that term is defined in Section 422 of the Code.
"NON-STATUTORY OPTION" means a Stock Option intended to not qualify as
an Incentive Stock Option.
"OFFEREE" means a Participant who is granted a Purchase Right pursuant
to the Plan.
"OPTIONEE" means a Participant who is granted a Stock Option pursuant
to the Plan.
"PARENT" means any present or future corporation which would be a
"parent corporation" as that term is defined in Section 424 of the Code.
"PARTICIPANT" means any Eligible Person selected by the Administrator,
pursuant to the Administrator's authority in ARTICLE 3, to receive grants of
Rights.
"PLAN" means this PeopleMover, Inc. 1999 Stock Incentive Plan, as the
same may be amended or supplemented from time to time.
"PURCHASE PRICE" shall have the meaning set forth in SECTION 7.2(b).
"PURCHASE RIGHT" means the right to purchase Stock granted pursuant to
ARTICLE 7.
"RIGHTS" means Stock Options and Purchase Rights.
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"REPURCHASE RIGHT" shall have the meaning set forth in SECTION 8.1(a)
of the Plan.
"RETIREMENT" means retirement from active employment with the Company
or any Parent or Subsidiary as defined by the Administrator.
"SECTION 16(B) PERSON" means a person subject to Section 16(b) of the
Exchange Act.
"SPECIAL TERMINATING EVENT" with respect to a Participant shall mean
the death, Disability or Retirement of that Participant.
"STOCK" means the Common Stock, no par value, of the Company.
"STOCK OPTION" means an option to purchase shares of Stock granted
pursuant to ARTICLE 6.
"STOCK OPTION AGREEMENT" shall have the meaning set forth in SECTION
6.2.
"STOCK PURCHASE AGREEMENT" shall have the meaning set forth in SECTION
7.2.
"SUBSIDIARY" means any present or future corporation which would be a
"subsidiary corporation" as that term is defined in Section 424 of the Code.
"TAX DATE" shall have the meaning set forth in SECTION 11.3(d) of the
Plan.
"TEN PERCENT SHAREHOLDER" means a person who on the Date of Grant owns,
either directly or through attribution as provided in Section 424(d) of the
Code, Stock possessing more than 10% of the total combined voting power of all
classes of stock of his or her employer corporation or of any Parent or
Subsidiary.
"WITHHOLDING RIGHT" shall have the meaning set forth in SECTION
10.3(c) of the Plan.
ARTICLE 3
ADMINISTRATION
SECTION 3.1 ADMINISTRATOR. The Plan shall be administered by either (i)
the Board; or (ii) the Committee (the group that administers the Plan is
referred to as the "ADMINISTRATOR").
SECTION 3.2 POWERS IN GENERAL. The Administrator shall have the power
and authority to grant to Eligible Persons, pursuant to the terms of the Plan:
(i) Stock Options; (ii) Purchase Rights; or (iii) any combination of the
foregoing.
SECTION 3.3 SPECIFIC POWERS. In particular, the Administrator shall
have the authority: (i) to construe and interpret the Plan and apply its
provisions; (ii) to promulgate, amend and rescind rules and regulations relating
to the administration of the Plan; (iii) to authorize any person to execute, on
behalf of the Company, any instrument required to carry out the purposes of the
Plan; (iv) to determine when Rights are to be granted under the Plan; (v) from
time to time
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to select, subject to the limitations set forth in this Plan, those Eligible
Persons to whom Rights shall be granted; (vi) to determine the number of shares
of Stock to be made subject to each Right; (vii) to prescribe the terms and
conditions of each Stock Option, including, without limitation, the exercise
price and medium of payment, to determine whether the Stock Option is to be an
Incentive Stock Option or a Non-Statutory Option and to specify the provisions
of the Stock Option agreement relating to such Stock Option; (viii) to prescribe
the terms and conditions of each Stock Option and Purchase Right, including,
without limitation, the purchase price and medium of payment, vesting provisions
and repurchase provisions, and to specify the provisions of the Stock Option
Agreement or Stock Purchase Agreement relating to such sale; (ix) to amend any
outstanding Rights for the purpose of modifying the time or manner of vesting,
the purchase price or exercise price, as the case may be, thereunder or
otherwise, subject to applicable legal restrictions and to the consent of the
other party to such agreement; (x) to determine when a consultant's relationship
with the Company is sufficient to constitute the equivalent of employment with
the Company for purposes of the Plan; (xi) to determine the duration and purpose
of leaves of absences which may be granted to a Participant without constituting
termination of their employment for purposes of the Plan; (xii) to make
decisions with respect to outstanding options that may become necessary upon a
change in corporate control or an event that triggers anti-dilution adjustments;
and (xiii) to make any and all other determinations which it determines to be
necessary or advisable for administration of the Plan.
SECTION 3.4 DECISIONS FINAL. All decisions made by the Administrator
pursuant to the provisions of the Plan shall be final and binding on the Company
and the Participants.
SECTION 3.5 THE COMMITTEE. The Board may, in its sole and absolute
discretion, from time to time delegate any or all of its duties and authority
with respect to the Plan to the Committee whose members are to be appointed by
and to serve at the pleasure of the Board. Once appointed, the Committee shall
continue to serve until otherwise directed by the Board. From time to time, the
Board may increase or decrease the size of the Committee, add additional members
to, remove members (with or without cause) from, appoint new members in
substitution therefor, and fill vacancies, however caused, in the Committee. The
Committee shall act pursuant to a vote of the majority of its members or, in the
case of a committee comprised of only two members, the unanimous consent of its
members, whether present or not, or by the written consent of the majority of
its members or, in the case of a Committee comprised of only two members, the
unanimous written consent of its members, and minutes shall be kept of all of
its meetings and copies thereof shall be provided to the Board. Subject to the
limitations prescribed by the Plan and the Board, the Committee may establish
and follow such rules and regulations for the conduct of its business as it may
determine to be advisable.
ARTICLE 4
STOCK SUBJECT TO PLAN
SECTION 4.1 STOCK SUBJECT TO THE PLAN. Subject to adjustment as
provided in ARTICLE 9, the total number of shares of Stock reserved and
available for issuance under the Plan shall be 3,407,500 shares. Shares reserved
hereunder may consist, in whole or in part, of authorized and unissued shares or
treasury shares.
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SECTION 4.2 UNEXERCISED RIGHTS; REACQUIRED SHARES. To the extent that
any Rights expire or are otherwise terminated without being exercised, the
shares underlying such Rights (and shares related thereto) shall again be
available for issuance in connection with future Rights under the Plan. Shares
acquired by the Company upon exercise of Rights pursuant to SECTION 6.2(e) or
SECTION 7.2(C) or SECTION 11.3 shall not increase the shares available for
issuance under the Plan.
ARTICLE 5
ELIGIBILITY
Directors, officers, employees and consultants of the Company, any
Parent or any Subsidiary, who are responsible for or contribute to the
management, growth or profitability of the business of the Company, any Parent
or any Subsidiary, shall be eligible to be granted Rights hereunder subject to
limitations set forth in this Plan; PROVIDED, HOWEVER, that only officers and
employees shall be eligible to be granted Incentive Stock Options hereunder.
ARTICLE 6
STOCK OPTIONS
SECTION 6.1 GENERAL. Stock Options may be granted alone or in addition
to other Rights granted under the Plan. Each Stock Option granted under the Plan
shall be in such form and under such terms and conditions as the Administrator
may from time to time approve; PROVIDED, that such terms and conditions are not
inconsistent with the Plan. The provisions of Stock Option Agreements entered
into under the Plan need not be identical. Stock Options granted under the Plan
may be either Incentive Stock Options or Non-Statutory Options.
SECTION 6.2 TERMS AND CONDITIONS OF STOCK OPTIONS. Each Stock Option
granted pursuant to the Plan shall be evidenced by a written option agreement
between the Company and the Optionee (the "STOCK OPTION Agreement"), which shall
comply with and be subject to the following terms and conditions:
(a) NUMBER OF SHARES. Each Stock Option Agreement shall state
the number of shares of Stock to which the Stock Option relates.
(b) TYPE OF OPTION. Each Stock Option Agreement shall identify
the portion (if any) of the Stock Option which constitutes an Incentive Stock
Option.
(c) EXERCISE PRICE. Each Stock Option Agreement shall state
the price at which shares subject to the Stock Option may be purchased (the
"EXERCISE PRICE"), which shall with respect to Incentive Stock Options be not
less than 100% of the Fair Market Value of the shares of Stock on the Date of
Grant. In the case of Non-Statutory Options, the Exercise Price shall be
determined in the sole discretion of the Administrator; PROVIDED, HOWEVER, that
the Exercise Price shall be no less than 85% of the Fair Market Value of the
shares of Stock on the Date of Grant of the Non-Statutory Option. In the case of
either an Incentive Stock Option or a Non-Statutory
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Option granted to a Ten Percent Shareholder, the Exercise Price shall not be
less than 110% of such Fair Market Value.
(d) VALUE OF SHARES. The Fair Market Value of the shares of
Stock (determined as of the Date of Grant) with respect to which Incentive Stock
Options are first exercisable by an Option Holder under this Plan and all other
incentive option plans of the Company and any Parent or Subsidiary in any
calendar year shall not, for such year, in the aggregate, exceed $100,000; but
this SECTION 6.2(d) shall not affect the right of the Administrator to
accelerate or otherwise alter the time of vesting of any Options granted as
Incentive Stock Options, even, if as a result thereof, some of such Options
cease being Incentive Stock Options.
(e) MEDIUM AND TIME OF PAYMENT. The Exercise Price shall be
paid in full, at the time of exercise, in cash or cash equivalents or, with the
approval of the Administrator, in shares of Stock which have been held by the
Optionee for a period of at least six calendar months preceding the date of
surrender and which have a Fair Market Value equal to the Exercise Price, or in
a combination of cash and such shares, and may be effected in whole or in part
(i) with monies received from the Company at the time of exercise as a
compensatory cash payment; or (ii) to the extent that the Exercise Price exceeds
the par value of the shares so purchased, with monies borrowed from the Company
in accordance with SECTION 11.5.
(f) TERM AND EXERCISE OF STOCK OPTIONS. Stock Options shall be
exercisable over the exercise period at the times the Administrator may
determine, as reflected in the related Stock Option Agreements. The
Administrator shall have discretion as to the schedule pursuant to which the
Stock Option is initially exercisable. The exercise period of any Stock Option
shall be determined by the Administrator, but shall not exceed ten years from
the Date of Grant of the Stock Option. In the case of an Incentive Stock Option
granted to a Ten Percent Shareholder, the exercise period shall be determined by
the Administrator, but shall not exceed five years from the Date of Grant of the
Stock Option. The exercise period shall be subject to earlier termination upon
the occurrence of either a Special Terminating Event, as provided in SECTION
11.6, or the Termination of Employment, as provided in SECTION 11.7. A Stock
Option may be exercised, as to any or all full shares of Stock as to which the
Stock Option has become exercisable, by giving written notice of such exercise
to the Company.
ARTICLE 7
PURCHASE RIGHTS
SECTION 7.1 GENERAL. Purchase Rights may be granted alone or in
addition to other Rights under the Plan. Each sale of Stock under this ARTICLE 7
shall be in such form and under such terms and conditions as the Administrator
shall from time to time approve; PROVIDED, that such terms and conditions are
not inconsistent with the Plan. The provisions of Stock Purchase Agreements
entered into under the Plan need not be identical.
SECTION 7.2 TERMS AND CONDITIONS OF PURCHASE RIGHTS. Each Purchase
Right granted pursuant to the Plan shall be evidenced by a written stock
purchase agreement between the
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Company and the Offeree (the "STOCK PURCHASE AGREEMENT"), which shall comply
with and be subject to the following terms and conditions:
(a) NUMBER OF SHARES. Each Stock Purchase Agreement shall
state the number of shares of Stock which may be purchased pursuant to such
agreement.
(b) PURCHASE PRICE. Each Stock Purchase Agreement shall state
the price at which the Stock subject to such Stock Purchase Agreement may be
purchased (the "PURCHASE PRICE"), which, with respect to Stock Purchase Rights,
shall be determined in the sole discretion of the Administrator; PROVIDED,
HOWEVER, that the Purchase Price shall be no less than 85% of the Fair Market
Value of the shares of Stock on either the Date of Grant or the Date of Purchase
of the Purchase Right. In the case of a Purchase Right granted to a Ten Percent
Shareholder, the Purchase Price shall not be less than 110% of the Fair Market
Value of the shares of Stock on either the Date of Grant or the Date of Purchase
of the Purchase Right.
(c) MEDIUM AND TIME OF PAYMENT. The Purchase Price shall be
paid in full, at the time of exercise, in cash or cash equivalent or, with the
approval of the Administrator, in shares of Stock which have been held by the
Offeree for a period of at least six calendar months preceding the date of
surrender and which have a Fair Market Value equal to the Purchase Price or in a
combination of cash or cash equivalent and such shares, and may be effected in
whole or in part (i) with monies received from the Company at the time of
exercise as a compensatory cash payment; or (ii) to the extent the purchase
price exceeds the par value of the shares so purchased, with monies borrowed
from the Company in accordance with SECTION 11.5 of the Plan.
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ARTICLE 8
REACQUISITION OF STOCK OPTIONS,
PURCHASE RIGHTS AND STOCK;
MARKET STAND-OFF
SECTION 8.1 REPURCHASE RIGHTS; RIGHT OF FIRST REFUSAL.
(a) STOCK OPTION REPURCHASE RIGHTS. Each Stock Option
Agreement shall provide that the Company, following a Special Terminating
Event or a Terminating Event, shall have the right to repurchase (the
"REPURCHASE RIGHT") all or any portion of the Stock purchased by the Optionee
upon the exercise of the Optionee's Stock Option, as well as any Stock
issuable upon exercise of any unexercised Stock Options which the Optionee
has the right to exercise at the time of such Special Terminating Event or
Terminating Event. Following the occurrence of a Terminating Event (which
does not result from the Company's termination of Optionee's employment "for
cause") or a Special Terminating Event, the Repurchase Right shall be
exercisable at a price equal to the Fair Market Value of such Shares or, in
the case of unexercised options, the Fair Market Value of the Shares
underlying such unexercised options less the exercise price which would be
payable upon the exercise of such unexercised options. Following the
occurrence of a Terminating Event which does result from the Company's
termination of Optionee's employment "for cause," the Repurchase Right shall
be exercisable as to all or any portion of the Shares purchased by Optionee
upon the exercise of the Option, as well as any unexercised Options which
Optionee has the right to exercise at the time of termination, at a price
equal to the initial exercise price of such Shares or, in the case of
unexercised options, the initial exercise price of the Shares underlying such
unexercised options less the exercise price which would be payable upon the
exercise of such unexercised options. Fair Market Value shall be determined
by the Administrator on the basis of the definition of Fair Market Value set
forth in ARTICLE 2 of the Plan. To the extent that the Repurchase Right is
exercisable at the initial exercise price of the Shares or the Shares
underlying unexercised options, the exercise price shall become Fair Market
Value as to 20% of such Shares which were originally subject to this Option
Agreement on each of the first five anniversaries of the date of this Option
Agreement.
(b) STOCK PURCHASE AGREEMENT REPURCHASE RIGHTS. Each Stock
Purchase Agreement shall provide that the Company, following a Special
Terminating Event or a Terminating Event, shall have a Repurchase Right (x) with
respect to all of the Stock purchased under the Stock Purchase Agreement which
is unvested at the time of such Special Terminating Event or Terminating Event,
and (y) with respect to all or any portion of the stock purchased under the
Stock Purchase Agreement which is vested at the time of the Special Terminating
Event or Terminating Event. Following the occurrence of a Terminating Event
(which does not result from the Company's termination of Optionee's employment
"for cause") or a Special Terminating Event, the Repurchase Right shall be
exercisable at a price equal to the Fair Market Value of such Shares or, in the
case of unexercised options, the Fair Market Value of the Shares underlying such
unexercised options less the exercise price which would be payable upon the
exercise of such unexercised options. Following the occurrence of a Terminating
Event which does result from the Company's termination of Optionee's employment
"for cause," the Repurchase Right shall be exercisable as to all or any portion
of the Shares purchased by Optionee upon the exercise of the Option, as well as
any unexercised Options which Optionee has the right to exercise at the time of
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termination, at a price equal to the initial exercise price of such Shares or,
in the case of unexercised options, the initial exercise price of the Shares
underlying such unexercised options less the exercise price which would be
payable upon the exercise of such unexercised options. Fair Market Value shall
be determined by the Administrator on the basis of the definition of Fair Market
Value set forth in ARTICLE 2 of the Plan. To the extent that the Repurchase
Right is exercisable at the initial exercise price of the Shares or the Shares
underlying unexercised options, the exercise price shall become Fair Market
Value as to 20% of such Shares which were originally subject to this Option
Agreement on each of the first five anniversaries of the date of this Option
Agreement.
(c) FIRST REFUSAL RIGHT. Each Stock Option Agreement and Stock
Purchase Agreement shall provide that the Company shall have the right of first
refusal (the "FIRST REFUSAL RIGHT"), exercisable in connection with any proposed
sale, hypothecation or other disposition of the Stock purchased by the Optionee
or Offeree pursuant to a Stock Option Agreement or Stock Purchase Agreement; and
in the event the holder of such shares desires to accept a bona fide third-party
offer for any or all of such shares, the Stock shall first be offered to the
Company upon the same terms and conditions as are set forth in the bona fide
offer.
(d) TERMINATION OF REPURCHASE AND FIRST REFUSAL RIGHTS. Each
Stock Option Agreement and Stock Purchase Agreement may provide, at the
Administrator's discretion, that the Repurchase Rights and First Refusal Rights
shall lapse and cease to have effect upon any of the following: (1) the first
date on which the Company's Stock is held of record by more than five hundred
(500) persons, (2) a determination by the Company's Board of Directors that a
public market exists for the outstanding shares of the Stock or (3) a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of the Company's Common Stock in the aggregate amount of at least
$15,000,000.
SECTION 8.2 MARKET STAND-OFF.
Each Stock Option Agreement and Stock Purchase Agreement shall
provide that, in connection with any underwritten public offering by the Company
of its equity securities pursuant to an effective registration statement filed
under the Securities Act of 1933, as amended, including the Company's initial
public offering, the Participant shall agree not to sell, make any short sale
of, loan, hypothecate, pledge, grant any option for the repurchase of, or
otherwise dispose or transfer for value or otherwise agree to engage in any of
the foregoing transactions with respect to any Stock without the prior written
consent of the Company or its underwriters, for such period of time from and
after the effective date of such registration statement as may be requested by
the Company or such underwriters (the "MARKET STAND-OFF"); provided, however,
that in no event shall such period exceed one hundred-eighty (180) days.
ARTICLE 9
ADJUSTMENTS
SECTION 9.1 EFFECT OF CERTAIN CHANGES.
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(a) STOCK DIVIDENDS, SPLITS, ETC.. If there is any change in
the number of outstanding shares of Stock through the declaration of Stock
dividends or through a recapitalization resulting in Stock splits, or
combinations or exchanges of the outstanding shares, (i) the number of shares of
Stock available for Rights, (ii) the number of shares covered by outstanding
Rights and (iii) the Exercise Price or Purchase Price of any Stock Option or
Purchase Right, in effect prior to such change, shall be proportionately
adjusted by the Administrator to reflect any increase or decrease in the number
of issued shares of Stock; PROVIDED, HOWEVER, that any fractional shares
resulting from the adjustment shall be eliminated.
(b) LIQUIDATION, DISSOLUTION, MERGER OR CONSOLIDATION. In the
event of: (i) a dissolution or liquidation of the Company, or any corporate
separation or division, including, but not limited to, a split-up, a split-off
or a spin-off, or a sale of substantially all of the assets of the Company; (ii)
a merger or consolidation in which the Company is not the surviving corporation;
or (iii) a reverse merger in which the Company is the surviving corporation, but
the shares of Stock outstanding immediately preceding the merger are converted
by virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then, at the sole discretion of the Administrator, and to the
extent permitted by applicable law: (i) any surviving corporation shall assume
any Rights outstanding under the Plan, or shall substitute similar Rights for
those outstanding under the Plan, or (ii) such Rights shall continue in full
force and effect; or (iii) such Rights, to the extent not then exercisable,
shall terminate and expire; PROVIDED, HOWEVER, that not less than thirty days
written notice of any such event shall be given to each Rights holder and if
such notice is given, each Rights holder shall have the right, during the thirty
days preceding such event, to exercise the Right as to all or any part of the
shares of Stock covered thereby as to which such Right is then exercisable, on
the condition, however, that such event actually occurs; and if such event
actually occurs, such exercise shall be deemed effective (and, if applicable,
the Rights holder shall be deemed a shareholder with respect to the Rights
exercised) immediately preceding the occurrence of such event, or the date of
record for shareholders entitled to share in such event, if a record date is
set.
(c) WHERE COMPANY SURVIVES. SECTION 9.1(b) shall not apply to a merger
or consolidation in which the Company is the surviving corporation, unless
shares of Stock are converted into or exchanged for securities other than
publicly-traded common stock, cash (excluding cash in payment for fractional
shares) or any other thing of value. Notwithstanding the preceding sentence, in
case of any consolidation or merger of another corporation into the Company in
which the Company is the surviving corporation and in which there is a
reclassification or change (including a change to the right to receive an amount
of money payable by cash or cash equivalent or other property) of the shares of
Stock (other than a change in par value, or from par value to no par value, or
as a result of a subdivision or combination, but including any change in such
shares into two or more classes or series of shares), the Administrator may
provide that the holder of each Right then exercisable shall have the right to
exercise such Right solely for the kind and amount of shares of Stock and other
securities (including those of any new direct or indirect Parent of the
Company), property, cash or any combination thereof receivable upon such
reclassification change, consolidation or merger by the holder of the number of
shares of Stock for which such Right might have been exercised.
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(d) SURVIVING CORPORATION DEFINED. The determination as to
which party to a merger or consolidation is the "SURVIVING CORPORATION" shall be
made on the basis of the relative equity interests of the shareholders in the
corporation existing after the merger or consolidation, as follows: if
immediately following any merger or consolidation the holders of outstanding
voting securities of the Company immediately prior to the merger or
consolidation own equity securities possessing more than 50% of the voting power
of the corporation existing following the merger or consolidation, then for
purposes of this Plan, the Company shall be the surviving corporation. In all
other cases, the Company shall not be the surviving corporation. In making the
determination of ownership by the shareholders of a corporation immediately
after the merger or consolidation, of equity securities pursuant to this SECTION
9.1(d), equity securities which the shareholders owned immediately before the
merger or consolidation as shareholders of another party to the transaction
shall be disregarded. Further, for purposes of this SECTION 9.1(d) only,
outstanding voting securities of a corporation shall be calculated by assuming
the conversion of all equity securities convertible (immediately or at some
future time) into shares entitled to vote.
(e) PAR VALUE CHANGES. In the event of a change in the Stock
of the Company as presently constituted which is limited to a change of all of
its authorized shares with par value, into the same number of shares without par
value, or a change in the par value, the shares resulting from any such change
shall be "Stock" within the meaning of the Plan.
SECTION 9.2 DECISION OF ADMINISTRATOR FINAL. To the extent that the
foregoing adjustments relate to stock or securities of the Company, such
adjustments shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive; PROVIDED, HOWEVER, that each
Incentive Stock Option granted pursuant to the Plan shall not be adjusted
without the prior consent of the Holder thereof in a manner that causes such
Stock Option to fail to continue to qualify as an Incentive Stock Option.
SECTION 9.3 NO OTHER RIGHTS. Except as hereinbefore expressly provided
in this ARTICLE 9, no Rights holder shall have any rights by reason of any
subdivision or consolidation of shares of Stock or the payment of any dividend
or any other increase or decrease in the number of shares of Stock of any class
or by reason of any of the events described in SECTION 9.1, above, or any other
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class; and except as provided in this ARTICLE 8,
none of the foregoing events shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Stock subject to
Rights. The grant of a Right pursuant to the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structures or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or part of its
business or assets.
SECTION 9.4 NO RIGHTS AS SHAREHOLDER. Except as specifically provided
in this ARTICLE 9, a Rights holder or a transferee of a Right shall have no
rights as a shareholder with respect to any shares covered by the Rights until
the date of the issuance of a Stock certificate to him or her for such shares,
and no adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions of other rights
for which the record date is prior to the date such Stock certificate is issued,
except as provided in SECTION 9.1(b).
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SECTION 9.5 TERM OF EMPLOYMENT UNAFFECTED. The receipt of an option
does not give the optionee any right to continued employment by the Company or a
subsidiary for any period, nor shall the granting of the option or the issuance
of the shares on exercise thereof give the Company or any subsidiary any right
to the continued services of the optionee for any period.
ARTICLE 10
AMENDMENT AND TERMINATION
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of a
Participant under any Right theretofore granted without such Participant's
consent, or which without the approval of the shareholders would:
(a) except as provided in ARTICLE 9, materially increase the
total number of shares of Stock reserved for the purposes of the Plan;
(b) materially increase the benefits accruing to Participants
or Eligible Persons under the Plan; or
(c) materially modify the requirements for eligibility under
the Plan.
The Administrator may amend the terms of any award theretofore granted,
prospectively or retroactively, but, subject to ARTICLE 3, no such amendment
shall impair the rights of any holder without his or her consent.
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ARTICLE 11
GENERAL PROVISIONS
SECTION 11.1 GENERAL RESTRICTIONS.
(a) NO VIEW TO DISTRIBUTE. The Administrator may require each
person acquiring shares of Stock pursuant to the Plan to represent to and agree
with the Company in writing that such person is acquiring the shares without a
view towards distribution thereof. The certificates for such shares may include
any legend which the Administrator deems appropriate to reflect any restrictions
on transfer.
(b) LEGENDS. All certificates for shares of Stock delivered
under the Plan shall be subject to such stop transfer orders and other
restrictions as the Administrator may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange Commission,
any stock exchange upon which the Stock is then listed and any applicable
federal or state securities laws, and the Administrator may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
SECTION 11.2 OTHER COMPENSATION ARRANGEMENTS. Nothing contained in this
Plan shall prevent the Board from adopting other or additional compensation
arrangements, subject to shareholder approval if such approval is required; and
such arrangements may be either generally applicable or applicable only in
specific cases.
SECTION 11.3 DISQUALIFYING DISPOSITIONS; WITHHOLDING TAXES.
(a) DISQUALIFYING DISPOSITION. Any Participant who shall make
a "DISPOSITION" (as defined in the Code) of all or any portion of an Incentive
Stock Option within two years from the date of grant of such Incentive Stock
Option or within one year after the issuance of the shares of Stock acquired
upon exercise of such Incentive Stock Option, shall be required to immediately
advise the Company in writing as to the occurrence of the sale and the price
realized upon the sale of such shares of Stock, and to maintain all such shares
of Stock in his or her name so long as he or she maintains beneficial ownership
of such shares of Stock.
(b) WITHHOLDING REQUIRED. Each Participant shall, no later
than the date as of which the value derived from a Right first becomes
includable in the gross income of the Participant for income tax purposes, pay
to the Company, or make arrangements satisfactory to the Administrator regarding
payment of, any federal, state or local taxes of any kind required by law to be
withheld with respect to the Right or its exercise. The obligations of the
Company under the Plan shall be conditioned upon such payment or arrangements
and the Participant shall, to the extent permitted by law, have the right to
request that the Company deduct any such taxes from any payment of any kind
otherwise due to the Participant.
(c) WITHHOLDING RIGHT. The Administrator may, in its
discretion, grant a Rights holder the right (a "WITHHOLDING RIGHT") to elect to
make such payment by irrevocably requiring the Company to withhold from shares
issuable upon exercise of the Right that number
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of full shares of Common Stock having a Fair Market Value on the Tax Date (as
defined below) equal to the amount (or portion of the amount) required to be
withheld. The Withholding Right may be granted with respect to all or any
portion of the Right.
(d) EXERCISE OF WITHHOLDING RIGHT. To exercise a Withholding
Right, the Rights holder must follow the election procedures set forth below,
together with such additional procedures and conditions as may be set forth in
the related Rights agreement or otherwise adopted by the Administrator:
(i) The Rights holder must deliver to the Company
his or her written notice of election (the "ELECTION") to have the Withholding
Right apply to all (or a designated portion) of his or her Right.
(ii) Unless disapproved by the Administrator as
provided in SUBSECTION (iii) below, the Election once made will be irrevocable.
(iii) no Election is valid unless the Administrator
consents to the Election; the Administrator has the right and power, in its sole
discretion, with or without cause or reason therefor, to consent to the
Election, to refuse to consent to the Election, or to disapprove the Election;
and if the Administrator has not consented to the Election on or prior to the
date that the amount of tax to be withheld is, under applicable federal income
tax laws, fixed and determined by the Company (the "TAX DATE"), the Election
will be deemed approved.
(iv) If the Rights holder on the date of delivery of
the Election to the Company is a Section 16(b) Person, the following additional
provisions will apply:
(A) the Election cannot be made during the
six calendar month period commencing with the date of the grant of the
Withholding Right (even if the Right to which such Withholding Right relates has
been granted prior to such date); provided, that this SUBSECTION (A) is not
applicable to any Rights holder at any time subsequent to the death, Disability
or Retirement of the Rights holder;
(B) the Election can only be made on a date
which is six calendar months or more prior to the Tax Date; and
(C) notwithstanding any other provision of
this SECTION 11.3(d)(iv), no Section 16(b) Person shall have the right to make
any Election prior to the time that the Company has been subject to the
reporting requirements of Section 13(a) of the Exchange Act for at least a year
and has filed all reports and statements required to be filed pursuant to that
Section for that year.
(e) EFFECT. If the Administrator consents to an Election of a
Withholding Right:
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(i) Upon the exercise of the Right (or any portion
hereof) to which the Withholding Right relates, the Company will withhold from
the shares otherwise issuable that number of full shares of Stock having an
actual Fair Market Value equal to the amount (or portion of the amount, as
applicable) required to be withheld under applicable federal and/or state income
tax laws as a result of the exercise; and
(ii) if the Rights holder is then a Section 16(b)
Person who has made an Election,
the related Right may not be exercised, nor may any shares of Stock issued
pursuant thereto be sold, exchanged or otherwise transferred, if the result of
such exercise, or such transaction, would cause the Tax Date to be less than six
full calendar months following the date of the Election.
SECTION 11.4 INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as Directors or members of the Committee, and
to the extent allowed by applicable law, the Administrators shall be indemnified
by the Company against the reasonable expenses, including attorney's fees,
actually incurred in connection with any action, suit or proceeding or in
connection with any appeal therein, to which they or any one of them may be
party by reason of any action taken or failure to act under or in connection
with the Plan or any option granted under the Plan, and against all amounts paid
by them in settlement thereof (provided that the settlement has been approved by
the Company, which approval shall not be unreasonably withheld) or paid by them
in satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Administrator did not act in good faith and in a manner
which such person reasonably believed to be in the best interests of the
Company, and in the case of a criminal proceeding, had no reason to believe that
the conduct complained of was unlawful; PROVIDED, HOWEVER, that within 60 days
after institution of any such action, suit or proceeding, such Administrator
shall, in writing, offer the Company the opportunity at its own expense to
handle and defend such action, suit or proceeding.
SECTION 11.5 LOANS. The Company may make loans to Optionees and
Offerees as the Administrator, in its discretion, may determine in connection
with the exercise of outstanding Stock Options and Purchase Rights granted under
the Plan. Such loans shall (i) be evidenced by promissory notes entered into by
the holders in favor of the Company; (ii) be subject to the terms and conditions
set forth in this SECTION 11.5 and such other terms and conditions, not
inconsistent with the Plan, as the Administrator shall determine; and (iii) bear
interest, if any, at such rate as the Administrator shall determine. In no event
may the principal amount of any such loan exceed the Exercise Price or the
Purchase Price less the par value of the shares of Stock covered by the Stock
Option or Purchase Right, or portion thereof, exercised by the Optionee or
Offeree. The initial term of the loan, the schedule of payments of principal and
interest under the loan, the extent to which the loan is to be with or without
recourse against the holder with respect to principal and applicable interest
and the conditions upon which the loan will become payable in the event of the
holder's termination of employment shall be determined by the Administrator;
PROVIDED, HOWEVER, that the term of the loan, including extensions, shall not
exceed 10 years. Unless the Administrator determines otherwise, when a loan
shall have been made, shares of Stock having a Fair Market Value at least equal
to the principal amount of the loan shall be
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pledged by the holder to the Company as security for payment of the unpaid
balance of the loan and such pledge shall be evidenced by a pledge agreement,
the terms of which shall be determined by the Administrator, in its discretion;
PROVIDED, HOWEVER, that each loan shall comply with all applicable laws,
regulations and rules of the Board of Governors of the Federal Reserve System
and any other governmental agency having jurisdiction.
SECTION 11.6 SPECIAL TERMINATING EVENTS. If a Special Terminating Event
occurs, all Rights theretofore granted to such Rights holder may, unless earlier
terminated in accordance with their terms, be exercised by the Rights holder or
by his or her estate or by a person who acquired the right to exercise such
Right by bequest or inheritance or otherwise by reason of the death or
Disability of the Rights holder, at any time within one year after the date of
the Special Terminating Event. Notwithstanding the foregoing, an Incentive Stock
Option shall only be exercisable at any time within three months after the date
of Retirement or termination of employment of an Optionee.
SECTION 11.7 TERMINATION OF EMPLOYMENT. Except as provided in this
SECTION 11.7, no Right may be exercised unless the Right holder is then a
Director of the Company, or in the employ of the Company or any Parent or
Subsidiary, or rendering services as a consultant to the Company or any Parent
or Subsidiary, and unless he or she has remained continuously so employed or
engaged since the Date of Grant. If the employment or services of a Right holder
shall terminate (other than by reason of a Special Terminating Event), all
Rights previously granted to the Right holder which are exercisable at the time
of such termination may be exercised for the period ending 90 days after such
termination, unless otherwise provided in the Stock Option Agreement or Stock
Purchase Agreement; PROVIDED, HOWEVER, that no Right may be exercised following
the date of its expiration. Nothing in the Plan or in any Right granted pursuant
to the Plan shall confer upon an employee any right to continue in the employ of
the Company or any Parent or Subsidiary or interfere in any way with the right
of the Company or any Parent or Subsidiary to terminate such employment at any
time.
SECTION 11.8 NON-TRANSFERABILITY OF RIGHTS. Each Stock Option Agreement
and Stock Purchase Agreement shall provide that the Rights granted under the
Plan shall not be transferable otherwise than by will or by the laws of descent
and distribution, and the Rights may be exercised, during the lifetime of the
Rights holder, only by the Rights holder or by his or her guardian or legal
representative.
SECTION 11.9 REGULATORY MATTERS. Each Stock Option Agreement and Stock
Purchase Agreement shall provide that no shares shall be purchased or sold
thereunder unless and until (i) any then applicable requirements of state or
federal laws and regulatory agencies shall have been fully complied with to the
satisfaction of the Company and its counsel; and (ii) if required to do so by
the Company, the Optionee or Offeree shall have executed and delivered to the
Company a letter of investment intent in such form and containing such
provisions as the Board or Committee may require.
SECTION 11.10 RECAPITALIZATIONS. Each Stock Option Agreement and Stock
Purchase Agreement shall contain provisions required to reflect the provisions
of ARTICLE 8.
16
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SECTION 11.11 DELIVERY. Upon exercise of a Right granted under this
Plan, the Company shall issue Stock or pay any amounts due within a reasonable
period of time thereafter. Subject to any statutory obligations the Company may
otherwise have, for purposes of this Plan, thirty days shall be considered a
reasonable period of time.
SECTION 11.12 OTHER PROVISIONS. The Stock Option Agreements and Stock
Purchase Agreements authorized under the Plan may contain such other provisions
not inconsistent with this Plan, including, without limitation, restrictions
upon the exercise of the Rights, as the Administrator may deem advisable.
ARTICLE 12
EFFECTIVE DATE OF PLAN
The Plan shall become effective on the date on which the Plan is
adopted by the Board, subject to approval by the Company's shareholders, which
approval must be obtained within one year from the date the Plan is adopted by
the Board.
ARTICLE 13
TERM OF PLAN
No Right shall be granted pursuant to the Plan on or after June 21,
2009, but Rights theretofore granted may extend beyond that date.
ARTICLE 14
INFORMATION TO RIGHTS HOLDERS
The Company will cause a report to be sent to each Rights holder not
later than 120 days after the end of each fiscal year. Such report shall consist
of the financial statements of the Company for such fiscal year and shall
include such other information as is provided by the Company to its
shareholders.
17
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Exhibit 10.29
================================================================================
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
OPUS360 CORPORATION
AND
DELL USA L.P.
-----------------------
DATED AS OF FEBRUARY 28, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I AGREEMENT TO PURCHASE AND SELL STOCK.........................1
ARTICLE II CLOSING DATE; DELIVERY......................................1
2.1 CLOSING DATE.................................................1
2.2 DELIVERY.....................................................2
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............2
3.1 ORGANIZATION.................................................2
3.2 AUTHORIZATION................................................3
3.3 NO CONFLICT..................................................3
3.4 PROSPECTUS...................................................3
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.............4
4.1 ORGANIZATION.................................................4
4.2 AUTHORITY....................................................4
4.3 NO CONFLICT..................................................4
4.4 INVESTMENT...................................................4
4.5 DISCLOSURE OF INFORMATION....................................5
4.6 INVESTMENT EXPERIENCE........................................5
4.7 ACCREDITED INVESTOR STATUS...................................5
4.8 RESTRICTED SECURITIES........................................5
ARTICLE V CONDITIONS TO OBLIGATION OF THE PURCHASER....................5
5.1 REPRESENTATIONS AND WARRANTIES...............................6
5.2 COVENANTS....................................................6
5.3 NO ORDER PENDING.............................................6
5.4 NO LAW PROHIBITING OR RESTRICTING SALE OF THE SHARES.........6
5.5 REGISTRATION RIGHTS AGREEMENT................................6
5.6 INITIAL PUBLIC OFFERING......................................6
5.7 OPINION OF COUNSEL TO THE COMPANY............................6
ARTICLE VI CONDITIONS TO OBLIGATION OF THE COMPANY.....................6
6.1 REPRESENTATIONS AND WARRANTIES...............................7
6.2 COVENANTS....................................................7
6.3 NO PROHIBITION...............................................7
6.4 REGISTRATION RIGHTS AGREEMENT................................7
6.5 INITIAL PUBLIC OFFERING......................................7
ARTICLE VII POST-CLOSING COVENANTS OF THE COMPANY......................7
7.1 CURRENT PUBLIC INFORMATION...................................7
7.2 PUBLIC DISCLOSURES...........................................8
ARTICLE VIII POST-CLOSING COVENANTS OF THE PURCHASER...................8
8.1 RESTRICTIONS ON TRANSFER OF SHARES...........................8
8.2 ACQUISITION OF STOCK.........................................8
ARTICLE IX MISCELLANEOUS...............................................9
9.1 CERTAIN DEFINITIONS..........................................9
9.2 GOVERNING LAW...............................................10
9.3 SURVIVAL; TERMINATION OF COVENANTS..........................10
</TABLE>
i
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<TABLE>
<S> <C>
9.4 SUCCESSORS AND ASSIGNS......................................10
9.5 ENTIRE AGREEMENT; AMENDMENT.................................10
9.6 NOTICES.....................................................11
9.7 BROKERS.....................................................12
9.8 FEES, COSTS AND EXPENSES....................................12
9.9 SEVERABILITY................................................12
9.10 INITIAL PUBLIC ANNOUNCEMENT.................................12
</TABLE>
ii
<PAGE>
This STOCK PURCHASE
AGREEMENT (this "AGREEMENT") is made
as of this 28th day of February,
2000, by and between Opus360
Corporation, a Delaware corporation
(the "COMPANY"), and Dell USA L.P., a
Texas Limited Partnership (the
"PURCHASER").
RECITALS
WHEREAS, the Company intends to consummate an initial public
offering (the "IPO") of shares of its common stock, $0.001 par value per share
("COMMON STOCK");
WHEREAS, contemporaneous with the closing of the IPO and upon
the terms and conditions hereinafter set forth, the Company desires to sell, and
the Purchaser desires to purchase, the Shares (as hereinafter defined);
WHEREAS, at or prior to Closing (as hereinafter defined), the
Company and the Purchaser shall enter into a registration rights agreement
substantially in the form attached hereto as EXHIBIT A (the "REGISTRATION RIGHTS
AGREEMENT").
NOW, THEREFORE, in consideration of the foregoing recitals,
the mutual promises hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
AGREEMENT TO PURCHASE AND SELL STOCK
Upon the terms and subject to the conditions of this Agreement, the
Company hereby agrees to sell to the Purchaser at the Closing, and the Purchaser
agrees to purchase from the Company at the Closing, the number of shares of
Common Stock, rounded down to the nearest whole number (the "SHARES") equal to
$14,000,000 (the "PURCHASE PRICE"), divided by the Per Share Purchase Price (as
hereinafter defined). As used herein, the "PER SHARE PURCHASE PRICE" shall be an
amount equal to the per share public offering price as it appears on the cover
page of the Company's final prospectus relating to the IPO, net of any
Underwriters' discounts and commissions; PROVIDED, HOWEVER, that the Per Share
Purchase Price shall not exceed $22.00.
ARTICLE II
CLOSING DATE; DELIVERY
2.1 CLOSING DATE.
The Closing of the purchase and sale of the Shares hereunder (the
"CLOSING") shall be held at the offices of O'Sullivan Graev & Karabell, LLP, 30
Rockefeller Plaza, New York, New York 10112 on the settlement date of the IPO
(but in no event after trading of Common Stock on the National Association of
Securities Dealers, Inc. Automated Quotation System has commenced) (the "CLOSING
DATE").
<PAGE>
2.2 DELIVERY.
At the Closing, the Company will deliver to the Purchaser a certificate
or certificates representing the Shares against payment of the Purchase Price by
wire transfer of immediately available funds to an account designated by the
Company. The certificate or certificates representing the Shares shall be
subject to a legend restricting transfer under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), and referring to restrictions on transfer
herein, such legend to be substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR AN
EXEMPTION THEREFROM.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER, INCLUDING BY ANY SALE, PLEDGE OR OTHER HYPOTHECATION,
AS SET FORTH IN THE STOCK PURCHASE AGREEMENT DATED FEBRUARY 28, 2000, A COPY OF
WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES."
The Company agrees to remove the (i) legend set forth in the second
preceding paragraph if the Shares are sold pursuant to an effective registration
statement under the Securities Act or there is delivered to the Company an
opinion of nationally recognized counsel experienced in such matters in form and
substance reasonably satisfactory to the Company that the securities represented
thereby need no longer be subject to restrictions under the Securities Act and
(ii) legend set forth in the immediately preceding paragraph at such time as the
Shares may be transferred in compliance with the covenants of Section 7 hereof
or upon the termination of the covenants of Section 7 hereof as provided in
Section 8.3 hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as follows:
3.1 ORGANIZATION.
The Company is a corporation duly organized and validly existing under
the laws of the State of Delaware and is in good standing under such laws. The
Company has the requisite corporate power to own and operate its properties and
assets, and to carry on its business as presently conducted and as proposed to
be conducted. The Company is, or will be at or prior to the Closing, qualified
to do business as a foreign corporation in each jurisdiction in which the
ownership of its property or the nature of its business requires such
qualification, except where the failure to be so qualified would not have a
materially adverse effect on the Company and its subsidiaries, taken as a whole.
Each subsidiary of the Company is a corporation duly organized
2
<PAGE>
and validly existing under the laws of the state of its incorporation and is in
good standing under such laws, except where the failure to be so organized,
validly existing and in good standing would not have a materially adverse effect
on the Company and its subsidiaries taken as a whole.
3.2 AUTHORIZATION.
All corporate action on the part of the Company, its officers,
directors, stockholders and any third party, necessary for the authorization,
execution, delivery and performance of this Agreement and the Registration
Rights Agreement, and the authorization, sale, issuance and delivery of the
Shares hereunder, by the Company has been, or at or prior to the Closing will
be, taken. This Agreement and the Registration Rights Agreement has been or will
be at or prior to the Closing duly executed and delivered by the Company and
constitutes or will constitute a legal, valid and binding obligation of the
Company enforceable in accordance with their respective terms, except (i) as
such enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and general equitable principles (regardless of
whether such equitable principles are applied in a proceeding at law or in
equity) or (ii) as rights of indemnification under the Registration Rights
Agreement may be limited under applicable law. Upon their issuance and delivery
pursuant to this Agreement, the Shares will be validly issued, fully paid and
nonassessable and will be free of contractual restrictions except as set forth
in Section 2.2 of this Agreement and the Registration Rights Agreement. There
are no statutory or contractual stockholders preemptive rights or rights of
first refusal with respect to the Shares that have not been satisfied or waived.
Subject to the truth and accuracy of Purchaser's representations in Section 4 of
this Agreement, the offer, sale and issuance of Shares under this Agreement is
exempt from the registration requirements of any applicable federal or state
securities laws.
3.3 NO CONFLICT.
The execution and delivery of this Agreement and the Registration
Rights Agreement does not, and the consummation of the transactions contemplated
hereby and thereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
result in a loss of a material benefit under, any provision of the Certificate
of Incorporation or Bylaws of the Company or any mortgage, indenture, lease or
other material agreement, instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company, its properties or assets, the effect of which could have a
material adverse effect on the Company and its subsidiaries, taken as a whole,
or materially impair or restrict the Company's ability to perform its
obligations as contemplated under this Agreement and the Registration Rights
Agreement.
3.4 PROSPECTUS.
The final Prospectus first filed by the Company with the Securities and
Exchange Commission pursuant to Rule 424(b) under the Securities Act (the
"PROSPECTUS") did not as of its date and will not as of the Closing Date contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; PROVIDED, that the Company makes no representation or warranty as to
any information contained in, or omitted
3
<PAGE>
from, the Prospectus in reliance upon and in conformity with written information
relating to the Underwriters, furnished to the Company by or on behalf of the
Underwriters specifically for use therein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as follows:
4.1 ORGANIZATION.
The Purchaser is a limited partnership duly organized and validly
existing and in good standing under the laws of the State of Texas, with all
requisite corporate power and authority to own, lease and operate its properties
and to conduct its business as now being conducted.
4.2 AUTHORITY.
All corporate action on the part of the Purchaser necessary for the
authorization, execution, delivery and performance of this Agreement and the
Registration Rights Agreement by the Purchaser has been, or at or prior to the
Closing will be, taken. This Agreement and the Registration Rights Agreement has
been or will be at or prior to Closing duly executed and delivered by the
Purchaser and constitutes or will constitute legal, valid and binding
obligations of the Purchaser, enforceable in accordance with their respective
terms, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and general equitable
principles (regardless of whether such equitable principles are applied in a
proceeding at law or in equity).
4.3 NO CONFLICT.
The execution and delivery of this Agreement and the Registration
Rights Agreement does not, and the consummation of the transactions contemplated
hereby and thereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
result in a loss of a material benefit under, any provision of the Certificate
of Limited Partnership or Limited Partnership Agreement of the Purchaser or any
mortgage, indenture, lease or other material agreement, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Purchaser, its properties or
assets, the effect of which could have a material adverse effect on the
Purchaser or materially impair or restrict the Purchaser's ability to perform
its obligations as contemplated under this Agreement and the Registration Rights
Agreement.
4.4 INVESTMENT.
The Purchaser is acquiring the Shares for investment for its own
account, not as a nominee or agent, and not with a view to, or for resale in
connection with, any distribution thereof. The Purchaser understands that the
Shares have not been registered under the Securities
4
<PAGE>
Act by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations and
warranties contained herein.
4.5 DISCLOSURE OF INFORMATION.
The Purchaser acknowledges that neither the Company or FleetBoston
Robertson Stephens Inc., J.P. Morgan & Co., Bear Stearns & Co. Inc., E*OFFERING
Corp. or any other member of the underwriting syndicate for the IPO (the
"Underwriters"), nor any person representing the Company or the Underwriters,
has made any representations or provided any information to the Purchaser with
respect to the Company, the IPO or the Shares, other than the Prospectus and as
stated in this Agreement and Registration Rights Agreement upon which the
Purchaser is solely relying in making its investment decision with respect to
the Shares.
4.6 INVESTMENT EXPERIENCE.
The Purchaser understands that the purchase of the Shares involves
substantial risk. The Purchaser has experience as an investor in securities of
companies and acknowledges that it is able to fend for itself, can bear the
economic risk of its investment in the Shares, including a total loss of its
investment, and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of an investment
in the Shares and protecting its own interests in connection with this
investment.
4.7 ACCREDITED INVESTOR STATUS.
The Purchaser is an "accredited investor" within the meaning of
Regulation D promulgated under the Securities Act.
4.8 RESTRICTED SECURITIES.
The Purchaser understands that the Shares to be purchased by the
Purchaser hereunder are "restricted securities" as defined in Rule 144 under the
Securities Act inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under the Securities Act
and applicable regulations thereunder such securities may be resold without
registration under the Securities Act only in certain limited circumstances. The
Purchaser is familiar with Rule 144 of the SEC, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
The Purchaser understands that the Company is under no obligation to register
any of the Shares sold hereunder except as provided in the Registration Rights
Agreement.
ARTICLE V
CONDITIONS TO OBLIGATION OF THE PURCHASER
The Purchaser's obligation to purchase the Shares at the Closing is, at
the option of the Purchaser, which may waive any such conditions, subject to the
fulfillment on or prior to the Closing Date of the following conditions:
5
<PAGE>
5.1 REPRESENTATIONS AND WARRANTIES.
Each of the representations and warranties of the Company contained in
Section 3 will be true and correct in all material respects on and as of the
Closing Date with the same effect as though such representations and warranties
had been made as of the Closing Date. The Purchaser shall have received a
certificate signed by an officer of the Company to such effect on the Closing
Date.
5.2 COVENANTS.
All covenants, agreements and conditions contained in this Agreement to
be performed by the Company on or prior to the Closing Date shall have been
performed or complied with in all material respects. The Purchaser shall have
received a certificate signed by an officer of the Company to such effect on the
Closing Date.
5.3 NO ORDER PENDING.
There shall not then be in effect any order enjoining or restraining
the transactions contemplated by this Agreement or the Registration Rights
Agreement.
5.4 NO LAW PROHIBITING OR RESTRICTING SALE OF THE SHARES.
There shall not be in effect any law, rule or regulation or a decree
prohibiting or restricting the sale of the Shares to the Purchaser, or requiring
any consent or approval of any Person which shall not have been obtained with
respect to the consummation of the transactions contemplated by this Agreement
(except as otherwise provided in this Agreement).
5.5 REGISTRATION RIGHTS AGREEMENT.
The Company shall have executed and delivered the Registration Rights
Agreement.
5.6 INITIAL PUBLIC OFFERING.
The Company shall have consummated the IPO prior to or
contemporaneously with the sale of the Shares hereunder.
5.7 OPINION OF COUNSEL TO THE COMPANY.
The Purchaser shall have received an opinion of O'Sullivan Graev &
Karabell, LLP, counsel to the Company, reasonably acceptable to the Purchaser.
ARTICLE VI
CONDITIONS TO OBLIGATION OF THE COMPANY
The Company's obligation to sell and issue the Shares at the Closing
is, at the option of the Company, which may waive any such conditions, subject
to the fulfillment on or prior to the Closing Date of the following conditions:
6
<PAGE>
6.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Purchaser contained in
Section 4 will be true and correct in all material respects on and as of the
Closing Date with the same effect as though such representations and warranties
had been made as of the Closing Date. The Company shall have received a
certificate signed on behalf of the Purchaser by an officer of the Purchaser to
such effect on the Closing Date.
6.2 COVENANTS.
All covenants, agreements and conditions contained in this Agreement to
be performed by the Purchaser on or prior to the Closing Date shall have been
performed or complied with in all material respects. The Company shall have
received a certificate signed on behalf of the Purchaser by an officer of the
Purchaser to such effect on the Closing Date.
6.3 NO PROHIBITION.
There shall not be in effect any law, rule, regulation or order
enjoining, restraining or prohibiting the transactions contemplated by this
Agreement including, without limitation, the sale of the Shares.
6.4 REGISTRATION RIGHTS AGREEMENT.
The Purchaser shall have executed and delivered the Registration Rights
Agreement.
6.5 INITIAL PUBLIC OFFERING.
The Company shall have consummated the IPO prior to or
contemporaneously with the sale of the Shares hereunder.
ARTICLE VII
POST-CLOSING COVENANTS OF THE COMPANY
From and after the Closing, the Company covenants to the Purchaser as
follows:
7.1 CURRENT PUBLIC INFORMATION.
At all times after the Company's Registration Statement on Form S-1, as
amended (the "REGISTRATION STATEMENT"), shall have become effective, the Company
shall file all reports required to be filed by it under the Securities Act and
the Securities Exchange Act and the rules and regulations adopted by the
Securities and Exchange Commission thereunder and shall take such further action
as the Purchaser may reasonably request, all to the extent required to enable
the Purchaser to avail itself of Rule 144 adopted by the Securities and Exchange
Commission under the Securities Act (as such rule may be amended from time t
time) or any similar rule or regulation hereafter adopted by the Securities and
Exchange Commission and Form S-2 or S-3 or any similar registration form
hereafter adopted by the Securities and Exchange Commission for resales of
securities. Upon request, the Company shall deliver to the Purchaser a written
statement as to whether it has complied with such requirements.
7
<PAGE>
7.2 PUBLIC DISCLOSURES.
The Company shall not, nor shall it permit any subsidiary of the
Purchaser to, disclose the Purchaser's (or any of their respective Affiliate's)
name or identity as an investor in the Company in any press release or other
public announcement or in any document or material filed with any governmental
entity, without first providing to the Purchaser a copy of such press release or
other public announcement for comment, except (i) as such disclosure is required
by applicable law or governmental regulations or by order of a court of
competent jurisdiction, in which case prior to making such disclosure the
Company shall give written notice to Purchaser (as applicable), describing in
reasonable detail the proposed content of such disclosure and shall permit
Purchaser (as applicable), to review and comment upon the form and substance of
such disclosure and (ii) as may be included in the Registration Statement, in
which case the Company will provide a copy of such disclosure to the Purchaser
reasonably in advance of its filing and an opportunity to comment on such
disclosure.
ARTICLE VIII
POST-CLOSING COVENANTS OF THE PURCHASER
From and after the Closing, the Purchaser covenants to the Company as
follows:
8.1 RESTRICTIONS ON TRANSFER OF SHARES.
For a period of one year from the Closing Date, the Purchaser shall
not, directly or indirectly, sell, transfer, pledge or hypothecate any Shares
owned by it except (i) to the Company or any person or group approved in writing
by the Company, (ii) an entity of which the Purchaser or the Purchaser's Parent
owns a majority of the voting power entitled to be cast in the election of
directors (an "AFFILIATE"), so long as such Affiliate agrees prior to such
transfer to hold such Shares subject to all the provisions of this Agreement,
including this Section 8.1, and agrees to transfer such Shares to the Purchaser
or another Affiliate of the Purchaser or the Purchaser's Parent if it ceases to
be a Affiliate of the Purchaser or the Purchaser's Parent, or (iii) from and
after the day which is 270 days from the Closing Date, in any transaction by the
Purchaser to hedge, sell short, lend or otherwise cover the Purchaser's position
in the Shares; PROVIDED, HOWEVER, that the Purchaser or the Purchaser's
permitted assigns and transferees under subsection (i) and (ii) above, as
applicable, shall remain the owner of record of all Shares for a period of one
year from the Closing Date. Any transfer made in violation of this Section 8.1
is void.
8.2 ACQUISITION OF STOCK.
The Purchaser shall advise management of the Company as to the
Purchaser's general plans to acquire, on the open market or otherwise, shares of
Common Stock, or rights thereto, equal to or in excess of 10% of the then
outstanding number of shares of Common Stock reasonably in advance of any such
acquisitions. All of the Purchaser's purchases of Common Stock shall be in
compliance with applicable laws and regulations and the provisions of this
Agreement.
8
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ARTICLE IX
MISCELLANEOUS
9.1 CERTAIN DEFINITIONS.
As used in this Agreement:
(a) The term "VOTING STOCK" means the Common Stock and any other securities
issued by the Company or any successor thereto having the ordinary power to vote
in the election of directors of the Company (other than securities having such
power only upon the happening of a contingency).
(b) The terms "BENEFICIAL OWNER," "BENEFICIAL OWNERSHIP" and "GROUP" shall
have the meaning comprehended by Section 13(d)(3) of the Exchange Act and the
rules and regulations promulgated thereunder.
(c) The term "PERSON" shall mean any person, individual, corporation,
general or limited partnership, trust, limited liability company or other
non-governmental entity or any governmental agency, court, authority or other
body (whether foreign, federal, state, local or otherwise).
(d) The term "CHANGE OF CONTROL" shall mean (i) an acquisition of Voting
Stock by a Person or group in a purchase or transaction or series of related
purchases or transactions if immediately thereafter such Person or group has
Beneficial Ownership of more than twenty-five percent (40%) of the combined
voting power of the Company's then outstanding Voting Stock; (ii) the
consummation of the transactions contemplated by an agreement providing for a
tender offer, merger, consolidation or reorganization, or series of such related
transactions involving the Company, unless the stockholders of the Company
immediately after such transaction or transactions are the Beneficial Owners of
at least twenty-five percent (25%) of the Voting Stock; (iii) a change or
changes in the membership of the Company's Board of Directors during any twelve
month period such that members who at the beginning of such period constituted
the Board of Directors (together with any new members whose election by such
Board of Directors or whose nomination for election by the stockholders of the
Company has been approved by a majority of the members then still in office who
either were members at the beginning of such period or whose election or
recommendation for election was previously so approved) cease to constitute a
majority of the Board of Directors of the Company; (iv) a sale, lease, exchange
or other transfer (in one or a series of related transactions) of all or
substantially all of the Company's assets or (v) the approval by the
stockholders of the Company of any plan or proposal of liquidation or
dissolution of the Company.
(e) The term "INSOLVENCY PROCEEDING" shall mean (i) an assignment for the
benefit of creditors, (ii) the filing by or against the Company of a petition to
have Company adjudged insolvent, bankrupt or seeking a reorganization or
liquidation under any law relating to bankruptcy, insolvency or receivership,
(iii) an appointment of a receiver or trustee for all or substantially all of
the assets of the Company, (iv) a public admission in writing of the Company's
inability to pay its debts as they come due, or (v) the adoption of a plan of
liquidation or dissolution by the Board of Directors of the Company.
9
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(f) The term "SIGNIFICANT EVENT" means (i) any proposed amendment to the
Certificate of Incorporation or Bylaws of the Company (other than a proposal to
(x) increase the number of authorized shares of Common Stock or Preferred Stock;
provided such increase(s) is (are) not contrary to clause (v) of this Section
8.1 (f) or (y) split or reverse split of any class or series of capital stock of
the Company), (ii) a disposition by the Company (by way of merger, disposition
of assets or otherwise) of all or substantially all of its assets, (iii) a
recapitalization of the Company, (iv) a liquidation of the Company, or (v) any
vote pursuant to any provision of law or the Company's Certificate of
Incorporation or Bylaws requiring or permitting stockholders to approve any
business combination proposed by or with another Person or its affiliates which
have acquired more than 25% of the Company's shares or to grant voting rights to
such Person or to waive or adopt provisions requiring such a vote.
9.2 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.
9.3 SURVIVAL; TERMINATION OF COVENANTS.
The representations and warranties in Sections 3 and 4 of this
Agreement shall not survive the Closing except for the representations and
warranties in Sections 4.4, 4.5, 4.6, 4.7, 4.8 and 4.9 hereof which shall
continue to survive. The covenants of the Company and the Purchaser under
Section 7 and 8 hereof shall continue to survive; PROVIDED, that such covenants
shall terminate in the event of a Change of Control or Insolvency Proceeding;
PROVIDED, FURTHER, that such covenants shall terminate after the third
anniversary of the Closing Date if the Purchaser and its Affiliates own less
than 25% of the Shares.
9.4 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
9.5 ENTIRE AGREEMENT; AMENDMENT.
This Agreement and the Registration Rights Agreement constitute the
full and entire understanding and agreement between the parties with regard to
the subject matter hereof and thereof and supersede all prior agreements and
understandings among the parties relating to the subject matter hereof. Neither
this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
The enforceability and validity of this Agreement and the Registration Rights
Agreement are each to be determined separately and any finding that any one or
more of such agreements is invalid or no enforceable shall have no effect on the
validity or enforceability of this Agreement.
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9.6 NOTICES.
All notices, requests, demands or other communications which are
required or may be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed to have been duly given: (i) on the date of delivery
if delivered by hand, (ii) upon the third day after such notice is (a) deposited
in the United States mail, if mailed by registered or certified mail, postage
prepaid, return receipt requested, or (b) sent by a nationally recognized
overnight express courier, (iii) by facsimile upon written confirmation (other
than the automatic confirmation that is received from the recipient's facsimile
machine) of receipt by the recipient of such notice or (iv) 24 hours after
sending if delivered by E-mail:
(a) if to the Company, to it at:
Opus 360 Corporation
733 Third Avenue, 17th Floor
New York, New York 10017
Attention: Ari B. Horowitz
Tel: (212) 301-2280
Fax: (212) 599-8481
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: John J. Suydam
Tel: (212) 728-5991
Fax: (212) 408-2400
(b) if to the Purchaser, to it at:
Dell USA L.P.
Dell Ventures
c/o Dell Computer Corporation
Mail Stop 8066
One Dell Way
Round Rock, Texas 78682
Attention: Paul Legris
with a copy to:
Thomas H. Welch, Jr.
Vice President and Deputy General Counsel
Legal Department
Dell Computer Corporation
Mail Stop 8033
One Dell Way
Round Rock, Texas 78682
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Barry Burgdorf
Vinson & Elkins L.L.P.
600 Congress Avenue, Suite 2700
Austin, Texas 78701
Tel: (512) 495-8533
Fax: (512) 236-3246
9.7 BROKERS.
(a) The Company has not engaged, consented to or authorized any broker,
finder or intermediary to act on its behalf, directly or indirectly, as a
broker, finder or intermediary in connection with the transactions contemplated
by this Agreement. The Company hereby agrees to indemnify and hold harmless the
Purchaser from and against all fees, commissions or other payments owing to any
party acting on behalf of the Company hereunder.
(b) The Purchaser has not engaged, consented to or authorized any broker,
finder or intermediary to act on its behalf, directly or indirectly, as a
broker, finder or intermediary in connection with the transactions contemplated
by this Agreement. The Purchaser hereby agrees to indemnify and hold harmless
the Company from and against all fees, commissions or other payments owing to
any party acting on behalf of the Purchaser hereunder.
9.8 FEES, COSTS AND EXPENSES.
All fees, costs and expenses (including attorneys' fees and expenses)
incurred by either party hereto in connection with the preparation, negotiation
and execution of this Agreement and the Registration Rights Agreement, and the
consummation of the transactions contemplated hereby and thereby, shall be the
sole and exclusive responsibility of such party.
9.9 SEVERABILITY.
If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restriction of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
9.10 INITIAL PUBLIC ANNOUNCEMENT.
The Company shall consult with the Purchaser on the form and content of
the public announcement of this Agreement and the Registration Rights Agreement,
and the transactions contemplated hereby and thereby, in the Prospectus. The
Purchaser shall provide reasonable assistance to the Company in connection with
such public announcement including, without limitation, by providing all
information reasonably requested by the Company. The Company and the Purchaser
shall agree on the form and content of all other public announcements which
shall be made concerning this Agreement and the Registration Rights Agreement,
and the transactions contemplated hereby and thereby, and neither the Company
nor the Purchaser shall make such public announcement without the consent of the
other, except as required by law.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective authorized officers as of the date
set forth above.
OPUS360 CORPORATION
By: /s/ Ari B. Horowitz
------------------------------------------
Name: Ari B. Horowitz
Title: Chairman, Chief Executive Officer
and President
DELL USA L.P.
By: Dell Gen. P. Corp.
Its General Partner
By: /s/ Alex C. Smith
------------------------------------------
Name: Alex C. Smith
Title: Vice President
<PAGE>
EXHIBIT A TO
STOCK PURCHASE
AGREEMENT
STRATEGIC PARTNER
REGISTRATION RIGHTS AGREEMENT dated
as of March __, 2000, between OPUS360
CORPORATION, a Delaware corporation
(the "CORPORATION"), and DELL USA
L.P., a Texas limited partnership
("DELL").
Dell owns or has the right to purchase or otherwise acquire
shares of the Corporation's Common Stock (as defined below). The Corporation and
Dell deem it to be in their respective best interests to enter into this
Agreement to set forth the rights of Dell in connection with public offerings
and sales of the Common Stock.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and obligations hereinafter set forth, the parties hereto agree as
follows:
1. DEFINITIONS.
As used herein, the following terms shall have the following
respective meanings:
"ADDITIONAL REGISTRABLE SHARES" means, at any time with
respect to any Additional Securityholder, the Registrable Shares held by such
Additional Securityholder (but only if such Additional Securityholder is
entitled (but not pursuant to this Agreement) to the registration of such
Registrable Shares by the Corporation under the Securities Act for sale to the
public).
"ADDITIONAL SECURITYHOLDER" means any holder of Restricted
Securities who or which is entitled (but not pursuant to this Agreement) to the
registration of such Restricted Securities by the Corporation under the
Securities Act for sale to the public.
"AGREEMENT" means this Strategic Partner Registration Rights
Agreement.
"BUSINESS DAY" means any day, other than a Saturday, Sunday or
a day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"COMMON STOCK" means the Common Stock, par value $.001 per
share, of the Corporation (and such other class of common stock of the
Corporation, or any successor thereto, into which the Common Stock may be
converted or reclassified, and all references herein to the Common Stock shall
mean such other class of common stock, if applicable).
"CONVERSION SHARES" means the Series A Conversion Shares and
the Series B Conversion Shares.
"CORPORATION" has the meaning assigned to such term in the
caption to this Agreement.
<PAGE>
"DELL" has the meaning assigned to such term in the caption to
this Agreement.
"DELL SECURITYHOLDERS" means, collectively, (i) Dell, (ii) any
other Persons listed on SCHEDULE I from time to time, and (iii) any purchaser,
assignee or other transferee of Restricted Securities held by any of the
foregoing in a purchase, assignment or other transfer permitted under SECTION 19
and in which such purchaser, assignee or other transferee has complied in full
with the joinder requirements set forth in SECTION 19. Upon the addition of each
new Dell Securityholder as a party to this Agreement, the Corporation shall
amend SCHEDULE I solely to reflect the name and address of such new Dell
Securityholder, and the Corporation shall distribute to the Dell Securityholders
such amended SCHEDULE I.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of the
SEC promulgated thereunder, all as the same may from time to time be in effect.
"GOVERNMENTAL ENTITY" means any government or political
subdivision or department thereof, any governmental or regulatory body,
commission, board, bureau, agency or instrumentality, or any court or arbitrator
or alternative dispute resolution body, in each case whether federal, state,
local or foreign.
"INITIAL COMMON SHARES" means the Registrable Shares that are
(i) shares of Common Stock issued or issuable to Ari Horowitz, Carlos Cashman,
Shawn Kreloff, William Bahr, Brett Prager, Richard McCann, Alex Lapins, Anthony
Schmitz, Bruce Gilpin, Wayne Tsuchitani or USWeb/CKS Corporation, or (ii) shares
of Common Stock issued on or with respect to the shares of Common Stock referred
to in CLAUSE (i) above.
"INITIAL WARRANTS" means (i) the warrants dated May 19, 1999
and August 17, 1999 issued by the Corporation to Silicon Valley Bank to purchase
shares of Common Stock, (ii) the warrants dated December 24, 1998 issued by the
Corporation to each of Gerald Cashman, G&R Partnership, LP, Leonard Horowitz,
Irwin Lieber and Barry Rubenstein to purchase shares of Common Stock, and (iii)
the warrants dated September 3, 1999 and January 15, 2000 issued by the
Corporation to Greenhill & Co., LLC.
"LAW" means any foreign, federal, state or local law, statute,
treaty, rule, directive, regulation, ordinances and similar provisions having
the force or effect of law or any Order.
"MAJORITY OF THE DELL SECURITYHOLDERS" means those Dell
Securityholders who or which hold in the aggregate in excess of 50% of all of
the Registrable Shares.
"MATERIAL TRANSACTION" shall mean any material transaction in
which the Corporation or any of its Subsidiaries proposes to engage or is
engaged, including a purchase or sale of assets or securities, financing,
merger, consolidation, tender offer or any other transaction or event that would
require disclosure pursuant to the Exchange Act if the Corporation were a
reporting company thereunder, and with respect to which the Board of Directors
of the Corporation reasonably has determined in good faith that compliance with
this Agreement may reasonably be expected to either materially interfere with
the Corporation's or such Subsidiary's ability to consummate such transaction in
a timely fashion or require the Corporation to disclose
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material, non-public information prior to such time as it would otherwise be
required to be disclosed.
"ORDERS" means any enforceable judgments, writs, decrees,
declarations, injunctions, orders, stipulations, compliance agreement or
settlement agreements issued or imposed by, or entered into with, a Governmental
Entity.
"OTHER SHARES" means, at any time, those shares of Common
Stock which do not constitute Primary Shares, Registrable Shares or Additional
Registrable Shares.
"PERSON" shall be construed as broadly as possible and shall
include an individual, a corporation, a company, an association, a joint stock
company, a partnership (including a limited liability partnership), a limited
liability company, a joint venture, a trust or an unincorporated organization
and a Governmental Entity.
"PRIMARY SHARES" means, at any time, the authorized but
unissued shares of Common Stock or Common Stock held by the Corporation in its
treasury.
"PROSPECTUS" means the prospectus included in a Registration
Statement, including any prospectus subject to completion, and any such
prospectus as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Shares and, in
each case, by all other amendments and supplements to such prospectus, including
post-effective amendments, and in each case including all material incorporated
by reference therein.
"PUBLIC OFFERING" means a public offering of Common Stock
pursuant to a registration statement declared effective under the Securities
Act, except that a Public Offering shall not include an offering of securities
to be issued as consideration in connection with a business acquisition or an
offering of securities issuable pursuant to an employee benefit plan.
"REGISTERING DELL SECURITYHOLDERS" means, with respect to any
registration of Registrable Shares, those Dell Securityholders who or which hold
the Registrable Shares included in such registration.
"REGISTRABLE SHARES" means, at any time with respect to any
Dell Securityholder or Additional Securityholder, the shares of Common Stock
held by such Dell Securityholder or Additional Securityholder that constitute
Restricted Securities. For purposes of this definition, a Dell Securityholder or
Additional Securityholder shall be deemed to be the holder of shares of Common
Stock whenever such Dell Securityholder or Additional Securityholder has the
right acquire, directly or indirectly, such Common Stock upon the conversion or
exercise of Restricted Securities (but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such acquisition
has actually been effected.
"REGISTRATION DATE" means the date upon which the registration
statement pursuant to which the Corporation shall have initially registered
shares of Common Stock under the Securities Act for sale to the public shall
have been declared effective.
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"REGISTRATION STATEMENT" means any registration statement of
the Corporation which covers any of the Registrable Shares, and all amendments
and supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"RESTRICTED SECURITIES" means, at any time, with respect to
any Person, the shares of Common Stock, the shares of Series A Preferred Stock,
the shares of Series B Preferred Stock, the Initial Warrants and any other
securities which by their terms are directly or indirectly exercisable or
exchangeable for or convertible into any of the foregoing securities, and any
securities received on or with respect to any of the foregoing securities, in
each case which are held by such Person. As to particular securities
constituting Restricted Securities, such securities shall cease to be Restricted
Securities when (A) they have been registered under the Securities Act, the
Registration Statement in connection therewith has been declared effective and
such Restricted Securities have been disposed of pursuant to and in the manner
described in such effective Registration Statement, (B) they are eligible to be
sold or distributed by the holder thereof pursuant to Rule 144 within any
consecutive three-month period (including, without limitation, Rule 144(k))
without volume limitations, (C) they have been otherwise transferred and new
certificates or other evidences of ownership for them not bearing a restrictive
legend and not subject to any stop transfer order or other restriction on
transfer shall have been delivered by the Corporation or the issuer of other
securities issued in exchange for the Restricted Securities, or (D) they have
ceased to be outstanding.
"SEC" means the United States Securities and Exchange
Commission.
"SECURITIES" means, with respect to any Person, such Person's
"SECURITIES," as defined in Section 2(1) of the Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
or any successor federal statute, and the rules and regulations of the SEC
promulgated thereunder, all as the same may from time to time be in effect.
"SERIES A CONVERSION SHARES" means the Registrable Shares that
are (i) shares of Common Stock issued or issuable upon the conversion of Series
A Preferred Stock, (ii) shares of Common Stock issued on or with respect to the
shares of Common Stock referred to in CLAUSE (i) above or (iii) shares of Common
Stock issued on or with respect to the Series A Preferred Stock.
"SERIES A PREFERRED STOCK" means the Corporation's Series A
Convertible Preferred Stock, par value $.001 per share.
"SERIES B CONVERSION SHARES" means the Registrable Shares that
are (i) shares of Common Stock issued or issuable upon the conversion of Series
B Preferred Stock, (ii) shares of Common Stock issued on or with respect to the
shares of Common Stock referred to in CLAUSE (i) above or (iii) shares of Common
Stock issued on or with respect to the Series B Preferred Stock.
"SERIES B PREFERRED STOCK" means the Corporation's Series B
Convertible Preferred Stock, par value $.001 per share.
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"SHARES" means the Registrable Shares, the Additional
Registrable Shares, the SP Registrable Shares, the Initial Common Shares, the
Conversion Shares and the Warrant Shares.
"SP REGISTRABLE SHARES" means (i) any Additional Registrable
Shares issued by the Corporation to any Strategic Partner (other than Dell) in
connection with such Strategic Partner's entry into a strategic arrangement with
the Corporation for the provision by either party to the other party of goods,
services, technology, expertise or other value and (ii) any other Additional
Registrable Shares issued on or with respect to the Additional Registrable
Shares referred to in CLAUSE (i) above.
"STOCK PURCHASE AGREEMENT" means the Stock Purchase Agreement
dated as of February __, 2000, between the Corporation and Dell, as amended,
supplemented or otherwise modified and in effect from time to time.
"STRATEGIC PARTNER" means a Person who or which, at the time
in question, has entered into, or is simultaneously entering into or has agreed
to enter into, a strategic arrangement with the Corporation for the provision by
either party to the other party of goods, services, technology, expertise or
other value.
"SUBSIDIARY" means, as to any Person, any other Person of
which more than 50% of the shares of the voting stock or other voting interests
are owned or controlled, or the ability to select or elect 50% or more of the
directors or similar managers is held, directly or indirectly, by such first
Person or one or more of its Subsidiaries.
"WARRANT SHARES" means the Registrable Shares that are (i)
shares of Common Stock issued or issuable upon the exercise of the Initial
Warrants, (ii) shares of Common Stock issued on or with respect to the shares of
Common Stock referred to in CLAUSE (i) above or (iii) shares of Common Stock
issued on or with respect to the Initial Warrants.
2. FORM S-3 REGISTRATIONS.
(a) If, at any time after the Registration Date the Corporation shall be
qualified for the use of Form S-3 promulgated under the Securities Act (or any
successor form thereto) for the sale to the public of Registrable Shares held by
the Dell Securityholders, a Majority of the Dell Securityholders shall notify
the Corporation in writing that such Dell Securityholders desire to sell
Registrable Shares, with an anticipated aggregate gross offering price (before
underwriting discounts and commissions) of at least $3,000,000, in the public
securities market and request that the Corporation effect the registration on
Form S-3 (or any successor form thereto) of such Registrable Shares, the
Corporation shall:
(i) promptly give written notice of the proposed registration to all
other Dell Securityholders, who or which shall have the right, subject to
the applicable terms of this Agreement, to include in such registration
Registrable Shares held by them (exercisable by delivering to the
Corporation a written notice specifying the number of Registrable Shares
requested to be included within 30 days after receipt of such notice of
such registration from the Corporation); and
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(ii) file and then use its best efforts to have the registration on
Form S-3 (or any successor form thereto) of the Registrable Shares which
the Corporation has been so requested to register declared effective.
(b) Anything contained in SECTION 2(a) to the contrary notwithstanding, the
Corporation shall not be obligated to effect pursuant to SECTION 2(A) any
registration under the Securities Act except in accordance with the following
provisions:
(i) The Corporation shall not be obligated to use its best efforts to
file and cause to become effective (A) more than two Registration
Statements requested pursuant to SECTION 2(a) or (b) any Registration
Statement during any period in which any other registration statement
(other than on Form S-4 or Form S-8 promulgated under the Securities Act or
any successor forms thereto) pursuant to which Primary Shares are to be or
were sold has been filed and not withdrawn or has been declared effective
within the prior 90 days.
(ii) The Corporation may delay the filing or effectiveness of any
Registration Statement for a period of up to 90 days after the date of a
request for registration pursuant to SECTION 2(a) if at the time of such
request the Corporation (A) is engaged, or has fixed plans to engage within
90 days of the time of such request, in a firm commitment, underwritten
public offering of Primary Shares in which the holders of Registrable
Shares may include Registrable Shares pursuant to SECTION 3 or (B) is
engaged in a Material Transaction.
(iii) In connection with any registration of Registrable Shares
pursuant to SECTION 2(a), the Corporation shall give notice of such
registration to the holders of all Additional Registrable Shares and Other
Shares which are entitled to registration rights and the Corporation may
include in such registration any Primary Shares, Additional Registrable
Shares or Other Shares; PROVIDED, HOWEVER, that if the managing underwriter
advises the Corporation that the inclusion of all of the Registrable
Shares, Primary Shares, Additional Registrable Shares and/or Other Shares
proposed to be included in such registration would interfere with the
successful marketing (including pricing) of all of such securities, then
the number of Registrable Shares, Primary Shares, Additional Registrable
Shares and/or Other Shares proposed to be included in such registration
shall be included in the following order:
(A) FIRST, the Registrable Shares requested by the Dell
Securityholders to be included in such registration and the Additional
Registrable Shares constituting SP Registrable Shares requested by the
Additional Securityholders to be included in such registration (or, if
necessary, such Shares PRO RATA among all such Persons based upon the
aggregate number of Registrable Shares and SP Registrable Shares held
by each such Person at the time of registration);
(B) SECOND, the Additional Registrable Shares constituting
Initial Common Shares, Conversion Shares or Warrant Shares requested
by the Additional Securityholders to be included in such registration
(or, if necessary,
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such Shares allocated among all such Additional Securityholders in
accordance with the applicable provisions of any agreements between
the Corporation and such Additional Securityholders, as amended,
supplemented or otherwise modified from time to time and in effect at
the time of registration, or, in the absence of any applicable
provisions, PRO RATA among all such Additional Securityholders based
upon the number of Additional Registrable Shares constituting Initial
Common Shares, Conversion Shares or Warrant Shares held by each such
Additional Securityholder at the time of registration);
(C) THIRD, the Primary Shares
(D) FOURTH, the Additional Registrable Shares not
constituting Initial Common Shares, Conversion Shares, Warrant
Shares or SP Registrable Shares requested by the Additional
Securityholders to be included in such registration (or, if
necessary, such Shares allocated among all such Additional
Securityholders in accordance with the applicable provisions of
any agreements between the Corporation and such Additional
Securityholders, as amended, supplemented or otherwise modified
from time to time and in effect at the time of registration, or,
in the absence of any applicable provisions, PRO RATA among all
such Additional Securityholders based upon the number of
Additional Registrable Shares not constituting Initial Common
Shares, Conversion Shares, Warrant Shares or SP Registrable
Shares held by each such Additional Securityholder at the time of
registration);
(E) FIFTH, the Registrable Shares requested by the Dell
Securityholders to be included in such registration (or, if
necessary, such Shares PRO RATA among all such Persons based upon
the aggregate number of Registrable Shares held by each such Dell
Securityholder at the time of registration); and
(F) SIXTH, the Other Shares.
(c) If the Majority of the Dell Securityholders in a registration requested
pursuant to SECTION 2(a) intend to distribute the Registrable Shares covered by
their request by means of an underwriting, they shall so advise the Corporation
as a part of their request for registration pursuant to SECTION 2(a). In such
event, the Corporation shall select one or more nationally recognized firms of
investment bankers reasonably acceptable to the Majority of the Dell
Securityholders to act as the lead managing underwriter or underwriters in
connection with such offering. The right of any Registering Dell Securityholder
to registration pursuant to SECTION 2(a) shall be conditioned upon such
Registering Dell Securityholder's participation in such underwriting and the
inclusion of such Registering Dell Securityholder's Registrable Shares in the
underwriting (unless otherwise mutually agreed by the Corporation and such
Registering Dell Securityholder) to the extent provided herein. The Corporation
and the Registering Dell Securityholders proposing to distribute their
securities through such underwriting shall enter into an underwriting agreement
which is reasonable and in customary form with the underwriters of such
offering.
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(d) A requested registration under SECTION 2(a) may be rescinded prior to
the related Registration Statement being declared effective by the SEC by
written notice to the Corporation from the Majority of the Dell Securityholders;
PROVIDED, HOWEVER, such registration shall not count as a Registration Statement
requested pursuant to SECTION 2(a) for purposes of CLAUSE (a) of SECTION 2(b)(i)
if the Corporation shall have been reimbursed for all out-of-pocket expenses
incurred by the Corporation in connection with such rescinded registration.
3. PIGGYBACK REGISTRATION.
(e) If the Corporation proposes for any reason to register Primary Shares,
Additional Registrable Shares or Other Shares under the Securities Act at any
time after the closing of an initial Public Offering of Common Stock (other than
on Form S-4 or Form S-8 promulgated under the Securities Act or any successor
forms thereto), it shall give written notice to the Dell Securityholders of its
intention to so register such Primary Shares, Additional Registrable Shares or
Other Shares at least 30 days before the initial filing of the registration
statement for such Primary Shares, Additional Registrable Shares or Other Shares
and, upon the written request, given within 20 days after delivery of any such
notice by the Corporation, of any Dell Securityholder to include in such
registration Registrable Shares (which request shall specify the number of
Registrable Shares proposed to be included in such registration and shall state
the desire of such Dell Securityholder to sell such Registrable Shares in the
public securities markets), the Corporation shall use its best efforts to cause
all such Registrable Shares to be included in such registration on the same
terms and conditions as the Primary Shares, Additional Registrable Shares or
Other Shares otherwise being sold in such registration; PROVIDED, HOWEVER, if
the managing underwriter advises the Corporation that the inclusion of all of
the Registrable Shares, Primary Shares, Additional Registrable Shares and/or
Other Shares proposed to be included in such registration would interfere with
the successful marketing (including pricing) of all of such securities, then the
number of Registrable Shares, Primary Shares, Additional Registrable Shares
and/or Other Shares proposed to be included in such registration shall be
included in the following order:
(i) If such registration is initiated by the Corporation to register
Primary Shares, Other Shares or Additional Registrable Shares not
constituting Initial Common Shares, Conversion Shares, Warrant Shares or SP
Registrable Shares, or by any holder of the foregoing:
(A) FIRST, the Primary Shares;
(B) SECOND, the Registrable Shares requested by the Dell
Securityholders to be included in such registration and the Additional
Registrable Shares constituting SP Registrable Shares, Initial Common
Shares, Conversion Shares or Warrant Shares requested by the
Additional Securityholders to be included in such registration (or, if
necessary, such Shares allocated between (x) the Dell Securityholders
and the Additional Securityholders who or which have requested the
inclusion of Registrable Shares or SP Registrable Shares in such
registration on the one hand and (y) the other Additional
Securityholders who or which have requested the inclusion of
Additional Registrable Shares constituting
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Initial Common Shares, Conversion Shares or Warrant Shares in such
registration on the other hand, in proportion to the aggregate
number of Shares held by each such group of Persons at the time of
registration, with the aggregate number of Shares allocated to the
Additional Securityholders described in CLAUSE (y) above further
allocated among such Additional Securityholders in accordance with
the applicable provisions of any agreements between the Corporation
and such Additional Securityholders, as amended, supplemented or
otherwise modified from time to time and in effect at the time of
registration, or, in the absence of any applicable provisions, PRO
RATA among all such Additional Securityholders based upon the
number of Additional Registrable Shares constituting Initial Common
Shares, Conversion Shares or Warrant Shares held by each such
Additional Securityholder at the time of registration);
(C) THIRD, the Additional Registrable Shares not constituting
Initial Common Shares, Conversion Shares, Warrant Shares or SP
Registrable Shares requested by the Additional Securityholders to be
included in such registration (or, if necessary, such Shares allocated
among all such Additional Securityholders in accordance with the
applicable provisions of any agreements between the Corporation and
such Additional Securityholders, as amended, supplemented or otherwise
modified from time to time and in effect at the time of registration,
or, in the absence of any applicable provisions, PRO RATA among all
such Additional Securityholders based upon the number of Additional
Registrable Shares not constituting Initial Common Shares, Conversion
Shares, Warrant Shares or SP Registrable Shares held by each such
Additional Securityholder at the time of registration); and
(D) FOURTH, the Other Shares.
(ii) If such registration is initiated by Additional Securityholders who or
which request the inclusion of their Additional Registrable Shares constituting
SP Registrable Shares in such registration:
(A) FIRST, the Additional Registrable Shares constituting SP
Registrable Shares requested by the Additional Securityholders to be
included in such registration and the Registrable Shares requested by
the Dell Securityholders to be included in such registration (or, if
necessary, such Shares PRO RATA among all such Persons based on the
aggregate number of SP Registrable Shares and Registrable Shares held
by each such Person at the time of registration);
(B) SECOND, the Additional Registrable Shares constituting
Initial Common Shares, Conversion Shares or Warrant Shares requested
by the Additional Securityholders to be included in such registration
(or, if necessary, such Shares allocated among all such Additional
Securityholders in accordance with the applicable provisions of any
agreements between the Corporation and such Additional
Securityholders, as amended, supplemented or otherwise modified from
time to time and in effect at the time of registration, or, in the
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absence of any applicable provisions, PRO RATA among all such
Additional Securityholders based upon the number of Additional
Registrable Shares constituting Initial Common Shares, Conversion
Shares or Warrant Shares held by each such Additional Securityholder
at the time of registration);
(C) THIRD, the Primary Shares;
(D) FOURTH, the Additional Registrable Shares not
constituting Initial Common Shares, Conversion Shares, Warrant
Shares or SP Registrable Shares requested by the Additional
Securityholders to be included in such registration (or, if
necessary, such Shares allocated among all such Additional
Securityholders in accordance with the applicable provisions of
any agreements between the Corporation and such Additional
Securityholders, as amended, supplemented or otherwise modified
from time to time and in effect at the time of registration, or,
in the absence of any applicable provisions, PRO RATA among all
such Additional Securityholders based upon the number of
Additional Registrable Shares not constituting Initial Common
Shares, Conversion Shares, Warrant Shares or SP Registrable
Shares held by each such Additional Securityholder at the time of
registration); and
(E) FIFTH, the Other Shares.
(iii) If such registration is initiated by Additional Securityholders who
or which request the inclusion of Additional Registrable Shares constituting
Initial Common Shares, Conversion Shares or Warrant Shares in such registration:
(A) FIRST, the Additional Registrable Shares constituting
Initial Common Shares, Conversion Shares or Warrant Shares
requested by the Additional Securityholders to be included in
such registration (or, if necessary, such Shares allocated among
all such Additional Securityholders in accordance with the
applicable provisions of any agreements between the Corporation
and such Additional Securityholders, as amended, supplemented or
otherwise modified from time to time and in effect at the time of
registration, or, in the absence of any applicable provisions,
PRO RATA among all such Additional Securityholders based upon the
number of Additional Registrable Shares constituting Initial
Common Shares, Conversion Shares or Warrant Shares held by each
such Additional Securityholder at the time of registration);
(B) SECOND, the Registrable Shares requested by the Dell
Securityholders to be included in such registration and the
Additional Registrable Shares constituting SP Registrable Shares
requested by the Additional Securityholders to be included in
such registration (or, if necessary, such Shares PRO RATA among
all such Persons based on the aggregate number of Registrable
Shares and SP Registrable Shares held by each such Person at the
time of registration);
(C) THIRD, the Primary Shares;
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(D) FOURTH, the Additional Registrable Shares not
constituting Initial Common Shares, Conversion Shares, Warrant
Shares or SP Registrable Shares requested by the Additional
Securityholders to be included in such registration (or, if
necessary, such Shares allocated among all such Additional
Securityholders in accordance with the applicable provisions of
any agreements between the Corporation and such Additional
Securityholders, as amended, supplemented or otherwise modified
from time to time and in effect at the time of registration, or,
in the absence of any applicable provisions, PRO RATA among all
such Additional Securityholders based upon the number of
Additional Registrable Shares not constituting Initial Common
Shares, Conversion Shares, Warrant Shares or SP Registrable
Shares held by each such Additional Securityholder at the time of
registration); and
(E) FIFTH, the Other Shares.
4. HOLDBACK AGREEMENT.
If the Corporation at any time shall register shares of Common
Stock under the Securities Act in an aggregate amount of at least $5,000,000
(including any registration pursuant to SECTION 2 or 3, but excluding any
registrations on Form S-4 or S-8) for sale to the public, no Dell Securityholder
shall sell publicly, make any short sale of, grant any option for the purchase
of, or otherwise dispose publicly of, any capital stock of the Corporation
(other than those shares of Common Stock included in such registration pursuant
to SECTION 2 or 3) without the prior written consent of the Corporation, for a
period designated by the Corporation in writing to the Dell Securityholders,
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 date on which such registration
statement became effective, whether or not such Dell Securityholder participates
in such registration. Each Dell Securityholder agrees that the Corporation may
instruct its transfer agent to place stop transfer notations on its records to
enforce this SECTION 4.
5. PREPARATION AND FILING.
If and whenever the Corporation is under an obligation
pursuant to the provisions of this Agreement to use its best efforts to effect
the registration of, and keep effective a Registration Statement, for any
Registrable Shares, the Corporation shall, as expeditiously as practicable:
(a) use its best efforts to cause a Registration Statement that registers
such Registrable Shares to become and remain effective for a period of 90 days
or until all of such Registrable Shares have been disposed of (if earlier);
(b) furnish, at least five Business Days before filing a Registration
Statement that registers such Registrable Shares, a Prospectus relating thereto
and any amendments or supplements relating to such Registration Statement or
Prospectus, to one counsel selected by the Majority of the Dell Securityholders
(the "DELL SECURITYHOLDERS' COUNSEL"), copies of all such documents proposed to
be filed (it being understood that such five Business Day period need not
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apply to successive drafts of the same document proposed to be filed so long as
such successive drafts are supplied to the Dell Securityholders' Counsel in
advance of the proposed filing by a period of time that is customary and
reasonable under the circumstances);
(c) prepare and file with the SEC such amendments and supplements to such
Registration Statement and the Prospectus used in connection therewith as may be
necessary to keep such Registration Statement effective for at least a period of
90 days or until all of such Registrable Shares have been disposed of (if
earlier) and to comply with the provisions of the Securities Act with respect to
the sale or other disposition of such Registrable Shares;
(d) notify the Dell Securityholders' Counsel promptly in writing of (i) any
comments by the SEC with respect to such Registration Statement or Prospectus,
or any request by the SEC for the amending or supplementing thereof or for
additional information with respect thereto, (ii) the issuance by the SEC of any
stop order suspending the effectiveness of such Registration Statement or
Prospectus or any amendment or supplement thereto or the initiation or
threatening of any proceedings for that purpose (and the Corporation shall use
its best efforts to prevent the issuance thereof or, if issued, to obtain its
withdrawal) and (iii) the receipt by the Corporation of any notification with
respect to the suspension of the qualification of such Registrable Shares for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purposes;
(e) use its best efforts to register or qualify such Registrable Shares
under such other securities or blue sky laws of such jurisdictions as any
Registering Dell Securityholder may reasonably request, to keep such
registrations or qualifications in effect for so long as such Registration
Statement covering such Registrable Shares remains in effect and do any and all
other acts and things which may be reasonably necessary or advisable to enable
such Registering Dell Securityholder to consummate the disposition in such
jurisdictions of the Registrable Shares owned by such Registering Dell
Securityholder; PROVIDED, HOWEVER, that the Corporation will not be required to
qualify generally to do business, to subject itself to general taxation or
consent to general service of process in any jurisdiction where it would not
otherwise be required to do so but for this SECTION 5(e) or to provide any
material undertaking or make any changes in its Bylaws or Certificate of
Incorporation which its Board of Directors determines to be contrary to the best
interests of the Corporation;
(f) furnish to each Registering Dell Securityholder such number of copies
of a summary Prospectus, if any, or other Prospectus, including a preliminary
Prospectus, in conformity with the requirements of the Securities Act, and such
other documents as such Registering Dell Securityholder may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Shares held by Registering Dell Securityholder;
(g) use its best efforts to cause such Registrable Shares to be registered
with or approved by such other Governmental Entities as may be necessary by
virtue of the business and operations of the Corporation to enable the
Registering Dell Securityholders to consummate the disposition of such
Registrable Shares;
(h) notify on a timely basis each Registering Dell Securityholder at any
time when a Prospectus relating to such Registrable Shares is required to be
delivered under the Securities
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Act within the appropriate period mentioned in SECTION 5(a), of the happening of
any event known to the Corporation as a result of which the Prospectus included
in such Registration Statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing and, at the request of such Registering Dell
Securityholder, prepare and furnish to such Registering Dell Securityholder a
reasonable number of copies of a supplement to or an amendment of such
Prospectus as may be necessary so that, as thereafter delivered to the offerees
of such Registrable Shares, such Prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
(i) subject to the execution of confidentiality agreements in form and
substance satisfactory to the Corporation, make available, upon reasonable
notice and during normal business hours, for inspection by the Registering Dell
Securityholders any underwriter participating in any disposition pursuant to
such Registration Statement and any attorney, accountant or other agent retained
by the Registering Dell Securityholders or underwriter (collectively, the
"INSPECTORS"), all pertinent financial and other records, pertinent corporate
documents and properties of the Corporation (collectively, the "RECORDS"), as
shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Corporation's officers, directors and employees to
supply all information (together with the Records, the "INFORMATION") reasonably
requested by any such Inspector in connection with such Registration Statement
(any of the Information which the Corporation determines in good faith to be
confidential, and of which determination the Inspectors are so notified, shall
not be disclosed by the Inspectors, unless (i) the disclosure of such
Information is necessary to avoid or correct a misstatement or omission in the
Registration Statement, (ii) the release of such Information is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction or, upon the
written advice of counsel, is otherwise required by law, or (iii) such
Information has been made generally available to the public, and each
Registering Dell Securityholder agrees that it will, upon learning that
disclosure of such Information is sought in a court of competent jurisdiction,
give notice to the Corporation and allow the Corporation, at the Corporation's
expense, to undertake appropriate action to prevent disclosure of the
Information deemed confidential);
(j) use its best efforts to obtain from its independent certified public
accountants "COLD COMFORT" letters in customary form and at customary times and
covering matters of the type customarily covered by cold comfort letters;
(k) use its best efforts to obtain from its counsel an opinion or opinions
in customary form;
(l) provide a transfer agent and registrar (which may be the same Person
and which may be the Corporation) for such Registrable Shares;
(m) issue to any underwriter to which any Registrable Dell Securityholder
may sell such Registrable Shares in such offering, certificates evidencing such
Registrable Shares;
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(n) list such Registrable Shares on any national securities exchange on
which any shares of Common Stock are listed or, if Common Stock is not listed on
a national securities exchange, use its best efforts to qualify such Registrable
Shares for inclusion on the national automated quotation system of the National
Association of Securities Dealers, Inc. (the "NASD"), or such other national
securities exchange as the holders of a majority of such Registrable Shares
shall reasonably request;
(o) otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC and make available to its securityholders, as soon as
reasonably practicable, earnings statements (which need not be audited) covering
a period of 12 months beginning within three months after the effective date of
the Registration Statement, which earnings statements shall satisfy the
provisions of Section 11(a) of the Securities Act; and
(p) subject to all of the other provisions of this Agreement, use its best
efforts to take all other steps necessary to effect the registration of such
Registrable Shares contemplated hereby.
Each Registering Dell Securityholder, upon the receipt of any
notice from the Corporation of any event of the kind described in SECTION 5(h),
shall forthwith discontinue disposition of Registrable Shares pursuant to the
Registration Statement until such Registering Dell Securityholder's receipt of
copies of the supplemented or amended Prospectus contemplated by SECTION 5(h),
and, if so directed by the Corporation, such Registering Dell Securityholder
shall deliver to the Corporation all copies, other than permanent file copies
then in such Dell Securityholder's possession, of the Prospectus covering such
Registrable Shares at the time of receipt of such notice.
6. EXPENSES.
All expenses incurred by the Corporation in complying with
SECTION 5, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the NASD), fees and expenses of
complying with securities and blue sky laws, printing expenses, fees and
expenses of the Corporation's counsel and accountants and fees and expenses of
the Dell Securityholders' Counsel, shall be paid by the Corporation; PROVIDED,
HOWEVER, that all underwriting discounts and selling commissions applicable to
the Registrable Shares shall not be borne by the Corporation and shall be borne
by the Registering Dell Securityholders selling such Registrable Securities, in
proportion to the number of Registrable Shares sold by each such Registering
Dell Securityholder.
7. INDEMNIFICATION.
(a) In connection with any registration of any Registrable Shares under the
Securities Act pursuant to this Agreement, the Corporation shall indemnify and
hold harmless each holder of such Registrable Shares, each underwriter, broker
or any other Person acting on behalf of any such holder and each other Person,
if any, who controls any of the foregoing Persons within the meaning of the
Securities Act, against any losses, claims,
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damages or liabilities, joint or several, (or actions in respect thereof) to
which any of the foregoing Persons may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary Prospectus or final Prospectus contained therein
or otherwise filed with the SEC, any amendment or supplement thereto or any
document incident to registration or qualification of any Registrable Shares, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading or, with respect to any Prospectus, necessary
to make the statements therein in light of the circumstances under which they
were made not misleading, or any violation by the Corporation of the Securities
Act or state securities or blue sky laws applicable to the Corporation and
relating to action or inaction required of the Corporation in connection with
such registration or qualification under such state securities or blue sky laws,
and the Corporation shall promptly reimburse each such holder, underwriter,
broker or other Person acting on behalf of any such holder and each such
controlling Person for any legal or other expenses incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the Corporation shall not be liable
to any such Person to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in said Registration Statement, preliminary
Prospectus, amendment, supplement or document incident to registration or
qualification of any Registrable Shares in reliance upon and in conformity with
information furnished to the Corporation, or a Person duly acting on the
Corporation's behalf, through an instrument duly executed by such Person, or a
Person duly acting on such Person's behalf, specifically for use in connection
with the preparation thereof; PROVIDED FURTHER, HOWEVER, that the foregoing
indemnity agreement is subject to the condition that, insofar as it relates to
any untrue statement, allegedly untrue statement, omission or alleged omission
made in any preliminary Prospectus but eliminated or remedied in the final
Prospectus (filed pursuant to Rule 424 of the Securities Act), such indemnity
agreement shall not inure to the benefit of any indemnified party from whom the
Person asserting any loss, claim, damage, liability or expense purchased the
Registrable Shares which are the subject thereof, if a copy of such final
Prospectus had been timely made available to such indemnified Person and such
final Prospectus was not delivered to such Person with or prior to the written
confirmation of the sale of such Registrable Shares to such Person.
(b) In connection with any registration of Registrable Shares under the
Securities Act pursuant to this Agreement, each holder of Registrable Shares
shall, severally and not jointly, indemnify and hold harmless (in the same
manner and to the same extent as set forth in SECTION 7(a)) the Corporation,
each director of the Corporation, each officer of the Corporation who signs such
Registration Statement, each other holder of Registrable Shares, Additional
Registrable Shares or Other Shares included in such Registration Statement
(PROVIDED, that the holder shall be entitled to indemnification of a similar
nature from such other holder to at least the same extent as the indemnification
given by the holder pursuant to this SECTION 7(b)), each underwriter, broker or
any other Person acting on behalf of any such holder and each other Person, if
any, who controls any of the foregoing Persons within the meaning of the
Securities Act with respect to any statement or omission from such Registration
Statement, any preliminary Prospectus or final Prospectus contained therein or
otherwise filed with the SEC, any amendment or supplement thereto or any
document incident to registration or qualification of any Registrable
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Shares, if such statement or omission was made in reliance upon and in
conformity with written information furnished to the Corporation or such
underwriter through an instrument duly executed by such holder, or a Person duly
acting on such holder's behalf, specifically for use in connection with the
preparation of such Registration Statement, preliminary Prospectus, final
Prospectus, amendment, supplement or document; PROVIDED, HOWEVER, that the
maximum amount of liability in respect of such indemnification shall be limited,
in the case of each holder of Registrable Shares, to an amount equal to the net
proceeds actually received by such holder from the sale of Registrable Shares
effected pursuant to such registration.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in SECTION 7(a) or
SECTION 7(b), such indemnified party will, if a claim in respect thereof is made
against an indemnifying party, give written notice to the latter of the
commencement of such action (PROVIDED that an indemnified party's failure to
give such notice in a timely manner shall only relieve the indemnification
obligations of an indemnifying party to the extent such indemnifying party is
prejudiced by such failure). In case any such action is brought against an
indemnified party, the indemnifying party will be entitled to participate in and
to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be responsible for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof; PROVIDED, HOWEVER, that if any indemnified party shall have
reasonably concluded that there may be one or more legal or equitable defenses
available to such indemnified party which are in addition to or conflict with
those available to the indemnifying party, 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 7, the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified party
and such indemnifying party shall reimburse such indemnified party and any
Person controlling such indemnified party for that portion of the fees and
expenses of any one lead counsel (PLUS appropriate special and local counsel)
retained by the indemnified party which are reasonably related to the matters
covered by the indemnity agreement provided in this SECTION 7. The indemnifying
party shall not be liable to indemnify any indemnified party for any settlement
of any claim or action effected without the consent of the indemnifying party.
The indemnifying party may not settle any claim or action brought against an
indemnified party unless such indemnified party is released from all and any
liability as part of such settlement.
(d) If the indemnification provided for in this SECTION 7 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, claim, damage, liability or action referred to herein, then
the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amounts paid or payable by such indemnified
party as a result of such loss, claim, damage, liability or action in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other hand in
connection with the statements or omissions which resulted in such loss, claim,
damage, liability or action as well as any other relevant equitable
considerations; PROVIDED, HOWEVER, that the maximum amount of liability in
respect of such contribution shall be limited, in the case of each holder of
Registrable Shares, to an amount
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equal to the net proceeds actually received by such holder from the sale of
Registrable Shares effected pursuant to such registration. The relative fault of
the indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The parties agree that it
would not be just and equitable if contribution pursuant hereto were determined
by PRO RATA allocation or by any other method or allocation which does not take
account of the equitable considerations referred to herein. No person guilty of
fraudulent misrepresentation shall be entitled to contribution from any person.
(e) The indemnification and contribution provided for under this Agreement
will remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party and will survive the transfer of securities.
8. UNDERWRITING AGREEMENT.
Notwithstanding the provisions of SECTIONS 5 through 7, to the
extent that the Dell Securityholders shall enter into an underwriting or similar
agreement, which agreement contains provisions covering one or more issues
addressed in such Sections, the provisions contained in such Sections addressing
such issue or issues shall be of no force or effect with respect to such
registration, but this provision shall not apply to the Corporation if the
Corporation is not a party to the underwriting or similar agreement.
9. SUSPENSION.
Anything contained in this Agreement to the contrary
notwithstanding, the Corporation may (but not more than once with respect to
each Registration Statement), by notice in writing to each holder of Registrable
Shares to which a Prospectus relates, require such holder to suspend, for up to
90 days (the "SUSPENSION PERIOD"), the use of any Prospectus included in a
Registration Statement filed under SECTION 2 or 3 if a Material Transaction
exists that would require an amendment to such Registration Statement or
supplement to such Prospectus (including any such amendment or supplement made
through incorporation by reference to a report filed under Section 13 of the
Exchange Act). The period during which such Prospectus must remain effective
shall be extended by a period equal to the Suspension Period. The Corporation
may (but shall not be obligated to) withdraw the effectiveness of any
Registration Statement subject to this provision.
10. INFORMATION BY HOLDER.
Each holder of Registrable Shares to be included in any such
registration shall furnish to the Corporation and the managing underwriter such
written information regarding such holder and the distribution proposed by such
holder as the Corporation or the managing underwriter may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
11. EXCHANGE ACT COMPLIANCE.
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From the Registration Date or such earlier date as a
registration statement filed by the Corporation pursuant to the Exchange Act
relating to any class of the Corporation's securities shall have become
effective, the Corporation shall comply with all of the reporting requirements
of the Exchange Act applicable to it (whether or not it shall be required to do
so, but specifically excluding Section 14 of the Exchange Act if not then
applicable to the Corporation) and shall comply with all other public
information reporting requirements of the SEC which are conditions to the
availability of Rule 144 for the sale of the Common Stock. The Corporation shall
cooperate with the Dell Securityholders in supplying such information as may be
necessary for the Dell Securityholders to complete and file any information
reporting forms presently or hereafter required by the SEC as a condition to the
availability of Rule 144.
12. LEGENDS ON CERTIFICATES.
(a) Each certificate issued after the date hereof that represents
Restricted Securities shall (unless otherwise permitted by the provisions of
this SECTION 12) be stamped or otherwise imprinted with a legend in
substantially the following form (in addition to any other legend required by
law or applicable agreement):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT"). THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SECURITIES UNDER THE ACT OR AN EXEMPTION THEREFROM."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO THE TERMS AND CONDITIONS OF A STRATEGIC PARTNER
REGISTRATION RIGHTS AGREEMENT DATED AS OF FEBRUARY __,
2000, BETWEEN OPUS360 CORPORATION AND DELL COMPUTER
CORPORATION, AS THE SAME MAY BE AMENDED, SUPPLEMENTED OR
OTHERWISE MODIFIED AND IN EFFECT FROM TIME TO TIME. 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 COMPANY AT ITS PRINCIPAL EXECUTIVE
OFFICE."
The Corporation agrees to remove the legend set forth in this
SECTION 12(a) from a certificate representing securities issued by the
Corporation if such securities are sold pursuant to an effective registration
statement under the Securities Act or there is delivered to the Corporation an
opinion of nationally recognized counsel experienced in such matters in form and
substance reasonably satisfactory to the Corporation that the securities
represented thereby need no longer be subject to restrictions on resale under
the Securities Act.
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(b) Each Dell Securityholder consents to the Corporation making a notation
on its records and giving instructions to any transfer agent of such Dell
Securityholder's Restricted Securities in order to implement the restrictions on
transfer established in this SECTION 12.
13. MERGERS, ETC.
The Corporation shall not, directly or indirectly, enter into
any merger, consolidation or reorganization in which the Corporation shall not
be the surviving corporation unless the surviving corporation shall, prior to
such merger, consolidation or reorganization, agree in writing to assume the
obligations of the Corporation under this Agreement, and for that purpose
references hereunder to "REGISTRABLE SHARES" shall be deemed to include the
shares of common stock, if any, that holders of Registrable Shares would be
entitled to receive in exchange for Common Stock under any such merger,
consolidation or reorganization; PROVIDED, HOWEVER, that, to the extent holders
of Registrable Shares receive securities that are by their terms convertible
into shares of common stock of the issuer thereof, then only such shares of
common stock as are issued or issuable upon conversion of said convertible
securities shall be included within the definition of "REGISTRABLE SHARES."
14. NOMINEES FOR BENEFICIAL OWNERS.
If Registrable Shares are held by a nominee for the beneficial
owner thereof, the beneficial owner thereof may, at its option, be treated as
the holder of such Registrable Shares for purposes of any request or other
action by any holder or holders of Registrable Shares pursuant to this Agreement
(or any determination of any number of percentage of shares constituting
Registrable Shares held by any holder or holders of Registrable Shares
contemplated by this Agreement); PROVIDED, HOWEVER, that the Corporation shall
have received assurances reasonably satisfactory to it of such beneficial
ownership.
15. NO CONFLICT OF RIGHTS.
The Corporation shall not, after the date hereof, grant any
registration rights which conflict with the registration rights granted hereby.
16. TERMINATION.
This Agreement shall terminate and be of no further force or
effect when there shall no longer be any Registrable Shares or Additional
Registrable Shares outstanding, PROVIDED, HOWEVER, that SECTION 6 and SECTION 7
shall survive the termination of this Agreement.
17. SUCCESSORS AND ASSIGNS.
This Agreement shall bind and inure to the benefit of the
Corporation and the Dell Securityholders and, subject to SECTION 18, the
respective successors and assigns of the Corporation and the Dell
Securityholders.
18. ASSIGNMENT.
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Subject to the applicable limitations of the Stock Purchase
Agreement, each Dell Securityholder may sell, assign or otherwise transfer its
rights hereunder to any purchaser, assignee or other transferee of the
Registrable Shares of such Dell Securityholder; PROVIDED, HOWEVER, that any such
purchaser, assignee or other transferee, if not already a party to this
Agreement, shall, as a condition to the effectiveness of such sale, assignment
or other transfer, be required to execute a written joinder to this Agreement
agreeing to be treated as a Dell Securityholder under this Agreement, and to be
bound by and comply with all of the applicable terms and provisions hereof,
whereupon such purchaser, assignee or transferee shall have the benefits of, and
shall be subject to the restrictions contained in, this Agreement as if such
purchaser or transferee was originally a Dell Securityholder and had originally
been a party hereto.
19. NOTICES.
All notices, requests, demands, claims, consents or other
communications that are given or made hereunder to any party hereto shall be in
writing and shall be given or made by physical delivery, U.S. mail (registered
or certified mail, postage prepaid, return receipt requested) or overnight
courier or by transmission by facsimile or electronic mail to such party at its,
his or her address (or facsimile number or electronic mail address) set forth
below, or such other address (or facsimile number or electronic mail address) as
shall have been specified by like notice by such party:
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(i) if to the Corporation, to
Opus360 Corporation
733 Third Avenue, 17th Floor
New York, NY 10017
Attention: Richard McCann, Chief Financial Officer
Telephone: (212) 301-2218
Facsimile: (212) 301-2842
E-Mail: [email protected]
with a copy (which shall not constitute notice) to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, NY 10112
Attention: John J. Suydam, Esq.
Telephone: (212) 408-2400
Facsimile: (212) 728-5950
E-Mail: [email protected]
(ii) if to any Dell Securityholder, to such Dell
Securityholder at the address set forth on SCHEDULE I
immediately below the name of such Dell Securityholder.
Each such notice, demand or other communication hereunder
shall be effective upon receipt in the case of physical delivery or overnight
courier, upon confirmation of receipt by or on behalf of the addressee in the
case of transmission by facsimile or electronic mail if received prior to 5:00
p.m. New York City time, and, if received after 5:00 p.m., on the date after
such confirmation, and three (3) days after deposit in the U.S. mails in the
case of mailing.
20. ENTIRE AGREEMENT.
This Agreement and the other writings referred to herein or
delivered pursuant hereto contain the sole and entire agreement among the
Corporation and the Dell Securityholders with respect to the subject matter
hereof and thereof and shall supersede all prior or contemporaneous arrangements
or understandings with respect hereto or thereto.
21. AMENDMENT.
The terms and provisions of this Agreement may not be modified
or amended, nor may any provision be waived, except pursuant to a writing signed
by (i) the Corporation, and (ii) a Majority of the Dell Securityholders;
PROVIDED, HOWEVER, that no such written consent shall be required for the
amendment of SCHEDULE I solely to reflect the name and address of any new Dell
Securityholder who has become a party to this Agreement in accordance with the
terms and conditions hereof. No waiver by any party hereto 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
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affect in any way any rights arising by virtue of any prior or subsequent such
occurrence. Each holder of any Restricted Securities outstanding at or after the
time of any modification or amendment of, or waiver of any provisions of this
Agreement, shall be bound by any consent authorized by this SECTION 21, whether
or not such Restricted Securities shall have been marked to indicate such
consent.
22. SEVERABILITY.
It is the desire and intent of the parties hereto 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.
23. COUNTERPARTS; FACSIMILE SIGNATURES.
This Agreement may be executed in any number of counterparts,
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement. This Agreement
and each other agreement or instrument entered into in connection herewith or
contemplated hereby, and any amendments hereto or thereto, to the extent signed
and delivered by means of a facsimile machine, shall be treated in all manner
and respects as an original agreement or instrument and shall be considered to
have the same binding legal effect as if it were the original signed version
thereof delivered in person. At the request of any party hereto or to any such
agreement or instrument, each other party hereto or thereto shall reexecute
original forms thereof and deliver them to all other parties.
24. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
25. INTERPRETATION; CONSTRUCTION.
The headings contained in this Agreement and in the table of
contents to this Agreement are for convenience of reference only and shall not
govern or affect in any way the meaning or interpretation of any of the terms or
provisions of this Agreement. Except when the context requires otherwise, any
reference in this Agreement to any Section, clause or Schedule shall be to the
Sections and clauses of, and Schedules to, this Agreement. The words "INCLUDE,"
"INCLUDES" and "INCLUDING" are deemed to be followed by the phrase "WITHOUT
LIMITATION." Any
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reference to the masculine, feminine or neuter gender shall include such other
genders and any reference to the singular or plural shall include the other, in
each case unless the context otherwise requires. SCHEDULE I annexed hereto are
hereby incorporated in and made a part of this Agreement as if set forth in full
herein. 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 has been
chosen by the parties to express their mutual intent, and no rule of strict
construction shall be applied against any party.
26. WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ITS, HIS
OR HER RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THE PARTIES HERETO
RELATING TO THE SUJBECT MATTER HEREOF.
27. ATTORNEY'S FEES.
If any legal action or any arbitration or other proceeding is
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party or parties shall be entitled
to recover such reasonable attorneys fees and other costs incurred in that
action or proceeding, in addition to any other relief to which it or they may be
entitled, as may be ordered in connection with such proceeding.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Strategic Partner Registration Rights Agreement as of the date first written
above.
OPUS360 CORPORATION
By:
-----------------------
Name:
Title:
DELL USA L.P.
BY: DELL GEN. P. CORP.,
ITS GENERAL PARTNER
By:
-----------------------
Name:
Title:
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SCHEDULE I
DELL SECURITYHOLDERS
DELL USA L.P.
Paul Legris
Dell Ventures
c/o Dell Computer Corporation
Mail Stop 8066
One Dell Way
Round Rock, Texas 78682
With copies to:
Thomas H. Welch, Jr.
Vice President and Deputy General Counsel
Legal Department
Dell Computer Corporation
Mail Stop 8033
One Dell Way
Round Rock, Texas 78682
Barry Burgdorf
Vinson & Elkins L.L.P.
600 Congress Avenue, Suite 2700
Austin, Texas 78701
Tel: (512) 495-8533
Fax: (512) 236-3246
E-Mail: [email protected]
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EXHIBITS
Exhibit A - Form of Registration Rights Agreement
iii
<PAGE>
Exhibit 10.30
STRATEGIC PARTNER
REGISTRATION RIGHTS AGREEMENT dated
as of March 1, 2000, between OPUS360
CORPORATION, a Delaware corporation
(the "CORPORATION"), and DELL USA
L.P., a Texas limited partnership
("DELL").
Dell owns or has the right to purchase or otherwise acquire
shares of the Corporation's Common Stock (as defined below). The Corporation and
Dell deem it to be in their respective best interests to enter into this
Agreement to set forth the rights of Dell in connection with public offerings
and sales of the Common Stock.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and obligations hereinafter set forth, the parties hereto agree as
follows:
1. DEFINITIONS.
As used herein, the following terms shall have the following
respective meanings:
"ADDITIONAL REGISTRABLE SHARES" means, at any time with
respect to any Additional Securityholder, the Registrable Shares held by such
Additional Securityholder (but only if such Additional Securityholder is
entitled (but not pursuant to this Agreement) to the registration of such
Registrable Shares by the Corporation under the Securities Act for sale to the
public).
"ADDITIONAL SECURITYHOLDER" means any holder of Restricted
Securities who or which is entitled (but not pursuant to this Agreement) to the
registration of such Restricted Securities by the Corporation under the
Securities Act for sale to the public.
"AGREEMENT" means this Strategic Partner Registration Rights
Agreement.
"BUSINESS DAY" means any day, other than a Saturday, Sunday or
a day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"COMMON STOCK" means the Common Stock, par value $.001 per
share, of the Corporation (and such other class of common stock of the
Corporation, or any successor thereto, into which the Common Stock may be
converted or reclassified, and all references herein to the Common Stock shall
mean such other class of common stock, if applicable).
"CONVERSION SHARES" means the Series A Conversion Shares and
the Series B Conversion Shares.
"CORPORATION" has the meaning assigned to such term in the
caption to this Agreement.
"DELL" has the meaning assigned to such term in the caption to
this Agreement.
<PAGE>
"DELL SECURITYHOLDERS" means, collectively, (i) Dell, (ii) any
other Persons listed on SCHEDULE I from time to time, and (iii) any purchaser,
assignee or other transferee of Restricted Securities held by any of the
foregoing in a purchase, assignment or other transfer permitted under SECTION 19
and in which such purchaser, assignee or other transferee has complied in full
with the joinder requirements set forth in SECTION 19. Upon the addition of each
new Dell Securityholder as a party to this Agreement, the Corporation shall
amend SCHEDULE I solely to reflect the name and address of such new Dell
Securityholder, and the Corporation shall distribute to the Dell Securityholders
such amended SCHEDULE I.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of the
SEC promulgated thereunder, all as the same may from time to time be in effect.
"GOVERNMENTAL ENTITY" means any government or political
subdivision or department thereof, any governmental or regulatory body,
commission, board, bureau, agency or instrumentality, or any court or arbitrator
or alternative dispute resolution body, in each case whether federal, state,
local or foreign.
"INITIAL COMMON SHARES" means the Registrable Shares that are
(i) shares of Common Stock issued or issuable to Ari Horowitz, Carlos Cashman,
Shawn Kreloff, William Bahr, Brett Prager, Richard McCann, Alex Lapins, Anthony
Schmitz, Bruce Gilpin, Wayne Tsuchitani or USWeb/CKS Corporation, or (ii) shares
of Common Stock issued on or with respect to the shares of Common Stock referred
to in CLAUSE (i) above.
"INITIAL WARRANTS" means (i) the warrants dated May 19, 1999
and August 17, 1999 issued by the Corporation to Silicon Valley Bank to purchase
shares of Common Stock, (ii) the warrants dated December 24, 1998 issued by the
Corporation to each of Gerald Cashman, G&R Partnership, LP, Leonard Horowitz,
Irwin Lieber and Barry Rubenstein to purchase shares of Common Stock, and (iii)
the warrants dated September 3, 1999 and January 15, 2000 issued by the
Corporation to Greenhill & Co., LLC.
"LAW" means any foreign, federal, state or local law, statute,
treaty, rule, directive, regulation, ordinances and similar provisions having
the force or effect of law or any Order.
"MAJORITY OF THE DELL SECURITYHOLDERS" means those Dell
Securityholders who or which hold in the aggregate in excess of 50% of all of
the Registrable Shares.
"MATERIAL TRANSACTION" shall mean any material transaction in
which the Corporation or any of its Subsidiaries proposes to engage or is
engaged, including a purchase or sale of assets or securities, financing,
merger, consolidation, tender offer or any other transaction or event that would
require disclosure pursuant to the Exchange Act if the Corporation were a
reporting company thereunder, and with respect to which the Board of Directors
of the Corporation reasonably has determined in good faith that compliance with
this Agreement may reasonably be expected to either materially interfere with
the Corporation's or such Subsidiary's ability to consummate such transaction in
a timely fashion or require the Corporation to disclose material, non-public
information prior to such time as it would otherwise be required to be
disclosed.
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"ORDERS" means any enforceable judgments, writs, decrees,
declarations, injunctions, orders, stipulations, compliance agreement or
settlement agreements issued or imposed by, or entered into with, a Governmental
Entity.
"OTHER SHARES" means, at any time, those shares of Common
Stock which do not constitute Primary Shares, Registrable Shares or Additional
Registrable Shares.
"PERSON" shall be construed as broadly as possible and shall
include an individual, a corporation, a company, an association, a joint stock
company, a partnership (including a limited liability partnership), a limited
liability company, a joint venture, a trust or an unincorporated organization
and a Governmental Entity.
"PRIMARY SHARES" means, at any time, the authorized but
unissued shares of Common Stock or Common Stock held by the Corporation in its
treasury.
"PROSPECTUS" means the prospectus included in a Registration
Statement, including any prospectus subject to completion, and any such
prospectus as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Shares and, in
each case, by all other amendments and supplements to such prospectus, including
post-effective amendments, and in each case including all material incorporated
by reference therein.
"PUBLIC OFFERING" means a public offering of Common Stock
pursuant to a registration statement declared effective under the Securities
Act, except that a Public Offering shall not include an offering of securities
to be issued as consideration in connection with a business acquisition or an
offering of securities issuable pursuant to an employee benefit plan.
"REGISTERING DELL SECURITYHOLDERS" means, with respect to any
registration of Registrable Shares, those Dell Securityholders who or which hold
the Registrable Shares included in such registration.
"REGISTRABLE SHARES" means, at any time with respect to any
Dell Securityholder or Additional Securityholder, the shares of Common Stock
held by such Dell Securityholder or Additional Securityholder that constitute
Restricted Securities. For purposes of this definition, a Dell Securityholder or
Additional Securityholder shall be deemed to be the holder of shares of Common
Stock whenever such Dell Securityholder or Additional Securityholder has the
right acquire, directly or indirectly, such Common Stock upon the conversion or
exercise of Restricted Securities (but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such acquisition
has actually been effected.
"REGISTRATION DATE" means the date upon which the registration
statement pursuant to which the Corporation shall have initially registered
shares of Common Stock under the Securities Act for sale to the public shall
have been declared effective.
"REGISTRATION STATEMENT" means any registration statement of
the Corporation which covers any of the Registrable Shares, and all amendments
and supplements to any such Registration Statement, including post-effective
amendments, in each case including the
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Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"RESTRICTED SECURITIES" means, at any time, with respect to
any Person, the shares of Common Stock, the shares of Series A Preferred Stock,
the shares of Series B Preferred Stock, the Initial Warrants and any other
securities which by their terms are directly or indirectly exercisable or
exchangeable for or convertible into any of the foregoing securities, and any
securities received on or with respect to any of the foregoing securities, in
each case which are held by such Person. As to particular securities
constituting Restricted Securities, such securities shall cease to be Restricted
Securities when (A) they have been registered under the Securities Act, the
Registration Statement in connection therewith has been declared effective and
such Restricted Securities have been disposed of pursuant to and in the manner
described in such effective Registration Statement, (B) they are eligible to be
sold or distributed by the holder thereof pursuant to Rule 144 within any
consecutive three-month period (including, without limitation, Rule 144(k))
without volume limitations, (C) they have been otherwise transferred and new
certificates or other evidences of ownership for them not bearing a restrictive
legend and not subject to any stop transfer order or other restriction on
transfer shall have been delivered by the Corporation or the issuer of other
securities issued in exchange for the Restricted Securities, or (D) they have
ceased to be outstanding.
"SEC" means the United States Securities and Exchange
Commission.
"SECURITIES" means, with respect to any Person, such Person's
"SECURITIES," as defined in Section 2(1) of the Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
or any successor federal statute, and the rules and regulations of the SEC
promulgated thereunder, all as the same may from time to time be in effect.
"SERIES A CONVERSION SHARES" means the Registrable Shares that
are (i) shares of Common Stock issued or issuable upon the conversion of Series
A Preferred Stock, (ii) shares of Common Stock issued on or with respect to the
shares of Common Stock referred to in CLAUSE (i) above or (iii) shares of Common
Stock issued on or with respect to the Series A Preferred Stock.
"SERIES A PREFERRED STOCK" means the Corporation's Series A
Convertible Preferred Stock, par value $.001 per share.
"SERIES B CONVERSION SHARES" means the Registrable Shares that
are (i) shares of Common Stock issued or issuable upon the conversion of Series
B Preferred Stock, (ii) shares of Common Stock issued on or with respect to the
shares of Common Stock referred to in CLAUSE (i) above or (iii) shares of Common
Stock issued on or with respect to the Series B Preferred Stock.
"SERIES B PREFERRED STOCK" means the Corporation's Series B
Convertible Preferred Stock, par value $.001 per share.
"SHARES" means the Registrable Shares, the Additional
Registrable Shares, the SP Registrable Shares, the Initial Common Shares, the
Conversion Shares and the Warrant Shares.
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"SP REGISTRABLE SHARES" means (i) any Additional Registrable
Shares issued by the Corporation to any Strategic Partner (other than Dell) in
connection with such Strategic Partner's entry into a strategic arrangement with
the Corporation for the provision by either party to the other party of goods,
services, technology, expertise or other value and (ii) any other Additional
Registrable Shares issued on or with respect to the Additional Registrable
Shares referred to in CLAUSE (i) above.
"STOCK PURCHASE AGREEMENT" means the Stock Purchase Agreement
dated as of February __, 2000, between the Corporation and Dell, as amended,
supplemented or otherwise modified and in effect from time to time.
"STRATEGIC PARTNER" means a Person who or which, at the time
in question, has entered into, or is simultaneously entering into or has agreed
to enter into, a strategic arrangement with the Corporation for the provision by
either party to the other party of goods, services, technology, expertise or
other value.
"SUBSIDIARY" means, as to any Person, any other Person of
which more than 50% of the shares of the voting stock or other voting interests
are owned or controlled, or the ability to select or elect 50% or more of the
directors or similar managers is held, directly or indirectly, by such first
Person or one or more of its Subsidiaries.
"WARRANT SHARES" means the Registrable Shares that are (i)
shares of Common Stock issued or issuable upon the exercise of the Initial
Warrants, (ii) shares of Common Stock issued on or with respect to the shares of
Common Stock referred to in CLAUSE (i) above or (iii) shares of Common Stock
issued on or with respect to the Initial Warrants.
2. FORM S-3 REGISTRATIONS.
(a) If, at any time after the Registration Date the Corporation shall be
qualified for the use of Form S-3 promulgated under the Securities Act (or any
successor form thereto) for the sale to the public of Registrable Shares held by
the Dell Securityholders, a Majority of the Dell Securityholders shall notify
the Corporation in writing that such Dell Securityholders desire to sell
Registrable Shares, with an anticipated aggregate gross offering price (before
underwriting discounts and commissions) of at least $3,000,000, in the public
securities market and request that the Corporation effect the registration on
Form S-3 (or any successor form thereto) of such Registrable Shares, the
Corporation shall:
(i) promptly give written notice of the proposed registration to all
other Dell Securityholders, who or which shall have the right, subject to
the applicable terms of this Agreement, to include in such registration
Registrable Shares held by them (exercisable by delivering to the
Corporation a written notice specifying the number of Registrable Shares
requested to be included within 30 days after receipt of such notice of
such registration from the Corporation); and
(ii) file and then use its best efforts to have the registration on
Form S-3 (or any successor form thereto) of the Registrable Shares which
the Corporation has been so requested to register declared effective.
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(b) Anything contained in SECTION 2(a) to the contrary notwithstanding, the
Corporation shall not be obligated to effect pursuant to SECTION 2(a) any
registration under the Securities Act except in accordance with the following
provisions:
(i) The Corporation shall not be obligated to use its best
efforts to file and cause to become effective (a) more than two
Registration Statements requested pursuant to SECTION 2(a) or (B) any
Registration Statement during any period in which any other
registration statement (other than on Form S-4 or Form S-8 promulgated
under the Securities Act or any successor forms thereto) pursuant to
which Primary Shares are to be or were sold has been filed and not
withdrawn or has been declared effective within the prior 90 days.
(ii) The Corporation may delay the filing or effectiveness of any
Registration Statement for a period of up to 90 days after the date of
a request for registration pursuant to SECTION 2(a) if at the time of
such request the Corporation (A) is engaged, or has fixed plans to
engage within 90 days of the time of such request, in a firm
commitment, underwritten public offering of Primary Shares in which
the holders of Registrable Shares may include Registrable Shares
pursuant to SECTION 3 or (B) is engaged in a Material Transaction.
(iii) In connection with any registration of Registrable Shares
pursuant to SECTION 2(a), the Corporation shall give notice of such
registration to the holders of all Additional Registrable Shares and
Other Shares which are entitled to registration rights and the
Corporation may include in such registration any Primary Shares,
Additional Registrable Shares or Other Shares; PROVIDED, HOWEVER, that
if the managing underwriter advises the Corporation that the inclusion
of all of the Registrable Shares, Primary Shares, Additional
Registrable Shares and/or Other Shares proposed to be included in such
registration would interfere with the successful marketing (including
pricing) of all of such securities, then the number of Registrable
Shares, Primary Shares, Additional Registrable Shares and/or Other
Shares proposed to be included in such registration shall be included
in the following order:
(A) FIRST, the Registrable Shares requested by the Dell
Securityholders to be included in such registration and the
Additional Registrable Shares constituting SP Registrable
Shares requested by the Additional Securityholders to be
included in such registration (or, if necessary, such Shares
PRO RATA among all such Persons based upon the aggregate
number of Registrable Shares and SP Registrable Shares held
by each such Person at the time of registration);
(B) SECOND, the Additional Registrable Shares
constituting Initial Common Shares, Conversion Shares or
Warrant Shares requested by the Additional Securityholders
to be included in such registration (or, if necessary, such
Shares allocated among all such Additional Securityholders
in accordance with the applicable provisions of any
agreements between the Corporation and such Additional
Securityholders, as amended, supplemented or otherwise
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modified from time to time and in effect at the time of
registration, or, in the absence of any applicable
provisions, PRO RATA among all such Additional
Securityholders based upon the number of Additional
Registrable Shares constituting Initial Common Shares,
Conversion Shares or Warrant Shares held by each such
Additional Securityholder at the time of registration);
(C) THIRD, the Primary Shares
(D) FOURTH, the Additional Registrable Shares not
constituting Initial Common Shares, Conversion Shares,
Warrant Shares or SP Registrable Shares requested by the
Additional Securityholders to be included in such
registration (or, if necessary, such Shares allocated among
all such Additional Securityholders in accordance with the
applicable provisions of any agreements between the
Corporation and such Additional Securityholders, as amended,
supplemented or otherwise modified from time to time and in
effect at the time of registration, or, in the absence of
any applicable provisions, PRO RATA among all such
Additional Securityholders based upon the number of
Additional Registrable Shares not constituting Initial
Common Shares, Conversion Shares, Warrant Shares or SP
Registrable Shares held by each such Additional
Securityholder at the time of registration);
(E) FIFTH, the Registrable Shares requested by the Dell
Securityholders to be included in such registration (or, if
necessary, such Shares PRO RATA among all such Persons based
upon the aggregate number of Registrable Shares held by each
such Dell Securityholder at the time of registration); and
(F) SIXTH, the Other Shares.
(c) If the Majority of the Dell Securityholders in a registration
requested pursuant to SECTION 2(a) intend to distribute the Registrable
Shares covered by their request by means of an underwriting, they shall so
advise the Corporation as a part of their request for registration pursuant
to SECTION 2(a). In such event, the Corporation shall select one or more
nationally recognized firms of investment bankers reasonably acceptable to
the Majority of the Dell Securityholders to act as the lead managing
underwriter or underwriters in connection with such offering. The right of
any Registering Dell Securityholder to registration pursuant to SECTION
2(a) shall be conditioned upon such Registering Dell Securityholder's
participation in such underwriting and the inclusion of such Registering
Dell Securityholder's Registrable Shares in the underwriting (unless
otherwise mutually agreed by the Corporation and such Registering Dell
Securityholder) to the extent provided herein. The Corporation and the
Registering Dell Securityholders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement which
is reasonable and in customary form with the underwriters of such offering.
(d) A requested registration under SECTION 2(a) may be rescinded prior
to the related Registration Statement being declared effective by the SEC
by written notice to the Corporation from the Majority of the Dell
Securityholders; PROVIDED, HOWEVER, such registration shall not count as a
Registration Statement requested pursuant to SECTION 2(a) for purposes of
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CLAUSE (A) of SECTION 2(b)(i) if the Corporation shall have been reimbursed
for all out-of-pocket expenses incurred by the Corporation in connection
with such rescinded registration.
3. PIGGYBACK REGISTRATION.
(a) If the Corporation proposes for any reason to register Primary
Shares, Additional Registrable Shares or Other Shares under the Securities
Act at any time after the closing of an initial Public Offering of Common
Stock (other than on Form S-4 or Form S-8 promulgated under the Securities
Act or any successor forms thereto), it shall give written notice to the Dell
Securityholders of its intention to so register such Primary Shares,
Additional Registrable Shares or Other Shares at least 30 days before the
initial filing of the registration statement for such Primary Shares,
Additional Registrable Shares or Other Shares and, upon the written request,
given within 20 days after delivery of any such notice by the Corporation, of
any Dell Securityholder to include in such registration Registrable Shares
(which request shall specify the number of Registrable Shares proposed to be
included in such registration and shall state the desire of such Dell
Securityholder to sell such Registrable Shares in the public securities
markets), the Corporation shall use its best efforts to cause all such
Registrable Shares to be included in such registration on the same terms and
conditions as the Primary Shares, Additional Registrable Shares or Other
Shares otherwise being sold in such registration; PROVIDED, HOWEVER, if the
managing underwriter advises the Corporation that the inclusion of all of the
Registrable Shares, Primary Shares, Additional Registrable Shares and/or
Other Shares proposed to be included in such registration would interfere
with the successful marketing (including pricing) of all of such securities,
then the number of Registrable Shares, Primary Shares, Additional Registrable
Shares and/or Other Shares proposed to be included in such registration shall
be included in the following order:
(i) If such registration is initiated by the Corporation to
register Primary Shares, Other Shares or Additional Registrable Shares not
constituting Initial Common Shares, Conversion Shares, Warrant Shares or
SP Registrable Shares, or by any holder of the foregoing:
(A) FIRST, the Primary Shares;
(B) SECOND, the Registrable Shares requested by the Dell
Securityholders to be included in such registration and the
Additional Registrable Shares constituting SP Registrable Shares,
Initial Common Shares, Conversion Shares or Warrant Shares
requested by the Additional Securityholders to be included in such
registration (or, if necessary, such Shares allocated between (x)
the Dell Securityholders and the Additional Securityholders who or
which have requested the inclusion of Registrable Shares or SP
Registrable Shares in such registration on the one hand and (y) the
other Additional Securityholders who or which have requested the
inclusion of Additional Registrable Shares constituting Initial
Common Shares, Conversion Shares or Warrant Shares in such
registration on the other hand, in proportion to the aggregate
number of Shares held by each such group of Persons at the time of
registration, with the aggregate number of Shares allocated to the
Additional Securityholders described in CLAUSE (y) above
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further allocated among such Additional Securityholders in
accordance with the applicable provisions of any agreements between
the Corporation and such Additional Securityholders, as amended,
supplemented or otherwise modified from time to time and in effect
at the time of registration, or, in the absence of any applicable
provisions, PRO RATA among all such Additional Securityholders
based upon the number of Additional Registrable Shares constituting
Initial Common Shares, Conversion Shares or Warrant Shares held by
each such Additional Securityholder at the time of registration);
(C) THIRD, the Additional Registrable Shares not constituting
Initial Common Shares, Conversion Shares, Warrant Shares or SP
Registrable Shares requested by the Additional Securityholders to
be included in such registration (or, if necessary, such Shares
allocated among all such Additional Securityholders in accordance
with the applicable provisions of any agreements between the
Corporation and such Additional Securityholders, as amended,
supplemented or otherwise modified from time to time and in effect
at the time of registration, or, in the absence of any applicable
provisions, PRO RATA among all such Additional Securityholders
based upon the number of Additional Registrable Shares not
constituting Initial Common Shares, Conversion Shares, Warrant
Shares or SP Registrable Shares held by each such Additional
Securityholder at the time of registration); and
(D) FOURTH, the Other Shares.
(ii) If such registration is initiated by Additional Securityholders
who or which request the inclusion of their Additional Registrable Shares
constituting SP Registrable Shares in such registration:
(A) FIRST, the Additional Registrable Shares constituting SP
Registrable Shares requested by the Additional Securityholders to
be included in such registration and the Registrable Shares
requested by the Dell Securityholders to be included in such
registration (or, if necessary, such Shares PRO RATA among all such
Persons based on the aggregate number of SP Registrable Shares and
Registrable Shares held by each such Person at the time of
registration);
(B) SECOND, the Additional Registrable Shares constituting
Initial Common Shares, Conversion Shares or Warrant Shares
requested by the Additional Securityholders to be included in such
registration (or, if necessary, such Shares allocated among all
such Additional Securityholders in accordance with the applicable
provisions of any agreements between the Corporation and such
Additional Securityholders, as amended, supplemented or otherwise
modified from time to time and in effect at the time of
registration, or, in the absence of any applicable provisions, PRO
RATA among all such Additional Securityholders based upon the
number of Additional Registrable Shares constituting Initial Common
Shares, Conversion Shares or Warrant Shares held by each such
Additional Securityholder at the time of registration);
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(C) THIRD, the Primary Shares;
(D) FOURTH, the Additional Registrable Shares not
constituting Initial Common Shares, Conversion Shares, Warrant
Shares or SP Registrable Shares requested by the Additional
Securityholders to be included in such registration (or, if
necessary, such Shares allocated among all such Additional
Securityholders in accordance with the applicable provisions of any
agreements between the Corporation and such Additional
Securityholders, as amended, supplemented or otherwise modified
from time to time and in effect at the time of registration, or, in
the absence of any applicable provisions, PRO RATA among all such
Additional Securityholders based upon the number of Additional
Registrable Shares not constituting Initial Common Shares,
Conversion Shares, Warrant Shares or SP Registrable Shares held by
each such Additional Securityholder at the time of registration);
and
(E) FIFTH, the Other Shares.
(iii) If such registration is initiated by Additional
Securityholders who or which request the inclusion of Additional
Registrable Shares constituting Initial Common Shares, Conversion Shares
or Warrant Shares in such registration:
(A) FIRST, the Additional Registrable Shares constituting
Initial Common Shares, Conversion Shares or Warrant Shares
requested by the Additional Securityholders to be included in such
registration (or, if necessary, such Shares allocated among all
such Additional Securityholders in accordance with the applicable
provisions of any agreements between the Corporation and such
Additional Securityholders, as amended, supplemented or otherwise
modified from time to time and in effect at the time of
registration, or, in the absence of any applicable provisions, PRO
RATA among all such Additional Securityholders based upon the
number of Additional Registrable Shares constituting Initial Common
Shares, Conversion Shares or Warrant Shares held by each such
Additional Securityholder at the time of registration);
(B) SECOND, the Registrable Shares requested by the Dell
Securityholders to be included in such registration and the
Additional Registrable Shares constituting SP Registrable Shares
requested by the Additional Securityholders to be included in such
registration (or, if necessary, such Shares PRO RATA among all such
Persons based on the aggregate number of Registrable Shares and SP
Registrable Shares held by each such Person at the time of
registration);
(C) THIRD, the Primary Shares;
(D) FOURTH, the Additional Registrable Shares not
constituting Initial Common Shares, Conversion Shares, Warrant
Shares or SP Registrable Shares requested by the Additional
Securityholders
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to be included in such registration (or, if necessary, such Shares
allocated among all such Additional Securityholders in accordance
with the applicable provisions of any agreements between the
Corporation and such Additional Securityholders, as amended,
supplemented or otherwise modified from time to time and in effect
at the time of registration, or, in the absence of any applicable
provisions, PRO RATA among all such Additional Securityholders
based upon the number of Additional Registrable Shares not
constituting Initial Common Shares, Conversion Shares, Warrant
Shares or SP Registrable Shares held by each such Additional
Securityholder at the time of registration); and
(E) FIFTH, the Other Shares.
4. HOLDBACK AGREEMENT.
If the Corporation at any time shall register shares of Common
Stock under the Securities Act in an aggregate amount of at least $5,000,000
(including any registration pursuant to SECTION 2 or 3, but excluding any
registrations on Form S-4 or S-8) for sale to the public, no Dell Securityholder
shall sell publicly, make any short sale of, grant any option for the purchase
of, or otherwise dispose publicly of, any capital stock of the Corporation
(other than those shares of Common Stock included in such registration pursuant
to SECTION 2 or 3) without the prior written consent of the Corporation, for a
period designated by the Corporation in writing to the Dell Securityholders,
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 date on which such registration
statement became effective, whether or not such Dell Securityholder participates
in such registration. Each Dell Securityholder agrees that the Corporation may
instruct its transfer agent to place stop transfer notations on its records to
enforce this SECTION 4.
5. PREPARATION AND FILING.
If and whenever the Corporation is under an obligation
pursuant to the provisions of this Agreement to use its best efforts to effect
the registration of, and keep effective a Registration Statement, for any
Registrable Shares, the Corporation shall, as expeditiously as practicable:
(a) use its best efforts to cause a Registration Statement that registers
such Registrable Shares to become and remain effective for a period of 90 days
or until all of such Registrable Shares have been disposed of (if earlier);
(b) furnish, at least five Business Days before filing a Registration
Statement that registers such Registrable Shares, a Prospectus relating thereto
and any amendments or supplements relating to such Registration Statement or
Prospectus, to one counsel selected by the Majority of the Dell Securityholders
(the "DELL SECURITYHOLDERS' COUNSEL"), copies of all such documents proposed to
be filed (it being understood that such five Business Day period need not apply
to successive drafts of the same document proposed to be filed so long as such
successive drafts are supplied to the Dell Securityholders' Counsel in advance
of the proposed filing by a period of time that is customary and reasonable
under the circumstances);
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(c) prepare and file with the SEC such amendments and supplements to such
Registration Statement and the Prospectus used in connection therewith as may be
necessary to keep such Registration Statement effective for at least a period of
90 days or until all of such Registrable Shares have been disposed of (if
earlier) and to comply with the provisions of the Securities Act with respect to
the sale or other disposition of such Registrable Shares;
(d) notify the Dell Securityholders' Counsel promptly in writing of (i) any
comments by the SEC with respect to such Registration Statement or Prospectus,
or any request by the SEC for the amending or supplementing thereof or for
additional information with respect thereto, (ii) the issuance by the SEC of any
stop order suspending the effectiveness of such Registration Statement or
Prospectus or any amendment or supplement thereto or the initiation or
threatening of any proceedings for that purpose (and the Corporation shall use
its best efforts to prevent the issuance thereof or, if issued, to obtain its
withdrawal) and (iii) the receipt by the Corporation of any notification with
respect to the suspension of the qualification of such Registrable Shares for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purposes;
(e) use its best efforts to register or qualify such Registrable Shares
under such other securities or blue sky laws of such jurisdictions as any
Registering Dell Securityholder may reasonably request, to keep such
registrations or qualifications in effect for so long as such Registration
Statement covering such Registrable Shares remains in effect and do any and all
other acts and things which may be reasonably necessary or advisable to enable
such Registering Dell Securityholder to consummate the disposition in such
jurisdictions of the Registrable Shares owned by such Registering Dell
Securityholder; PROVIDED, HOWEVER, that the Corporation will not be required to
qualify generally to do business, to subject itself to general taxation or
consent to general service of process in any jurisdiction where it would not
otherwise be required to do so but for this SECTION 5(e) or to provide any
material undertaking or make any changes in its Bylaws or Certificate of
Incorporation which its Board of Directors determines to be contrary to the best
interests of the Corporation;
(f) furnish to each Registering Dell Securityholder such number of copies
of a summary Prospectus, if any, or other Prospectus, including a preliminary
Prospectus, in conformity with the requirements of the Securities Act, and such
other documents as such Registering Dell Securityholder may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Shares held by Registering Dell Securityholder;
(g) use its best efforts to cause such Registrable Shares to be registered
with or approved by such other Governmental Entities as may be necessary by
virtue of the business and operations of the Corporation to enable the
Registering Dell Securityholders to consummate the disposition of such
Registrable Shares;
(h) notify on a timely basis each Registering Dell Securityholder at any
time when a Prospectus relating to such Registrable Shares is required to be
delivered under the Securities Act within the appropriate period mentioned in
SECTION 5(a), of the happening of any event known to the Corporation as a result
of which the Prospectus included in such Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
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material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing and, at the
request of such Registering Dell Securityholder, prepare and furnish to such
Registering Dell Securityholder a reasonable number of copies of a supplement to
or an amendment of such Prospectus as may be necessary so that, as thereafter
delivered to the offerees of such Registrable Shares, such Prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(i) subject to the execution of confidentiality agreements in form and
substance satisfactory to the Corporation, make available, upon reasonable
notice and during normal business hours, for inspection by the Registering Dell
Securityholders any underwriter participating in any disposition pursuant to
such Registration Statement and any attorney, accountant or other agent retained
by the Registering Dell Securityholders or underwriter (collectively, the
"INSPECTORS"), all pertinent financial and other records, pertinent corporate
documents and properties of the Corporation (collectively, the "RECORDS"), as
shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Corporation's officers, directors and employees to
supply all information (together with the Records, the "INFORMATION") reasonably
requested by any such Inspector in connection with such Registration Statement
(any of the Information which the Corporation determines in good faith to be
confidential, and of which determination the Inspectors are so notified, shall
not be disclosed by the Inspectors, unless (i) the disclosure of such
Information is necessary to avoid or correct a misstatement or omission in the
Registration Statement, (ii) the release of such Information is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction or, upon the
written advice of counsel, is otherwise required by law, or (iii) such
Information has been made generally available to the public, and each
Registering Dell Securityholder agrees that it will, upon learning that
disclosure of such Information is sought in a court of competent jurisdiction,
give notice to the Corporation and allow the Corporation, at the Corporation's
expense, to undertake appropriate action to prevent disclosure of the
Information deemed confidential);
(j) use its best efforts to obtain from its independent certified public
accountants "COLD COMFORT" letters in customary form and at customary times and
covering matters of the type customarily covered by cold comfort letters;
(k) use its best efforts to obtain from its counsel an opinion or opinions
in customary form;
(l) provide a transfer agent and registrar (which may be the same Person
and which may be the Corporation) for such Registrable Shares;
(m) issue to any underwriter to which any Registrable Dell Securityholder
may sell such Registrable Shares in such offering, certificates evidencing such
Registrable Shares;
(n) list such Registrable Shares on any national securities exchange on
which any shares of Common Stock are listed or, if Common Stock is not listed on
a national securities exchange, use its best efforts to qualify such Registrable
Shares for inclusion on the national
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automated quotation system of the National Association of Securities Dealers,
Inc. (the "NASD"), or such other national securities exchange as the holders of
a majority of such Registrable Shares shall reasonably request;
(o) otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC and make available to its securityholders, as soon as
reasonably practicable, earnings statements (which need not be audited) covering
a period of 12 months beginning within three months after the effective date of
the Registration Statement, which earnings statements shall satisfy the
provisions of Section 11(a) of the Securities Act; and
(p) subject to all of the other provisions of this Agreement, use its best
efforts to take all other steps necessary to effect the registration of such
Registrable Shares contemplated hereby.
Each Registering Dell Securityholder, upon the receipt of any
notice from the Corporation of any event of the kind described in SECTION 5(h),
shall forthwith discontinue disposition of Registrable Shares pursuant to the
Registration Statement until such Registering Dell Securityholder's receipt of
copies of the supplemented or amended Prospectus contemplated by SECTION 5(h),
and, if so directed by the Corporation, such Registering Dell Securityholder
shall deliver to the Corporation all copies, other than permanent file copies
then in such Dell Securityholder's possession, of the Prospectus covering such
Registrable Shares at the time of receipt of such notice.
6. EXPENSES.
All expenses incurred by the Corporation in complying with
SECTION 5, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the NASD), fees and expenses of
complying with securities and blue sky laws, printing expenses, fees and
expenses of the Corporation's counsel and accountants and fees and expenses of
the Dell Securityholders' Counsel, shall be paid by the Corporation; PROVIDED,
HOWEVER, that all underwriting discounts and selling commissions applicable to
the Registrable Shares shall not be borne by the Corporation and shall be borne
by the Registering Dell Securityholders selling such Registrable Securities, in
proportion to the number of Registrable Shares sold by each such Registering
Dell Securityholder.
7. INDEMNIFICATION.
(a) In connection with any registration of any Registrable Shares under the
Securities Act pursuant to this Agreement, the Corporation shall indemnify and
hold harmless each holder of such Registrable Shares, each underwriter, broker
or any other Person acting on behalf of any such holder and each other Person,
if any, who controls any of the foregoing Persons within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, (or actions in respect thereof) to which any of the foregoing Persons
may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement under which such
Registrable Shares were registered under the Securities Act, any preliminary
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Prospectus or final Prospectus contained therein or otherwise filed with the
SEC, any amendment or supplement thereto or any document incident to
registration or qualification of any Registrable Shares, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or, with respect to any Prospectus, necessary to make the statements
therein in light of the circumstances under which they were made not misleading,
or any violation by the Corporation of the Securities Act or state securities or
blue sky laws applicable to the Corporation and relating to action or inaction
required of the Corporation in connection with such registration or
qualification under such state securities or blue sky laws, and the Corporation
shall promptly reimburse each such holder, underwriter, broker or other Person
acting on behalf of any such holder and each such controlling Person for any
legal or other expenses incurred by any of them in connection with investigating
or defending any such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that the Corporation shall not be liable to any such Person to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in said Registration Statement, preliminary Prospectus, amendment,
supplement or document incident to registration or qualification of any
Registrable Shares in reliance upon and in conformity with information furnished
to the Corporation, or a Person duly acting on the Corporation's behalf, through
an instrument duly executed by such Person, or a Person duly acting on such
Person's behalf, specifically for use in connection with the preparation
thereof; PROVIDED FURTHER, HOWEVER, that the foregoing indemnity agreement is
subject to the condition that, insofar as it relates to any untrue statement,
allegedly untrue statement, omission or alleged omission made in any preliminary
Prospectus but eliminated or remedied in the final Prospectus (filed pursuant to
Rule 424 of the Securities Act), such indemnity agreement shall not inure to the
benefit of any indemnified party from whom the Person asserting any loss, claim,
damage, liability or expense purchased the Registrable Shares which are the
subject thereof, if a copy of such final Prospectus had been timely made
available to such indemnified Person and such final Prospectus was not delivered
to such Person with or prior to the written confirmation of the sale of such
Registrable Shares to such Person.
(b) In connection with any registration of Registrable Shares under the
Securities Act pursuant to this Agreement, each holder of Registrable Shares
shall, severally and not jointly, indemnify and hold harmless (in the same
manner and to the same extent as set forth in SECTION 7(a)) the Corporation,
each director of the Corporation, each officer of the Corporation who signs such
Registration Statement, each other holder of Registrable Shares, Additional
Registrable Shares or Other Shares included in such Registration Statement
(PROVIDED, that the holder shall be entitled to indemnification of a similar
nature from such other holder to at least the same extent as the indemnification
given by the holder pursuant to this SECTION 7(b)), each underwriter, broker or
any other Person acting on behalf of any such holder and each other Person, if
any, who controls any of the foregoing Persons within the meaning of the
Securities Act with respect to any statement or omission from such Registration
Statement, any preliminary Prospectus or final Prospectus contained therein or
otherwise filed with the SEC, any amendment or supplement thereto or any
document incident to registration or qualification of any Registrable Shares, if
such statement or omission was made in reliance upon and in conformity with
written information furnished to the Corporation or such underwriter through an
instrument duly executed by such holder, or a Person duly acting on such
holder's behalf, specifically for use in
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connection with the preparation of such Registration Statement, preliminary
Prospectus, final Prospectus, amendment, supplement or document; PROVIDED,
HOWEVER, that the maximum amount of liability in respect of such indemnification
shall be limited, in the case of each holder of Registrable Shares, to an amount
equal to the net proceeds actually received by such holder from the sale of
Registrable Shares effected pursuant to such registration.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in SECTION 7(a) or
SECTION 7(b), such indemnified party will, if a claim in respect thereof is made
against an indemnifying party, give written notice to the latter of the
commencement of such action (PROVIDED that an indemnified party's failure to
give such notice in a timely manner shall only relieve the indemnification
obligations of an indemnifying party to the extent such indemnifying party is
prejudiced by such failure). In case any such action is brought against an
indemnified party, the indemnifying party will be entitled to participate in and
to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be responsible for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof; PROVIDED, HOWEVER, that if any indemnified party shall have
reasonably concluded that there may be one or more legal or equitable defenses
available to such indemnified party which are in addition to or conflict with
those available to the indemnifying party, 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 7, the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified party
and such indemnifying party shall reimburse such indemnified party and any
Person controlling such indemnified party for that portion of the fees and
expenses of any one lead counsel (PLUS appropriate special and local counsel)
retained by the indemnified party which are reasonably related to the matters
covered by the indemnity agreement provided in this SECTION 7. The indemnifying
party shall not be liable to indemnify any indemnified party for any settlement
of any claim or action effected without the consent of the indemnifying party.
The indemnifying party may not settle any claim or action brought against an
indemnified party unless such indemnified party is released from all and any
liability as part of such settlement.
(d) If the indemnification provided for in this SECTION 7 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, claim, damage, liability or action referred to herein, then
the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amounts paid or payable by such indemnified
party as a result of such loss, claim, damage, liability or action in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other hand in
connection with the statements or omissions which resulted in such loss, claim,
damage, liability or action as well as any other relevant equitable
considerations; PROVIDED, HOWEVER, that the maximum amount of liability in
respect of such contribution shall be limited, in the case of each holder of
Registrable Shares, to an amount equal to the net proceeds actually received by
such holder from the sale of Registrable Shares effected pursuant to such
registration. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or
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alleged untrue statement of a material fact or the omission to state a material
fact relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The parties agree that it would not be just and equitable if contribution
pursuant hereto were determined by PRO RATA allocation or by any other method or
allocation which does not take account of the equitable considerations referred
to herein. No person guilty of fraudulent misrepresentation shall be entitled to
contribution from any person.
(e) The indemnification and contribution provided for under this Agreement
will remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party and will survive the transfer of securities.
8. UNDERWRITING AGREEMENT.
Notwithstanding the provisions of SECTIONS 5 through 7, to the
extent that the Dell Securityholders shall enter into an underwriting or similar
agreement, which agreement contains provisions covering one or more issues
addressed in such Sections, the provisions contained in such Sections addressing
such issue or issues shall be of no force or effect with respect to such
registration, but this provision shall not apply to the Corporation if the
Corporation is not a party to the underwriting or similar agreement.
9. SUSPENSION.
Anything contained in this Agreement to the contrary
notwithstanding, the Corporation may (but not more than once with respect to
each Registration Statement), by notice in writing to each holder of Registrable
Shares to which a Prospectus relates, require such holder to suspend, for up to
90 days (the "SUSPENSION PERIOD"), the use of any Prospectus included in a
Registration Statement filed under SECTION 2 or 3 if a Material Transaction
exists that would require an amendment to such Registration Statement or
supplement to such Prospectus (including any such amendment or supplement made
through incorporation by reference to a report filed under Section 13 of the
Exchange Act). The period during which such Prospectus must remain effective
shall be extended by a period equal to the Suspension Period. The Corporation
may (but shall not be obligated to) withdraw the effectiveness of any
Registration Statement subject to this provision.
10. INFORMATION BY HOLDER.
Each holder of Registrable Shares to be included in any such
registration shall furnish to the Corporation and the managing underwriter such
written information regarding such holder and the distribution proposed by such
holder as the Corporation or the managing underwriter may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
11. EXCHANGE ACT COMPLIANCE.
From the Registration Date or such earlier date as a
registration statement filed by the Corporation pursuant to the Exchange Act
relating to any class of the Corporation's securities
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shall have become effective, the Corporation shall comply with all of the
reporting requirements of the Exchange Act applicable to it (whether or not it
shall be required to do so, but specifically excluding Section 14 of the
Exchange Act if not then applicable to the Corporation) and shall comply with
all other public information reporting requirements of the SEC which are
conditions to the availability of Rule 144 for the sale of the Common Stock. The
Corporation shall cooperate with the Dell Securityholders in supplying such
information as may be necessary for the Dell Securityholders to complete and
file any information reporting forms presently or hereafter required by the SEC
as a condition to the availability of Rule 144.
12. LEGENDS ON CERTIFICATES.
(a) Each certificate issued after the date hereof that represents
Restricted Securities shall (unless otherwise permitted by the provisions of
this SECTION 12) be stamped or otherwise imprinted with a legend in
substantially the following form (in addition to any other legend required by
law or applicable agreement):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT").
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER
THE ACT OR AN EXEMPTION THEREFROM."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO THE TERMS AND CONDITIONS OF A STRATEGIC PARTNER
REGISTRATION RIGHTS AGREEMENT DATED AS OF MARCH 1, 2000,
BETWEEN OPUS360 CORPORATION AND DELL COMPUTER CORPORATION, AS
THE SAME MAY BE AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED
AND IN EFFECT FROM TIME TO TIME. 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
COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE."
The Corporation agrees to remove the legend set forth in this
SECTION 12(a) from a certificate representing securities issued by the
Corporation if such securities are sold pursuant to an effective registration
statement under the Securities Act or there is delivered to the Corporation an
opinion of nationally recognized counsel experienced in such matters in form and
substance reasonably satisfactory to the Corporation that the securities
represented thereby need no longer be subject to restrictions on resale under
the Securities Act.
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(b) Each Dell Securityholder consents to the Corporation making a notation
on its records and giving instructions to any transfer agent of such Dell
Securityholder's Restricted Securities in order to implement the restrictions on
transfer established in this SECTION 12.
13. MERGERS, ETC.
The Corporation shall not, directly or indirectly, enter into
any merger, consolidation or reorganization in which the Corporation shall not
be the surviving corporation unless the surviving corporation shall, prior to
such merger, consolidation or reorganization, agree in writing to assume the
obligations of the Corporation under this Agreement, and for that purpose
references hereunder to "REGISTRABLE SHARES" shall be deemed to include the
shares of common stock, if any, that holders of Registrable Shares would be
entitled to receive in exchange for Common Stock under any such merger,
consolidation or reorganization; PROVIDED, HOWEVER, that, to the extent holders
of Registrable Shares receive securities that are by their terms convertible
into shares of common stock of the issuer thereof, then only such shares of
common stock as are issued or issuable upon conversion of said convertible
securities shall be included within the definition of "REGISTRABLE SHARES."
14. NOMINEES FOR BENEFICIAL OWNERS.
If Registrable Shares are held by a nominee for the beneficial
owner thereof, the beneficial owner thereof may, at its option, be treated as
the holder of such Registrable Shares for purposes of any request or other
action by any holder or holders of Registrable Shares pursuant to this Agreement
(or any determination of any number of percentage of shares constituting
Registrable Shares held by any holder or holders of Registrable Shares
contemplated by this Agreement); PROVIDED, HOWEVER, that the Corporation shall
have received assurances reasonably satisfactory to it of such beneficial
ownership.
15. NO CONFLICT OF RIGHTS.
The Corporation shall not, after the date hereof, grant any
registration rights which conflict with the registration rights granted hereby.
16. TERMINATION.
This Agreement shall terminate and be of no further force or
effect when there shall no longer be any Registrable Shares or Additional
Registrable Shares outstanding, PROVIDED, HOWEVER, that SECTION 6 and SECTION 7
shall survive the termination of this Agreement.
17. SUCCESSORS AND ASSIGNS.
This Agreement shall bind and inure to the benefit of the
Corporation and the Dell Securityholders and, subject to SECTION 18, the
respective successors and assigns of the Corporation and the Dell
Securityholders.
18. ASSIGNMENT.
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Subject to the applicable limitations of the Stock Purchase
Agreement, each Dell Securityholder may sell, assign or otherwise transfer its
rights hereunder to any purchaser, assignee or other transferee of the
Registrable Shares of such Dell Securityholder; PROVIDED, HOWEVER, that any such
purchaser, assignee or other transferee, if not already a party to this
Agreement, shall, as a condition to the effectiveness of such sale, assignment
or other transfer, be required to execute a written joinder to this Agreement
agreeing to be treated as a Dell Securityholder under this Agreement, and to be
bound by and comply with all of the applicable terms and provisions hereof,
whereupon such purchaser, assignee or transferee shall have the benefits of, and
shall be subject to the restrictions contained in, this Agreement as if such
purchaser or transferee was originally a Dell Securityholder and had originally
been a party hereto.
19. NOTICES.
All notices, requests, demands, claims, consents or other
communications that are given or made hereunder to any party hereto shall be in
writing and shall be given or made by physical delivery, U.S. mail (registered
or certified mail, postage prepaid, return receipt requested) or overnight
courier or by transmission by facsimile or electronic mail to such party at its,
his or her address (or facsimile number or electronic mail address) set forth
below, or such other address (or facsimile number or electronic mail address) as
shall have been specified by like notice by such party:
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(i) if to the Corporation, to
Opus360 Corporation
733 Third Avenue, 17th Floor
New York, NY 10017
Attention: Richard McCann, Chief Financial Officer
Telephone: (212) 301-2218
Facsimile: (212) 301-2842
E-Mail: [email protected]
with a copy (which shall not constitute notice) to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, NY 10112
Attention: John J. Suydam, Esq.
Telephone: (212) 408-2400
Facsimile: (212) 728-5950
E-Mail: [email protected]
(ii) if to any Dell Securityholder, to such Dell
Securityholder at the address set forth on SCHEDULE I
immediately below the name of such Dell Securityholder.
Each such notice, demand or other communication hereunder
shall be effective upon receipt in the case of physical delivery or overnight
courier, upon confirmation of receipt by or on behalf of the addressee in the
case of transmission by facsimile or electronic mail if received prior to 5:00
p.m. New York City time, and, if received after 5:00 p.m., on the date after
such confirmation, and three (3) days after deposit in the U.S. mails in the
case of mailing.
20. ENTIRE AGREEMENT.
This Agreement and the other writings referred to herein or
delivered pursuant hereto contain the sole and entire agreement among the
Corporation and the Dell Securityholders with respect to the subject matter
hereof and thereof and shall supersede all prior or contemporaneous arrangements
or understandings with respect hereto or thereto.
21. AMENDMENT.
The terms and provisions of this Agreement may not be modified
or amended, nor may any provision be waived, except pursuant to a writing signed
by (i) the Corporation, and (ii) a Majority of the Dell Securityholders;
PROVIDED, HOWEVER, that no such written consent shall be required for the
amendment of SCHEDULE I solely to reflect the name and address of any new Dell
Securityholder who has become a party to this Agreement in accordance with the
terms and conditions hereof. No waiver by any party hereto 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
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affect in any way any rights arising by virtue of any prior or subsequent such
occurrence. Each holder of any Restricted Securities outstanding at or after the
time of any modification or amendment of, or waiver of any provisions of this
Agreement, shall be bound by any consent authorized by this SECTION 21, whether
or not such Restricted Securities shall have been marked to indicate such
consent.
22. SEVERABILITY.
It is the desire and intent of the parties hereto 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.
23. COUNTERPARTS; FACSIMILE SIGNATURES.
This Agreement may be executed in any number of counterparts,
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement. This Agreement
and each other agreement or instrument entered into in connection herewith or
contemplated hereby, and any amendments hereto or thereto, to the extent signed
and delivered by means of a facsimile machine, shall be treated in all manner
and respects as an original agreement or instrument and shall be considered to
have the same binding legal effect as if it were the original signed version
thereof delivered in person. At the request of any party hereto or to any such
agreement or instrument, each other party hereto or thereto shall reexecute
original forms thereof and deliver them to all other parties.
24. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
25. INTERPRETATION; CONSTRUCTION.
The headings contained in this Agreement and in the table of
contents to this Agreement are for convenience of reference only and shall not
govern or affect in any way the meaning or interpretation of any of the terms or
provisions of this Agreement. Except when the context requires otherwise, any
reference in this Agreement to any Section, clause or Schedule shall be to the
Sections and clauses of, and Schedules to, this Agreement. The words "INCLUDE,"
"INCLUDES" and "INCLUDING" are deemed to be followed by the phrase "WITHOUT
LIMITATION." Any
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reference to the masculine, feminine or neuter gender shall include such other
genders and any reference to the singular or plural shall include the other, in
each case unless the context otherwise requires. SCHEDULE I annexed hereto are
hereby incorporated in and made a part of this Agreement as if set forth in full
herein. 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 has been
chosen by the parties to express their mutual intent, and no rule of strict
construction shall be applied against any party.
26. WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ITS, HIS
OR HER RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THE PARTIES HERETO
RELATING TO THE SUJBECT MATTER HEREOF.
27. ATTORNEY'S FEES.
If any legal action or any arbitration or other proceeding is
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party or parties shall be entitled
to recover such reasonable attorneys fees and other costs incurred in that
action or proceeding, in addition to any other relief to which it or they may be
entitled, as may be ordered in connection with such proceeding.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Strategic Partner Registration Rights Agreement as of the date first written
above.
OPUS360 CORPORATION
By:
------------------------
Name:
Title:
DELL USA L.P.
BY: DELL GEN. P. CORP.,
ITS GENERAL PARTNER
By:
------------------------
Name:
Title:
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SCHEDULE I
DELL SECURITYHOLDERS
DELL USA L.P.
Paul Legris
Dell Ventures
c/o Dell Computer Corporation
Mail Stop 8066
One Dell Way
Round Rock, Texas 78682
With copies to:
Thomas H. Welch, Jr.
Vice President and Deputy General Counsel
Legal Department
Dell Computer Corporation
Mail Stop 8033
One Dell Way
Round Rock, Texas 78682
Barry Burgdorf
Vinson & Elkins L.L.P.
600 Congress Avenue, Suite 2700
Austin, Texas 78701
Tel: (512) 495-8533
Fax: (512) 236-3246
E-Mail: [email protected]
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Exhibit 21.1
Subsidiaries of the Company
<TABLE>
<CAPTION>
State of
Name % Ownership Incorporation
- ---- ----------- -------------
<S> <C> <C>
The Churchill Benefit Corporation........................... 100% Delaware
Ithority Corporation........................................ 100% California
PeopleMover, Inc. .......................................... 100% Delaware
</TABLE>
<PAGE>
EXHIBIT 23.2
The Board of Directors of
Opus 360 Corporation:
When the stock split referred to in Note 10 of the Notes to Financial
Statements has been consummated, we will be in a position to issue the following
consent.
/s/ KPMG LLP
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors of
Opus360 Corporation:
We consent to the use of our reports included herein, dated February 8, 2000
except as to paragraphs 24 and 25 of note 10, paragraphs 6 through 12 of note
13, and paragraphs 18 through 20 of note 13 which are as of March 1, 2000 and to
the reference to our firm under the heading "Experts" in the prospectus.
New York, New York
March 1, 2000
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form S-1 of
our report dated January 14, 2000, except for subsequent events described in
Note 10, as to which the date is February 24, 2000, and the commitment of
support described in Note 1, as to which the date is February 29, 2000 relating
to the financial statements of PeopleMover, Inc, which appear in such
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Woodland Hills, California
March 1, 2000
