<PAGE>
As filed with the Securities and Exchange Commission on April 4, 2000
Registration No. 333-93185
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
Amendment No. 5
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>
39 West 13th Street, 3rd Floor
New York, New York 10011
(212) 687-6787
(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
39 West 13th Street, 3rd Floor
New York, New York 10011
(212) 687-6787
(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) 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.
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<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 in the United States and another will be used in connection with
a concurrent international offering. The international prospectus and the United
States prospectus will be identical except for the front cover page. The page to
be included in the international prospectus is marked "Alternate Cover Page for
International Prospectus."
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 4, 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 outstanding shares to these Safeguard stockholders in this offering.
All shares sold in this offering, including shares purchased by Safeguard
stockholders, will be sold at the public offering price set forth below. 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 and CompuCom 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. Our common stock has been approved for quotation on the Nasdaq
National Market under the symbol "OPUS," subject to notice of issuance. We
anticipate that the initial public offering price will be between $9.00 and
$11.00 per share.
------------------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 10.
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<TABLE>
<CAPTION>
Per Share Total
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<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...................... $ $
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."
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Summary..................................................... 4
Risk Factors................................................ 10
Cautionary Note Regarding Forward Looking Statements; Market
Data...................................................... 29
Use of Proceeds............................................. 30
Dividend Policy............................................. 31
Capitalization.............................................. 32
Dilution.................................................... 34
Unaudited Pro Forma Combined Financial Statements........... 36
Selected Financial Data..................................... 42
Management's Discussions and Analysis of Financial Condition
and Results of Operations................................. 43
Business.................................................... 56
Management.................................................. 74
Related Party Transactions.................................. 86
Principal and Selling Stockholders.......................... 90
Description of Capital Stock................................ 93
Rescission Offer............................................ 97
Shares Eligible for Future Sale............................. 98
Underwriting................................................ 101
Legal Matters............................................... 106
Experts..................................................... 106
Where You Can Find More Information......................... 106
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.
------------------------
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.
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.
3
<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
4
<PAGE>
benefits, such as group health insurance and a 401(k) plan, 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 by the end of the third quarter of 2000.
Limited Operating History and New 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. These fees are withheld from amounts received
under the contracts that we enter into with third parties for the performance of
services by our FREEAGENT E.OFFICE employees, who are our contractual employees.
Of the amounts due from the contracting businesses, we report as revenue only
the amounts we are entitled to withhold by agreement with these employees in
payment for fees owed to us for administrative and other services provided to
them. 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 second 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
5
<PAGE>
enhanced version of OPUS XCHANGE and, during the second quarter 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.
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 39 West 13th Street, 3rd
Floor, New York, New York 10011, and our telephone number is (212) 687-6787. Our
principal websites are WWW.OPUS360.COM and WWW.FREEAGENT.COM. Information
contained on our websites does not constitute part of this prospectus.
6
<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................................ 49,973,476 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."
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 described under "Use of Proceeds," 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;
- the issuance of 799,582 shares of our common stock in January through
April 2000 upon the exercise of options; 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, 1,947,883 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 412,651 have been exercised;
- options to purchase 5,533,110 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 $8.41 per share, 140,000
of which are currently exercisable;
7
<PAGE>
- options to purchase 1,024,527 shares of our common stock held by employees
of PeopleMover, at a weighted average exercise price of $4.88 per share,
assumed by us in the PeopleMover acquisition, after giving effect to
forfeitures and exercises since the date of the acquisition;
- the effect of any shares or options repurchased in the rescission offer
that we intend to make after the closing of this offering, as described
under "Rescission Offering";
- 8,333,741 shares of our common stock reserved for future grant under our
stock option and employee stock purchase plans;
- 105,547 shares of our common stock issuable at a weighted average exercise
price of $0.78 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 $8.21 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."
8
<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.
<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. See "Use of Proceeds."
<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>
9
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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
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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 $5.5 million in 2000, $3.3 million in
each of 2001 and 2002 and $1.1 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
11
<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.
We have a contingent liability of up to $0.9 million, plus interest, as a result
of our issuing options to FREEAGENT E.OFFICE employees under circumstances that
may have violated the registration requirements of the Securites Act and we
intend to make a rescission offer to these employees as a result of this
violation.
As of April 3, 2000, we have granted options to purchase approximately
178,500 shares of our common stock to our FREEAGENT E.OFFICE employees. Because
of the monthly fees paid by our FREEAGENT E.OFFICE employees, the grant of these
options and the issuance of any shares of our common stock upon exercise of
these options may not qualify as a grant or issuance under a written
compensatory benefit plan. As a result, the grant of these options and the
issuance of shares of our common stock upon exercise of these options may not
comply with the requirements of Rule 701 under the Securities Act, or any other
available exemptions from the registration requirements of the Securities Act,
and may not have qualified for any exemption from qualification under applicable
state securities laws.
Beginning approximately 180 days after the date of this prospectus, we
intend to make a rescission offer to all these FREEAGENT E.OFFICE employees
using a registration statement filed under the Securities Act and under
applicable state securities law. In the rescission offer, we will offer to
repurchase from FREEAGENT E.OFFICE employees all of the shares issued upon
exercise of options by these employees before the expiration of the rescission
offer registration statement, at the exercise price paid for these shares, plus
interest at the rate of 10% per year from the date of issuance until the
rescission offer expires. We will also offer to repurchase all of the
unexercised options issued to these FREEAGENT E.OFFICE employees at 20% of the
option exercise price multiplied by the number of shares subject to such
options, plus interest at the rate of 10% per year from the date of issuance
until the rescission offer expires. The rescission offer will expire
approximately 30 days after the effectiveness of the rescission offer
registration statement.
Based on the number of options outstanding as of April 3, 2000, we could be
required to pay to these FREEAGENT E.OFFICE employees up to approximately
$0.9 million, plus the total amount of interest on that amount as described
above in connection with the rescission offer. We currently expect to use a
portion of the net proceeds of this offering to fund any requested repayment.
The Securities Act does not expressly provide that a rescission offer will
terminate a purchaser's right to rescind a sale of stock which was not
registered
12
<PAGE>
under the Securities Act as required. Accordingly, if any FREEAGENT E.OFFICE
employees reject the rescission offer, we may continue to be contingently liable
under the Securities Act for the purchase price of their shares and options
which were not issued in compliance with the Securities Act or applicable state
securities laws. In this case, based on the number of options outstanding as of
April 3, 2000, we could be liable for a total amount of up to $0.9 million plus
interest.
As of the date of this prospectus, we are not aware of any claims for
rescission against us. If we are required to repurchase all of the shares and
options subject to the rescission offer, our operating results and liquidity
during the period in which the repurchase occurs could be adversely affected.
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
- 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.
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<PAGE>
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.
Because we have recently ceased granting options to our FREEAGENT E.OFFICE
employees, we may not be able to maintain or increase the number of free agents
who purchase our FREEAGENT E.OFFICE services.
Until recently, we granted options to purchase our common stock to our
FREEAGENT E.OFFICE employees. Because we have decided to stop granting options
to these employees, our FREEAGENT E.OFFICE services may be viewed as less
attractive and our ability to maintain or increase the number of free agents who
purchase our FREEAGENT E.OFFICE services may be adversely affected, which will
impair our ability to increase our revenues. In addition, since our standard
agreement with our FREEAGENT E.OFFICE employees is generally subject to
termination by the free agent at any time upon written notice provided
conditions are met, our decision to stop granting options to these employees may
result in a significant number of terminations which 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 by the end of the third quarter 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 and the number of project
placements that occur within the OPUS XCHANGE
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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 and type of free
agents who participate in the marketplace. These free agents must possess the
types of professional skills demanded by organizations 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 second 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
15
<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. Our
employment agreements with our executive officers may be terminated upon notice
to us.
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;
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- 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 second 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.
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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;
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- 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,employment matters and wage
payments. 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 and we may become liable for the payment of wages to our FREEAGENT
E.OFFICE employees whether or not the FREEAGENT E.OFFICE employee has obtained
an assignment or we have received payment from the organizations contracting
with us for the services performed by these employee. Interpretive issues
concerning these types of relationships have arisen and remain unsettled. We
estimate that our maximum potential obligation to pay minimum wages to a
FREEAGENT E.OFFICE employee under these circumstances prior to the time we would
be able to terminate the employee under our contract with him or her is
approximately $4,000 per employee, or approximately $1.1 million in the
aggregate, based on the number of FREEAGENT E.OFFICE employees at February 29,
2000. As the number of FREEAGENT E.OFFICE employees increase, our aggregate
potential liability would also increase.
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
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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
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, with respect to the stock options granted
to FREEAGENT E.OFFICE employees, whether these options qualify as incentive
stock options. 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. Following the 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.
Thereafter, we remit the remaining funds to the free agent as wages and
salaries, treating the free agents' project-related expenses, the premiums for
health, disability and life insurance and 401(k) contributions as deductible
expenses for tax purposes. In the event free agents who purchase our FREEAGENT
E.OFFICE services are held not to be our employees under applicable laws and
regulations as described above, we could be liable to the IRS or other taxing
authorities for improper reporting of their wages and salaries, because the
amounts deducted for their health, disability and life insurance and 401(k)
contributions would not be properly deductible for tax purposes. In addition,
whether or not the free agent is treated as our employee, we could also be
liable to the IRS or other taxing authorities if amounts treated as deductible
project-related reimburseable expenses are not properly deductible for tax
purposes. Under these circumstances, we could also be subject to suit by the
free agent. Furthermore, in the event the free agents who purchase our FREEAGENT
E.OFFICE services are held to be employees of an organization using their
services, the qualified plans of these organizations may be adversely affected.
In such event, we could be subject to suit by these organizations. While we
believe that we have a reasonable basis for concluding that free agents who
purchase our FREEAGENT E.OFFICE services are our employees under applicable laws
and regulations, the application of these laws and regulations to our business
is uncertain and there can be no assurance as to the ultimate resolution of
these issues.
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We may be subject to claims relating to our FREEAGENT E.OFFICE employees or the
organizations that use their services.
We may be subject to claims relating to the actions of free agents who
purchase our FREEAGENT E.OFFICE services, including possible claims of
discrimination and harassment, violations of non-competition agreements, theft
of property from organizations for whom projects are performed, misuse of
proprietary information from organizations 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. In addition, we may be subject to claims from organizations for whom
FREEAGENT E.OFFICE employees perform work based upon the negligence or gross
negligence in their performance of projects and the failure of the work produced
by these employees to conform to required specifications. Although these
employees typically indemnify us with respect to these liabilities, we may not
recover from them sufficient amounts to satisfy these claims. The conduct and
performance of our FREEAGENT E.OFFICE employees 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;
- the filing of any registration statement upon the exercise of any of the
registration rights that we have granted, or the rescission offer that we
intend to make to some of our FREEAGENT E.OFFICE employees;
- loss of a major client or organization with whom we have a distribution,
co-branding or other similar arrangement;
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- 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. 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 49,973,476 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 42,273,476 shares
and the 11,708,945 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 35.3 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 31.6 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 19,253,020 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 10,919,279 shares
were outstanding as of April 3, 2000. Promptly following this offering, we
intend to file one or more registration statements on Form S-8 to register
19,074,520 of these shares which, upon effectiveness, will permit substantial
additional sales of shares of our common stock as these shares are issued. The
remaining 178,500 shares are issuable upon exercise of outstanding options
granted to our FREEAGENT E.OFFICE employees. The shares issuable upon exercise
of these options will be registered under the Securities Act under the
rescission offer registration statement we intend to file approximately 180 days
after the date of this prospectus, together with one or more additional
registration statements that we intend to file after the expiration of the
rescission offer with respect to the shares and options that we do not
repurchase in the rescission offer. FREEAGENT E.OFFICE employees owning shares
issued upon exercise of these options who do not accept the rescission offer and
FREEAGENT E.OFFICE employees who do not accept the rescission offer and
subsequently exercise their options while the related registration statement is
in effect will, for purposes of applicable federal and state securities laws,
hold freely tradeable shares.
26
<PAGE>
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 42.2% of our outstanding common stock following the
completion of this offering or 41.2% 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.
We have made improper statements about the expected increase in the market price
of our common stock following this offering in an e-mail sent to new FREEAGENT
E.OFFICE employees.
Between early August 1999 and approximately January 19, 2000, our Churchill
subsidiary sent an e-mail message to 108 new FREEAGENT E.OFFICE employees who
subscribed to our FREEAGENT E.OFFICE services which contained the following
statement about stock options granted to these employees: "These are options to
buy stock in our parent company Opus360, at a special pre-IPO employee 'strike'
price. The zooming stock prices will more than pay for your membership fees!"
Options granted to these employees, other than those who have since forfeited
their options by terminating their FREEAGENT E.OFFICE employment, have exercise
prices ranging from $1.85 to $8.00 per share and a weighted average exercise
price of $2.55.
The foregoing statement was inappropriate and should not have been made. We
had no basis for the statement that the market price of our common stock would
zoom following this offering or that the market price of our common stock would
increase at all following this offering. As we state elsewhere in this
prospectus, the price of our common stock is likely to be highly volatile and
you may not be able to resell the common stock at or above the initial public
offering price.
An e-mail we sent to some of our existing stockholders and other persons having
a relationship with us regarding this offering may be deemed to constitute a
prospectus issued in violation of the Securities Act.
On March 8, 2000, our Chairman and Chief Executive Officer sent an e-mail to
some of our existing investors, officers and directors and persons who are our
primary contacts at those investors. This e-mail which we sent to 153 people in
total advised the recipients of the printing of our preliminary prospectus on
March 7, 2000, the then expected timing of the offering and the "road show"
timing, including the expected date of a presentation in New York to potential
investors. The e-mail also stated "If you are interested in an allocation,
please make contact with Robertson Stephens, Bear Stearns, JP Morgan, or
E*Offering. If you need some support with this, please let me know."
The foregoing e-mail was inappropriate since it may be deemed to constitute
a prospectus which did not meet the requirements of the Securities Act and was
not preceded or accompanied by the preliminary prospectus as required by the
Securities Act. As a result we could be subject to an enforcement action by the
Securities and Exchange Commission. In addition, we could be subject to claims
for damages from the recipients of this e-mail in an amount up to the entire
purchase price of the shares they purchase in this offering.
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
27
<PAGE>
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.
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<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.
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<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.
The principal purposes of this offering are to increase our working capital,
to create a public market for our common stock, to facilitate our future access
to public capital markets, to enhance our ability to acquire other businesses
and to provide us with increased visibility and credibility in our market. 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
placement described below, 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. 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 have no specific plans for the remaining proceeds. We also
intend to use the proceeds of this offering and the concurrent private placement
to fund the repurchase of any shares and options tendered in connection with our
rescission offer with respect to shares of, or options to purchase, our common
stock issued to our FREEAGENT E.OFFICE employees. The amount required for the
repurchase may be up to $0.9 million plus interest. See "Rescission Offer" for
more information regarding this offer.
The actual amounts expended for the specific purposes set forth above may
vary from our current expectations and we may reallocate the proceeds of this
offering and the concurrent private placement among the categories discussed
above or use a portion of the proceeds from the offering and the concurrent
private placement 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.
Our use of the net proceeds of this offering and the concurrent placement may
change to respond to conditions and factors affecting our business, particularly
competitive and technological developments, the success of our products in the
market and of our branding efforts, the growth, if any, of our business and our
need to increase our capital expenditures to support any growth in our business.
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.
Concurrent Private 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.
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<PAGE>
The shares being sold in the concurrent placement will not be registered for
immediate sale under the Securities Act and, subject to 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 under which it will have two demand
registration rights and unlimited piggyback registration rights to have its
shares of common stock registered for resale under the Securities Act. Dell USA
may exercise its demand rights only if the anticipated gross offering price will
be at least $3.0 million and only after we are qualified to use Form S-3, a
short-form registration statement, to register our securities under the
Securities Act, which will be at least one year after completion of this
offering. 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, entered 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.
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.
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<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.
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
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<PAGE>
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, 1,947,883 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
412,651 have been exercised;
- the issuance of 799,582 shares of our common stock in January through
April 2000 upon the exercise of options;
- options to purchase 5,533,110 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 $8.41 per share,
140,000 of which are currently exercisable;
- options to purchase 1,024,527 shares of our common stock held by employees
of PeopleMover, at a weighed average exercise price of $4.88 per share,
assumed by us in the PeopleMover acquisition, after giving effect to
forfeitures and exercises since the date of the acquisition;
- 8,333,741 shares of common stock reserved for future grant under our stock
option and employee stock purchase plans;
- the effect of any shares or options repurchased in the rescission offer
that we intend to make after the closing of this offering, as described
under "Rescission Offer";
- 945,547 shares of common stock issuable at a weighted average exercise
price of $.83 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 $8.21 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."
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<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>
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<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.
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<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 were
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,
36
<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.
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.
37
<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.
38
<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
equity-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
equity-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.
39
<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
40
<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.
41
<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(1)................................................. $ -- $ 419
Cost of revenues(1)......................................... -- 261
------- --------
Gross profit................................................ -- 158
Operating expenses:
Sales and marketing, exclusive of $187 reported below as
amortization of equity-based compensation............... 80 11,068
Product development, exclusive of $844 reported below as
amortization of equity-based compensation............... 552 9,034
General and administrative, exclusive of $1,417 reported
below as amortization of equity-based compensation...... 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(2)......................... 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(2)....... 26,324
========
</TABLE>
- ------------------------------
(1) Since we recognize as revenue only that portion of the amounts due from
contracting organizations which we are entitled to withhold under agreements
with our FREEAGENT E.OFFICE employees, representing the monthly fees charged
to these employees, we do not record as an expense in our statement of
operations the amounts we pay to these employees out of the amounts received
from the contracting organization. These amounts principally include the
FREEAGENT E.OFFICE employees' salaries, related taxes and benefits and
expense reimbursements.
(2) 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>
42
<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 second quarter 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, by the end of the third
quarter 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
43
<PAGE>
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 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,
44
<PAGE>
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.
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, were 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
45
<PAGE>
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
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 represent that portion of amounts due from
contracting businesses that we are entitled to withhold by agreement with our
FREEAGENT E.OFFICE employees. These contractual amounts
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consist of an initial sign-up fee of $199 and monthly fees, ranging from
approximately $120 to $275 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. We do not recognize as
revenues the remaining portion of the gross billings we receive from
organizations that contract for the services of our FREEAGENT E.OFFICE
employees. See Note 1(d) of Notes to our Consolidated Financial Statements
included elsewhere in this prospectus.
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
and only recognize a commission or a 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. 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 and recognize 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
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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 second quarter
of 2000 and to begin to recognize OPUSRM and enhanced OPUS XCHANGE integration
and service revenues in the second quarter 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 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. Since we recognize as revenue only that portion of the
amounts due from the contracting organizations which we are entitled to withhold
under agreements with our FREEAGENT E.OFFICE employees, representing the monthly
fees charged to these employees, we also do not record as an expense in our
statement of operations the amounts we pay to these employees out of amounts
received from contracting organizations. These amounts principally include the
FREEAGENT E.OFFICE employees' salaries, related taxes and benefits and expense
reimbursements. Some of our employer related payroll expenses, including the
employer's portion of payroll taxes, are also withheld from the amounts received
from the contracting organization.
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. Also included in product development
expense are a portion of
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the costs associated with the development and maintenance of our websites. We
expect these costs to increase in 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.
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>
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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. Sales and marketing expense excludes
approximately $0.2 million reported as amortization of equity-based
compensation. 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 development expense excludes
approximately $0.8 million reported as amortization of equity-based
compensation. Product development during this period related to the development
of FREEAGENT.COM and the development of our OPUS XCHANGE and OPUSRM services.
Product and development expense 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 excludes
approximately $1.4 million reported as amortization of equity-based
compensation. 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
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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 the first quarter of 2000,
we issued options to purchase 2,189,425 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 $13,083,000, 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............................ $5,487,000
Year ending December 31, 2001............................ 3,260,000
Year ending December 31, 2002............................ 3,260,000
Year ending December 31, 2003............................ 1,076,000
</TABLE>
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.
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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 $8.3 million in 2000, $6.1 million in each of 2001 and
2002 and $1.1 million in 2003. 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 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.
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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 moved 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 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
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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.
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
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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
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 the end
of the third quarter of 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 second
quarter 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 by the end of the third
quarter 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. By the end of the third quarter 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
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within FREEAGENT.COM which will contain industry-specific content designed for
specific segments of our free 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 and a 401(k) plan.
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. 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. 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 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.
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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 by the end of the third quarter 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; and
- 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
We have relationships with 38 product and service providers which 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. Some product and service providers also pay us a sponsorship fee
for listing their products on our website. We do not receive any revenue from
one provider. To date, we have not generated any significant revenues from these
relationships.
Content and Distribution Relationships
We currently have agreements with the following companies which provide
content to FREEAGENT.COM and/or feature FREEAGENT.COM products and services and
OPUS XCHANGE on their websites or on co-branded websites:
<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>
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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.
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
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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.
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.
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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 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'
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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 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
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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 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,
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employment agency laws or temporary employment laws, as well as under other
state laws, including laws relating to the payment of wages. 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. We may also become liable for payment of wages to our FREEAGENT
E.OFFICE employees even if the employee has not obtained an assignment or we
have not received payment from the organizations contracting with us for the
services performed by these employees.
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 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, subject to our right under these
agreements to terminate the free agent's employment. Although FREEAGENT E.OFFICE
employees are permitted to work for another employer while employed by us, we
believe that they have not generally done so. The free agent locates, chooses
and negotiates the details of a project assignment in the same manner as the
free agent would before becoming our legal employee. While the free agent may be
our legal employee, we allow the free agent to retain complete discretion as to
the free agent's procurement, selection and negotiation of project assignments.
We are not in any way involved in the determination of the type or scope of
services to be performed by the FREEAGENT E.OFFICE employee or in determining
the fixed fee or hourly rate that the employee will receive for the services.
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
course of a project assignment, an employee relationship manager assigned to
each FREEAGENT E.OFFICE employee will review the employee's time sheets and
periodically monitor the project's progress with the employee. In addition, a
customer service manager periodically reviews and responds to inquiries
regarding the project's performance with the contracting organization. In the
event of a dispute regarding performance, the employee relationship manager will
work with the FREEAGENT E.OFFICE employee and the customer service manager will
work with the contracting organization to investigate and resolve the matter.
We believe that the contracts that we enter into with our FREEAGENT E.OFFICE
employees and the client organizations place the risks for performance of the
project principally on our FREEAGENT E.OFFICE employees. In our agreements with
organizations contracting for the services of our FREEAGENT E.OFFICE employees,
we typically warrant that the services provided by our employee will be
performed in a good and workmanlike manner, that the services will be free from
material defects and conform to agreed-upon specifications, and that we will
correct any material defects or bring the services into material conformance
with the agreed-
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upon specifications. In the agreement, however, the contracting organization
typically agrees that any liability or obligation with respect to this warranty
is the liability or obligation of the FREEAGENT E.OFFICE employee and that our
sole obligation is to use reasonable commercial efforts to cause the employee to
perform his or her obligations under the agreement. In addition, our agreements
with our FREEAGENT E.OFFICE employees typically provide that they are bound by
the foregoing warranty.
The provisions of the agreements described above generally limit our
liability to the contracting organization by placing the primary, though not
exclusive, obligation that all work be performed in a good and workmanlike
manner, conform to agreed-upon specifications and be free of material defects on
the FREEAGENT E.OFFICE employee. Our only obligation under these agreements is
to use reasonable commercial efforts to cause our employee to perform the
obligations to be performed under the agreement with the contracting
organization. Therefore, liability on our part to the contracting organization
would arise under our agreements with these organizations if we failed to use
reasonable commercial efforts. The determination as to whether we have used
reasonable commercial efforts is one of legal interpretation that will depend on
the facts of any given situation. What may constitute reasonable commercial
efforts may vary from case to case and will likely depend on the type of work
performed by our employee for the contracting organization, the amount it would
cost us to cause the FREEAGENT E.OFFICE employee to perform his or her
obligations under the agreement with the contracting organization and the level
of effort it would entail for us to cause the employee to perform his or her
obligations under that agreement. As a result, we may ultimately have some
potential liability to the contracting organization. Our agreements with
FREEAGENT E.OFFICE employees typically provide that our FREEAGENT E.OFFICE
employees will indemnify us against that potential liability.
We further believe that the contracting organization should have recourse
against our FREEAGENT E.OFFICE employee for amounts previously paid to us by the
contracting organization and subsequently remitted by us to the employee if it
was later determined that the services were not provided in accordance with the
agreement. We believe that any liability on our part for these disputed amounts
under the terms of our agreements with these organizations would only exist if
we had failed to use reasonable commercial efforts as described above. See "Risk
Factors--We may be subject to claims relating to our FREEAGENT E.OFFICE
employees or the organizations that use their services."
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. Following our receipt of project-related payments, as provided in our
agreements with our FREEAGENT E.OFFICE employees, 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. These amounts are
not reflected as expenses in our statement of operations. See Notes 1(d) and
1(e) of Notes to our Consolidated Financial Statements included elsewhere in
this prospectus. Of the amount remitted to FREEAGENT E.OFFICE employees out of
the gross amounts received from contracting organizations, after deducting our
monthly membership fee, 401(k) contributions, federal, state and local taxes and
our portion of payroll taxes, the portion which would not be reflected as wages
by the employee are allowable reimbursement expenses. The remaining portion of
the remitted amount, together with the amount withheld for the employee's
portion of federal, state and local payroll taxes, would be reflected as wages
on the employee's W-2. We may be subject to claims for payments to our FREEAGENT
E.OFFICE employees, which may range from minimum wage payments to the full
amount of an employee's wages, even if we are not paid by the contracting
organization. In particular, some states, such as California and New York, have
laws which may prohibit us from withholding payments to the FREEAGENT E.OFFICE
employees pending receipt of payment from the contracting organization. We pay
the administrative costs of the benefit plans and some of the
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<PAGE>
services maintained for or provided to FREEAGENT E.OFFICE employees whether or
not payments are received from contracting organizations.
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 39 West 13th Street, 3rd
Floor, New York, New York 10011, where we occupy approximately 25,000 square
feet of office space under a lease that will expire in August 2009. We also
lease an office located at 425 Market Street in San Francisco, California.
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
Ram Chillarege, Ph.D......... 44 Executive Vice President, Engineering
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. RAM CHILLAREGE has served as Executive Vice President, Engineering,
since March 2000. From July 1994 to March 2000, Dr. Chillarege headed the Center
for Software Engineering at the IBM Thomas J. Watson Research Center. Before
founding the Center in 1994, he served as the Manager of Continuous Availability
at IBM Research, beginning in October 1990. Dr. Chillarege originally joined IBM
as a research staff member in 1986. Dr. Chillarege is an Institute of Electrical
and Electronics Engineers (IEEE) Fellow and served as the chair of the IEEE
Software Reliability Engineering Conference held in 1996. He currently serves as
the chairman of the IEEE Charter Committee for Software Reliability Engineering.
Dr. Chillarege holds a Ph.D. degree in Computer Engineering from the University
of Illinois, Urbana-Champaign, a M.E. degree in Automation and a B.E. degree in
Electrical Engineering from the Indian Institute of Science, Bangalore, and a
B.Sc. degree in Physics and Mathematics from the University of Mysore.
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.
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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.
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,
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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.
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. Halvey, 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
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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 reviews and determines stock-based compensation for our
directors, officers, employees and consultants and administers the 2000 Plan,
1998 Plan and the PeopleMover Plan. Until its dissolution in March 2000, the
stock option committee also reviewed and determined stock-based compensation for
our directors, officers, employees and consultants and administered the 1998
Plan. The members of the compensation committee are Messrs. Weiss and Halvey,
who were appointed on January 20, 1999 and October 21, 1999, respectively. Until
its dissolution, the stock option committee consisted solely of Ari B. Horowitz,
who was appointed on January 20, 1999.
In March 2000, the board established an audit committee effective upon
completion of this offering. The purpose of the audit committee is to provide
assistance to the board in fulfilling its legal and fiduciary obligations in
matters involving our accounting, auditing, financial reporting, internal
control and legal compliance functions. The audit committee will oversee the
audit efforts of our independent accountants and take those actions it may deem
necessary to satisfy itself that the auditors are independent of management. The
members of the audit committee are Messrs. Cannavino, Nuti and Lieber.
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 is
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 have adopted the Opus360 Corporation 2000 Stock Option Plan for
Non-Employee Directors. 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
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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 will vest ratably over a three-year period,
commencing on the first anniversary of the date of grant. The options will vest
upon a change of control.
Compensation Committee Interlocks and Insider Participation
No member of our compensation committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as members of our board of directors or compensation committee.
Executive Compensation
The following table sets forth information concerning the compensation paid
by us for services rendered for the fiscal year ended December 31, 1999 to our
Chief Executive Officer and our other executive officers whose salary and bonus
exceeded $100,000 during 1999. We did not pay any other executive officer over
$100,000 in annual compensation during 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
------------ ------------------
Securities
Salary Underlying Options
Name and Principal Position ($) (#)
- --------------------------- ------------ ------------------
<S> <C> <C>
Ari B. Horowitz(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.
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Option Grants During the Fiscal Year Ended December 31, 1999
The following table sets forth information concerning grants of options to
purchase shares of common stock to each of the officers named in the summary
compensation table above during the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
Percentage of
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.
(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.
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<PAGE>
(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, Ram
Chillarege, our Executive Vice President, Engineering, and Allen Berger, our
Senior Vice President and Chief Marketing Officer. Our employment agreements
with Messrs. Horowitz, Miller, Cashman, Chillarege and Berger provide for annual
base salaries of $150,000, $250,000, $125,000, $250,000 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 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, at least once each year commencing in 2001, we will 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
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<PAGE>
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.
Dr. Chillarege is employed under an employment agreement that expires on
March 24, 2003. Under the agreement, Dr. Chillarege's base salary is $250,000,
with an annual increase at the discretion of our board of directors.
Dr. Chillarege 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 Dr. Chillarege and us. In addition,
we have granted to Dr. Chillarege options to purchase up to 500,000 shares of
our common stock. Options to purchase 250,000 shares have an exercise price of
$5.00 per share and options to purchase 250,000 shares have an exercise price of
$10.00 per share. Moreover, at least once a year commencing in 2001, we will
consider Dr. Chillarege for future annual or other grants of stock options and
other equity awards. If we terminate Dr. Chillarege's employment in 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 Dr. Chillarege's
employment is terminated by us without cause or by Dr. Chillarege 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, Chillarege
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, Chillarege and Berger, they cannot compete with us for
one year following the termination of their employment with us.
On March 23, 2000, Mr. Miller exercised options to purchase 300,000 shares
of our common stock at an exercise price of $2.67 per share. In connection with
Mr. Miller's exercise of these options, we loaned him $1,538,000, at an interest
rate of 7% per annum, compounded annually. The term of the loan is three years,
subject to acceleration upon the occurrence of an event of default, including,
the termination of Mr. Miller's employment with us for any reason whatsoever.
The loan funded $790,000 of the purchase price of $800,000 paid by Mr. Miller in
connection with his exercise of the options and $748,000 of the federal and
state withholding taxes arising as a result of the exercise. Mr. Miller paid the
remaining $10,000 of the purchase price. In connection with our loan to him, Mr.
Miller pledged the 300,000 shares to us as collateral security for the repayment
in full of the loan to us.
Mr. Cashman has entered into a share repurchase agreement with us. The
agreement provides that the 1,650,000 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.
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1998 Stock Option Plan
As of April 3, 2000, 5,552,352 shares of common stock were issuable upon the
exercise of outstanding options granted under the 1998 Plan at a weighted
average exercise price of $2.10. At that date, 441,088 shares of common stock
had been issued upon the exercise of options granted under the 1998 Plan. Except
for the shares of our common stock issuable upon the exercise of outstanding
options granted under the 1998 Plan, no further shares may be granted under the
1998 Plan.
The 1998 Plan may be administered by the board of directors or a committee
appointed by the board of directors to administer the 1998 Plan. The
administrator has the authority, among other things, to reduce the exercise
price of any option to the then current fair market value of the common stock.
Outstanding stock options granted under the 1998 Plan were granted to
employees and directors of, and consultants to, Opus360 and its subsidiaries.
These options consist of nonqualified options and incentive stock options. These
options have terms of not 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, terms of
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 specified time periods but not
exceeding 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 prices of all incentive
stock options equal at least 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 equals 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.
2000 Stock Option Plan
Our 2000 Plan serves as the successor to our 1998 Plan. We have reserved
7,500,000 shares of our common stock for issuance under this plan, plus an
additional 99,409 shares of our common stock, representing the number of shares
of our common stock which remained available for future issuance under the 1998
Plan at the time of its termination. In addition, any shares issued under the
1998 Plan that are forfeited to 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.
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Our 2000 Plan terminates ten years from the date our board of directors
approved the plan, unless it is terminated earlier by our board of directors.
The plan authorizes the award of options.
Our 2000 Plan is administered by our compensation committee. The
compensation committee has 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 provides 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 are available for grant only to our employees
or employees of our subsidiaries. All nonqualified options are 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 granted under the 2000 Plan may be exercisable only as they vest or
may be immediately exercisable with the shares issued subject to a right of
repurchase by us that lapses as the shares vest. In general, outstanding options
will vest over a four-year period. The maximum term of options granted under our
2000 Plan may not exceed ten years.
Options granted under our 2000 Plan may not be transferable in any manner
other than by will or by the laws of descent and distribution. They may be
exercisable only by the optionee during his or her lifetime. The compensation
committee is authorized to determine otherwise and provide for alternative
provisions in option agreements with respect to nonqualified options. Options
granted under our 2000 Plan generally are exercisable for a period of time after
the termination of the optionee's service to us or any of our subsidiaries.
Options under our 2000 Plan generally terminate immediately upon termination of
employment for cause.
Options to purchase 3,083,318 shares of our common stock were granted in
February, March and April 2000 under the 2000 Plan, of which options to purchase
1,500,000 shares were granted to our executive officers, including options to
purchase 960,000 shares to Mr. Horowitz, options to purchase 150,000 shares to
Mr. Miller and options to purchase 30,000 shares to Mr. Chillarege. The exercise
price of these options is $10.00 per share except that Mr. Horowitz's exercise
price is $11.00 per share for 18,180 of the shares subject to his option.
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 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.
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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 durations 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 of the adoption of the plan 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.
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 1,024,527 shares of our common stock from
us, after giving effect to forfeitures and exercises since the date of the
acquisition. 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 160,000 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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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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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of common stock as of March 1, 2000 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 March 1, 2000, 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 40,390,691 shares of common
stock outstanding as of March 1, 2000 assuming the conversion of all of our
outstanding shares of preferred stock, and 49,973,476 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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<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 9.9% 4,026,896
L.P.(1)
18552 MacArthur Boulevard,
Suite 400
Irvine, California 92612
Safeguard Scientifics, Inc.(2) 5,429,931 -- 5,429,931 13.4% 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.................. 3,235,716 270,000(10) 3,505,716 8.6% 3,505,716
Richard S. Miller................ -- -- 300,000(4) * 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(5).................. 392,878 392,878 1.0% 392,878
John K. Halvey(6)................ -- -- -- -- --
Irwin Lieber(7).................. 3,399,563 3,399,563 8.4% 3,399,563
William R. Nuti.................. -- -- -- -- --
Barry Rubenstein(8).............. 4,205,986 4,205,986 10.4% 4,205,986
Roger J. Weiss................... 353,881(9) 353,881 * 353,881
All executive officers and
directors as a group
(18 persons)(12)............... 12,024,766 1,030,000(11) 13,054,766 32.3% 13,054,766
<CAPTION>
Beneficial
Ownership After
Name of Beneficial Owner Offering
- ------------------------ ---------------
<S> <C>
CrossPoint Venture Partners 8.1%
L.P.(1)
18552 MacArthur Boulevard,
Suite 400
Irvine, California 92612
Safeguard Scientifics, Inc.(2) 9.5%
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087-1945
Wheatley Partners, L.L.C. (3) 6.1%
80 Cuttermill Road, Suite 311
Great Neck, New York 11021
Ari B. Horowitz.................. 7.0%
Richard S. Miller................ *
Carlos B. Cashman................ 3.3%
Allen Berger..................... --
James Cannavino.................. *
John L. Drew(5).................. *
John K. Halvey(6)................ --
Irwin Lieber(7).................. 6.8%
William R. Nuti.................. --
Barry Rubenstein(8).............. 8.4%
Roger J. Weiss................... *
All executive officers and
directors as a group
(18 persons)(12)............... 26.1%
</TABLE>
- ------------------------------
* Less than 1%.
(1) Includes 2,400,000 shares held by CrossPoint Venture Partners, L.P., 650,758
shares held by CrossPoint Venture Partners 1997, L.P. and 976,138 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., 1,525,378 shares
held by Pennsylvania Early Stage Partners, L.P. and 3,253,795 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 244,060 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) These options were exercised in March 2000. See "Management--Employment and
Repurchase Agreements."
(5) 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.
(6) Excludes the 5,429,931 shares before the offering and the 4,729,931 shares
after the offering 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.
(7) Includes the 3,050,758 shares held by the Wheatley funds referred to in
Note 3 above and 348,805 shares held by Mr. Lieber. Mr. Lieber, one of our
directors, disclaims beneficial interest of the 3,050,758 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.
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<PAGE>
(8) Includes the 3,050,758 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., 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 3,050,758 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.
(9) Shares held by G&R Partnership, L.P., the general partner of which is
Mr. Weiss, one of our directors.
(10) Options to purchase 270,000 shares granted to Mr. Horowitz on April 1, 1999
will become immediately exercisable upon the completion of this offering.
(11) 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.
(12) Excludes the 5,429,931 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
March 1, 2000, 14,949,600 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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<PAGE>
the meeting in accordance with the stockholder notice procedure, that business
shall not be discussed or transacted.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
Our restated certificate of incorporation and restated bylaws provide that
our board of directors will consist of not less than 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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RESCISSION OFFER
As of April 3, 2000, we have granted options to purchase approximately
178,500 shares of our common stock to our FREEAGENT E.OFFICE employees. Because
of the monthly fee paid by our FREEAGENT E.OFFICE employees, the grant of these
options and the issuance of any shares of our common stock upon exercise of
these options may not qualify as a grant or issuance under a written
compensatory benefit plan. As a result, the grant of these options and the
issuance of our common stock upon exercise of these options may not comply with
the requirements of Rule 701 under the Securities Act, or any other available
exemptions from the registration requirements of the Securities Act, and may not
have qualified for any exemption from qualification under applicable state
securities laws. Beginning approximately 180 days after the date of this
prospectus, we intend to make a rescission offer to all these FREEAGENT E.OFFICE
employees using a registration statement filed under the Securities Act and
under applicable state securities law.
In the rescission offer, we will offer to repurchase from these FREEAGENT
E.OFFICE employees all of the shares issued upon exercise of options by these
employees before the expiration of the rescission offer registration statement,
at the exercise price paid for these shares, plus interest at the rate of 10%
per year from the date of issuance until the rescission offer expires. We will
also offer to repurchase all of the unexercised options issued to these
FREEAGENT E.OFFICE employees at 20% of the option exercise price multiplied by
the number of shares subject to such options, plus interest at the rate of 10%
per year from the date of issuance until the rescission offer expires. The
rescission offer will expire approximately 30 days after the effectiveness of
the rescission offer registration statement.
Based on the number of options outstanding as of April 3, 2000, we could be
required to pay to these FREEAGENT E.OFFICE employees up to approximately $0.9
million, plus the total amount of interest on that amount as described above in
connection with the rescission offer. We currently expect to use a portion of
the net proceeds of this offering to fund any requested repayment. In addition,
we will keep the recission offer registration statement, or another form of
registration statement available to us, in effect to cover the issuance of all
shares issuable upon exercise of the options until the last expiration date of
all of the options or until all of the options have been exercised, whichever
occurs first.
FREEAGENT E.OFFICE employees owning shares issued upon exercise of these
options who do not accept the rescission offer and FREEAGENT E.OFFICE employees
who do not accept the recission offer and subsequently exercise their options
while the registration statement is in effect, will, for purposes of applicable
federal and state securities laws, be deemed to hold registered shares, and
those shares will be freely tradeable in the public market. The Securities Act
does not expressly provide that a rescission offer will terminate a purchaser's
right to rescind a sale of stock which was not registered under the Securities
Act as required. Accordingly, if any offerees reject the rescission offer, we
may continue to be contingently liable under the Securities Act for the purchase
price of their shares and options which were not issued in compliance with the
Securities Act or applicate state securities laws. In this case, based on the
number of options outstanding as of April 3, 2000, we could be liable for a
total amount of up to $0.9 million plus interest.
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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
49,973,476 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 42,273,476 shares of common stock held by existing stockholders and
the 11,708,945 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>
22,871,205 90 days after the date of this prospectus, shares saleable
under Rule 144 (subject to volume limitations)
12,443,331 After 180 days after the date of this prospectus (in some
cases subject to volume limitations of Rule 144)
6,932,702 One year after the date of this prospectus (in some cases
subject to volume limitations of Rule 144)
701,250 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 19,253,020 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 10,919,279 shares
were outstanding as of April 3, 2000. Following this offering, we intend to
file one or more registration statements on Form S-8 to register 19,074,520
these shares which, upon effectiveness, will permit substantial additional sales
of shares of our common stock as these shares are issued. The remaining 178,500
shares are issuable upon exercise of outstanding options granted to our
FREEAGENT E.OFFICE employees. The shares issuable upon exercise of these options
will be registered under the Securities Act under the rescission offer
registration statement we intend to file approximately 180 days after the date
of this prospectus, together with one or more additional registration statements
that we intend to file after the expiration of the rescission offer with respect
to the shares issuable upon exercise of the options that we do not repurchase in
the rescission offer. See "Rescission Offer." FREEAGENT E.OFFICE employees
owning shares issued upon exercise of these options who do not accept the
rescission offer and FREEAGENT E.OFFICE employees who do not accept the
rescission offer and subsequently exercise their options while the registration
statement is in effect will, for purposes of applicable federal and state
securities laws, hold freely tradeable shares.
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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 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
499,734 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, other than FREEAGENT
E.OFFICE 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 file one or more registration statements
on Form S-8 to register an aggregate of up to 19,074,520 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. We
also intend to register an aggregate of 178,500 shares of our common stock in
connection with the rescission offer we intend to make. See "Rescission Offer."
99
<PAGE>
Registration Rights
After this offering, the holders of approximately 31.6 million 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,
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 375,000 of the shares
issued in the acquisition.
100
<PAGE>
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.............................................
International Underwriter
- ------------------------------------------------------------
FleetBoston Robertson Stephens International Limited........
Bear, Stearns International Limited.........................
J.P. Morgan Securities Ltd. ................................
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
101
<PAGE>
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
-----------------------------------
Without Over- With Over-
Per Share(1) allotment Option allotment Option
------------ ---------------- ----------------
<S> <C> <C> <C>
Initial public offering price....................... $ $ $
Underwriting discounts and commissions..............
Proceeds, before expenses, to us....................
</TABLE>
- ------------------------
(1) 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
$4,325,000. 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 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.
102
<PAGE>
INTERNET DISTRIBUTION.
E*OFFERING Corp. has agreed to allocate a portion of the shares that it
purchases to E*TRADE Securities, Inc. A prospectus in electronic format will be
made available on Internet sites maintained by E*OFFERING and E*TRADE.
E*OFFERING and E*TRADE will accept conditional offers to purchase shares from
all of their customers that complete and pass online eligibility profiles. In
the event that the demand for shares from the customers of E*TRADE exceeds the
amount of shares allocated to it, E*TRADE will use a random allocation
methodology to distribute shares in even lots of 100 shares per customer. 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 385,000 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.
Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "OPUS" subject to notice of issuance.
STABILIZATION.
The representatives have advised us that under Regulation M under the
Securities Exchange Act, some participants in the offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A stabilizing bid is a bid for or
the purchase of the common stock on behalf of the underwriters for the purpose
of fixing or maintaining the price of the common stock. A syndicate covering
transaction is the bid for or purchase of the common stock on behalf of the
underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A penalty bid is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by the underwriter or syndicate member is purchased by the
representatives in a syndicate covering transaction and has therefore not been
effectively placed by the underwriter or syndicate member. The representatives
have advised us that these transactions may be effected on the Nasdaq National
Market or otherwise and, if commenced, may be discontinued at any time.
DELIVERY.
The shares of common stock to be sold in this offering are expected to be
delivered to purchasers on , 2000.
103
<PAGE>
Safeguard Subscription Program
As part of this offering, we are offering 1,050,000 shares of our common
stock, Safeguard is offering up to 400,000 outstanding shares of our common
stock and CompuCom is offering up to 300,000 outstanding 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 and CompuCom any of the shares offered by us and CompuCom 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 4.0% 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.
The following table sets forth the realized and unrealized gain of each of
Safeguard and CompuCom on the shares of capital stock issued to them prior to
this offering, based upon the assumed initial public offering
104
<PAGE>
price of $10.00 per share, and assuming that all of the shares offered in the
Safeguard Subscription Program are purchased by Safeguard's shareholders.
<TABLE>
<CAPTION>
Unrealized Amount to be
Appreciation Shares to be Realized
Shares of on Shares Sold in the in Connection
Common Stock Owned Prior Safeguard with the Net Unrealized
Owned Prior to the Subscription Shares to be Gain on
to the Offering Offering(1) Program Sold(1)(2) Unsold Shares(1)
--------------- ------------ ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C>
Safeguard.................... 4,779,175 $35,791,741 400,000 $2,875,817 $32,776,107
CompuCom..................... 650,759 4,507,591 300,000 1,994,880 2,429,591
Total.................... 5,429,934 $40,299,332 700,000 $4,870,697 $35,225,698
</TABLE>
- ------------------------
(1) Based upon the purchase price of $1.25 per share of our Series A preferred
stock and $4.61 per share of our Series B preferred stock.
(2) These amounts are net of a management fee of 4.0% that will be paid to
FleetBoston Robertson Stephens Inc.
Safeguard, and CompuCom are underwriters 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 as
described 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 and J.P. Morgan & Co. Incorporated
FleetBoston Ventures, an affiliate of FleetBoston Robertson Stephens Inc.,
owns 216,919 shares of Series B preferred stock which will convert into 325,380
shares of our common stock upon the closing of this offering. 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 $317,980.
The following table sets forth the unrealized gain of each of FleetBoston
Ventures and the affiliate of J.P. Morgan & Co. on the shares of capital stock
issued to them prior to this offering, based upon the assumed initial public
offering price of $10.00 per share.
<TABLE>
<CAPTION>
Shares of
Common Stock Unrealized
Owned Gain
------------ ----------
<S> <C> <C>
FleetBoston Ventures........................................ 325,380 $2,253,800(1)
J.P. Morgan................................................. 39,000 $ 72,020(2)
</TABLE>
- ------------------------
(1) FleetBoston Ventures paid approximately $1.0 million for 216,919 shares of
our Series B preferred stock.
(2) We issued these shares in exchange for consulting services valued at
$317,980.
105
<PAGE>
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. 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.
106
<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-29
Balance Sheets as of December 31, 1997, 1998 and March 31,
1999 (unaudited).......................................... F-30
Statements of Operations for the years ended December 31,
1997 and 1998 and the three months ended March 31, 1998
and 1999 (unaudited)...................................... F-31
Statement of Stockholders' Equity for the years ended
December 31, 1997 and 1998................................ F-32
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-33
Notes to Financial Statements............................... F-34
PEOPLEMOVER, INC.
Report of Independent Accountants........................... F-38
Balance Sheets as of December 31, 1999 and December 31,
1998...................................................... F-39
Statements of Operations for the years ended December 31,
1999 and 1998............................................. F-40
Statements of Stockholders' Deficit for the years ended
December 31, 1999 and 1998................................ F-41
Statements of Cash Flows for the years ended December 31,
1999 and 1998............................................. F-42
Notes to Financial Statements............................... F-43
</TABLE>
F-1
<PAGE>
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.
/s/ KPMG LLP
New York, New York
February 8, 2000, except as
to paragraphs 5 through 12
of note 13 and paragraphs 18
through 20 of note 13 which
are as of March 1, 2000 and
paragraphs 1 and 24 through
26 of
note 10 and paragraphs 3
through 6 of
note 14 which are as of
April 3, 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, exclusive of $187,000 reported below
as amortization of equity-based compensation............ 80,000 11,068,000
Product development, exclusive of $844,000 reported below
as amortization of equity-based compensation............ 552,000 9,034,000
General and administrative, exclusive of $1,417,000
reported below as amortization of equity-based
compensation............................................ 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 ("SAB 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
Substantially all of our revenues to date represent amounts withheld from
contracts that we enter into with third parties for the performance of services
by FREEAGENT E.OFFICE employees, who are our contractual employees. We report as
revenues only that portion of amounts due from the contracting businesses that
we are entitled to withhold by agreement with these employees in payment for
fees owed to us primarily for back office and other administrative services
provided to them. This accounting policy is appropriate because we believe we
have limited risk, reward, or substantive obligations under the agreement with
the contracting business. Although we warrant the workmanship and specifications
of services provided by FREEAGENT E.OFFICE employees, our contractual obligation
is limited to the use of reasonable commercial efforts to cause the employee to
perform. Our contracts provide that, in the event that the employee is unable or
unwilling for any reason to perform the service, we have no liability to the
contracting business. However, we may have some potential liability to that
business if the Company has not used reasonable commercial efforts as described
above.
The amounts we withhold from gross receipts from the contracting businesses
which we report as revenues in our statement of operations are based on fixed
fee schedules for the services we provide to FREEAGENT E.OFFICE employees. The
Company does not otherwise participate in any profits or losses of services
provided to the contracting business. We also withhold from the contract
receipts agreed upon amounts to be paid on behalf of the employee for
project-related expenses, premiums for the employee's insurance coverage, and to
withhold the employee's and our share of applicable federal, state and local
income and employment taxes. These withheld amounts are not included in revenues
or as expenses in the statement of operations because we believe we are acting
solely as a custodian for these amounts for payment at the direction of the
FREEAGENT E.OFFICE employees. Aggregate contract billings which are not included
in reported revenues for 1999 were approximately $16,200,000.
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. Revenue from banner ads sold by third parties will only reflect the
net amount due to the Company
F-8
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
from the third party since the third party and not the Company has entered into
the advertising contract with the advertiser. For the year ended December 31,
1999 revenue from banner ad sales aggregated approximately $22,000.
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 only reflect these commissions or
fees and 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.
Revenue from OPUS XCHANGE project listing will consist only 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 only 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.
Since the Company only recognizes as revenue the monthly fees charged to its
FREEAGENT E.OFFICE employees and not the gross billings it receives from
organizations that contract for the services of these employees, the Company
also does not record as an expense in its statement of operations the amounts it
pays to these employees out of these gross billings. These amounts principally
include the FREEAGENT E.OFFICE employees' salaries, the employee's portion of
payroll taxes, certain other benefits and expense reimbursements.
Certain employer related payroll expenses, including the employer's portion
of payroll taxes and insurance are also fully reimbursed by FREEAGENT E.OFFICE
employees. These employer related expenses are included in costs of revenue and
aggregated approximately $621,000 for the year ended December 31, 1999 but are
fully offset by the corresponding reimbursement.
(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
F-9
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
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 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.
F-10
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
(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 AND WEBSITE 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.
The Company accounts for the software components of its websites in
accordance with the provisions of the American Institute of Certified Public
Accountants' Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." Accordingly, certain costs to
develop internal-use computer software are capitalized after the Company has
completed a preliminary project assessment and management, with relevant
authority, commits to funding the related software project and it is probable
that the project will be completed and the software will be used to perform the
function intended. During the year ended December 31, 1999, software development
costs of approximately $75,000 were capitalized in connection with the
development of the FreeAgent.com website software.
Costs incurred to create the graphics and content of the Company's websites
are expensed as incurred. For the year ended December 31, 1999, the Company
expensed approximately $425,000 related to the creation of the graphics and
content of its websites.
(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 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.
F-11
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
(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.
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.
F-12
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
(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 $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.
F-13
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
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 hardware and software..................... $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.
(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%.
F-14
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
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.
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>
F-15
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
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.
Amounts paid for project-related expenses, employee wages, the employee's
portion of payroll taxes, and contributions to the FREEAGENT E.OFFICE employee's
401(k) plan are deducted for tax purposes, although they are not reported as
expenses in the statement of operations. These amounts aggregated approximately
$15,282,000 and are included in the net operating loss carryforward at
December 31, 1999.
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-16
<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-17
<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:
On March 27, 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-18
<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-19
<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-20
<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 ("1998
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 March 2000, the Company adopted the (1) 2000 Stock Option Plan (the "2000
Plan"), which provides for the granting of non-qualified and incentive stock
options to employees, board members and advisors (2) the 2000 Non-Employee
Directors' Plan (the "Non-Employee Director Plan"), which will provide for
automatic, nondiscretionary grants, after the closing of the IPO, of
non-qualified stock options to non-employee board members, as defined, and
(3) the 2000 Employee Stock Purchase Plan (the "ESPP"), which will permit
eligible employees to acquire, through payroll deductions, shares of the
Company's common stock after the closing of the IPO. The 2000 Plan and the
Non-Employee Director Plan authorize the granting of 7.5 million and
1.13 million options, respectively, and provide for option terms not to exceed
ten years. The ESPP authorizes the issuance of 2.25 million shares to
participating employees.
In the first quarter of 2000, the Company recorded additional deferred
compensation of $8,081,000, primarily related to options granted to our new
president, in connection with granting options to employees and board members.
The Company expects to amortize unamortized deferred compensation expense of
$13,083,000 as follows:
<TABLE>
<S> <C>
For the year ended December 31, 2000........................ $5,487,000
For the year ended December 31, 2001........................ $3,260,000
For the year ended December 31, 2002........................ $3,260,000
For the year ended December 31, 2003........................ $1,076,000
</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 to four 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
F-21
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
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 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>
F-22
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
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 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
F-23
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
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.
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.
F-24
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
(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.
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 178,240 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.
PEOPLEMOVER, INC.:
On February 24, 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
F-25
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
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.
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.
F-26
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
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 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
F-27
<PAGE>
OPUS360 CORPORATION
Notes to Financial Statements (Continued)
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.
(14) Contingencies
The Company accounts for its FREEAGENT E.OFFICE employees as employees for
federal income tax and benefit plan purposes. The Company recognizes that the
Internal Revenue Service ("IRS") definition of an employee is subject to
interpretation. To date, the IRS has not challenged the Company's reporting.
Should the IRS determine that the FREEAGENT E.OFFICE employees do not
qualify as employees under applicable federal statutes and regulations, the
employees could lose the favorable tax status of certain of the Company's
benefit and 401(k) retirement plans. The Company is unable to predict the
potential impact which any such determination might have and whether any
resulting liability or benefit will relate to past or future operations.
Accordingly, the Company is unable to make a meaningful estimate of the amount,
if any, of such liability or benefit.
RESCISSION OFFER
As of March 31, 2000, the Company has granted options to purchase
approximately 178,500 shares of its common stock to its FREEAGENT E.OFFICE
employees, which may not have complied with certain federal and state securities
laws.
Beginning approximately 180 days after the Company completes its IPO, the
Company intends to make a rescission offer to all these FREEAGENT E.OFFICE
employees using a registration statement filed under applicable federal and
state securities laws. In the rescission offer, the Company will offer to
repurchase from the FREEAGENT E.OFFICE employees all of the shares issued upon
exercise of options by these employees before the expiration of the rescission
offer registration statement, at the exercise price paid for these shares, plus
interest at the rate of 10% per year from the date of issuance until the
rescission offer expires. The Company will also offer to repurchase all of the
unexercised options issued to these FREEAGENT E.OFFICE employees at 20% of the
option exercise price multiplied by the number of shares subject to such
options, plus interest at the rate of 10% per year from the date of issuance
until the rescission offer expires. The rescission offer will expire
approximately 30 days after the effectiveness of the rescission offer
registration statement.
Based on the number of options outstanding as of March 31, 2000, the Company
could be required to pay to these FREEAGENT E.OFFICE employees up to
approximately $900,000, plus interest, in connection with the rescission offer.
The applicable securities laws do not expressly provide that a rescission offer
will terminate a purchaser's right to rescind a sale of stock which was not
registered as required. Accordingly, if any FREEAGENT E.OFFICE employees reject
the rescission offer, the Company may continue to be contingently liable for the
purchase price of these shares and options, which were not issued in compliance
with applicable securities laws.
Amounts related to this contingent liability are not reflected in the
accompanying financial statements.
F-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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>
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>
[ALTERNATE COVER PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION, DATED APRIL 4, 2000
[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 outstanding shares to these Safeguard stockholders in this offering.
All shares sold in this offering, including shares purchased by Safeguard
stockholders, will be sold at the public offering price set forth below. 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 and CompuCom 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. Our common stock has been approved for quotation on the Nasdaq
National Market under the symbol "OPUS," subject to notice of issuance. We
anticipate that the initial public offering price will be between $9.00 and
$11.00 per share.
------------------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 10.
---------------------
<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...................... $ $
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 INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
J.P. MORGAN SECURITIES LTD.
E*OFFERING
------------------------
The date of this prospectus is , 2000.
<PAGE>
1
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.......................... 95,000
Printing and engraving expenses............................. 650,000
Legal fees and expenses..................................... 3,000,000
Accounting fees and expenses................................ 500,000
Blue Sky fees and expenses.................................. 6,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous fees and expenses............................. 28,044
----------
Total................................................... $4,325,000
==========
</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.
II-1
<PAGE>
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 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,
Ari B. Horowitz and Carlos B. Cashman, three officers of the Registrant
(Richard McCann, Shawn Kreloff and Alex Lapins) and nine individual
investors (Brett Prager, Bruce Gilpin, Wayne Tsuchitani, Anthony Schmitz,
Kurt Garbe, Jeffrey Henslin, Michael Smith, Seth Oxenhorn, and Zoltan
Brenner). 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 a former
director, Eli Oxenhorn, two current directors, Irwin Lieber and Barry
Rubenstein, G&R Partnership, L.P., Gerald Cashman and Leonard I. Horowitz
and Janet B. Horowitz as Joint Tenants. 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
fourteen venture capital firms (including six affiliates, G&R Partnership,
L.P., Pennsylvania Early Stage Partners, L.P., Wheatley Partners, L.P.,
Wheatley Foreign Partners, L.P., Woodland Venture Fund, Crosspoint Venture
Partners, L.P., RT Partners, Arkap Partners, LP, JAL LLC, Vermeer
Investments, LLC, Dalewood Associates, L.P, Odeon Capital Partners, MSD
Portfolio L.P. - Investments, and Black Marlin Investments, LLC), two
directors, Irwin Lieber and Barry Rubenstein, one former director, Eli
Oxenhorn, certain family members of officers of the Company (Hugh McCann,
Jr., Daisy McCann, Thomas McCann, Gerald Cashman, Sr., and Leonard I.
Horowitz and Janet B. Horowitz as Joint Tenants), the O'Sullivan Graev &
Karabell Profit Sharing Plan, the Arthur Sachs Ins. Agency, Inc. Retirement
Plan, F/B/O Arthur Sachs, and twenty-eight individual investors (Seth
Lieber, Jonathan Lieber, Eric Aroesty, Philip M. Waterman, Jr., Scott Kabak,
Michael Finkelstein, Barry Fingerhut, January Sarasohn, John Gallagher, Jake
Foley III, Ron Gutfleisch, Gene Spence, Ben Taylor, Ennis Rimawi, Matthew
Arpano, Brian Roberts, Marco Cardamone, Doug Mellinger, Sanford R.
Robertson, David M. Nussbaum, Robert Gladstone, Michael Kramer, Andy
Zimmerman, Rick Juarez, Frank Cutler, Susan and Greg Brown as Joint Tenants,
and James P. Deccio).
II-2
<PAGE>
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 Bonnie
Halper 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
William L. Bahr, 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.
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 Garland Stephens,
Esq., 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 (Safeguard 99 Capital L.P., a Delaware limited
partnership, Applegreen Partners, CrossPoint Venture Partners 1997, L.P.,
Dalewood Associates, L.P., G&R Partnership, LP, Greenhill O360 Holdings,
LLC, Opus Friends, LLC, RT Partners, Wheatley Foreign Partners, L.P.,
Wheatley Partners, L.P., JAL, LLC, Seneca Ventures, Woodland Venture Fund,
MSD Portfolio, L.P. - Investments, RH Capital Associates Number One, L.P.,
BCIP Associates II, Cambridge Technology Capital Fund I L.P., Pennsylvania
Early Stage Partners, SI Ventures Associates, LLC, Antares Investment
Partners, Treistman Partners, Arista Capital Partners, LP, BancBoston
Ventures, CrossPoint Venture Partners LS 1999, L.P., The Roman Arch Fund
L.P., The Roman Arch Fund II L.P., Westbury Equity Partners, L.P., and RSA
Ventures); three corporate investors (CDI Corporation, Reckson Service
Industries, Inc., and Compucom Systems, Inc.); three directors (John Drew,
Barry Rubenstein and Irwin Lieber); affiliates and members of the families
of directors of the Registrant (Safeguard 99 Capital L.P., a Delaware
limited partnership, Applegreen Partners, CrossPoint Venture Partners, 1997
L.P., G&R Partnership, L.P., Wheatley Foreign Partners, L.P. Wheatley
Partners, L.P., Seneca Ventures, and Woodland Venture Fund, Leonard I
Horowitz and Janet B. Horowitz as Joint Tenants, Heather Marie Boose Trust
30, Philip Greer Trustee, Jonathan Scott Weiss Trust 30, Philip Greer
Trustee, Michael David Weiss Trust 30, Greer Trustee, Nathalie C. Weiss
Trust 30, Philip Greer Trustee, and Rachel & Gregory Weiss, as Joint
Tenants); family members of officers of the Registrant (Hugh F. McCann, Jr.,
McCann, Tom - IRA CIBC World Markets Corp, as Custodian, Thomas McCann and
Sanford Yosowitz); and forty-six individual investors (Eric Aroesty, Matthew
Arpano, Alexander L. Bolen, Robert I. Choi,
II-3
<PAGE>
Ron Hoffner, Ruthanne Iselin, Andrew Marshak, Michael A. Monteleone, John G.
Popp, Fred Ryan, Nicholas F. Smith, Stuart Topkis, Philip Waterman, Jr.,
Arthur Sachs Insurance Agency, Inc. Retirement Plan F/B/O Arthur Sachs,
Michael Finkelstein, Robert Gladstone, Troy Gregory and Paul Gregory, as
Joint Tenants, Harvey Klein, M.D., Anthony Lechich, M.D, David M. Nussbaum,
Lonny J. Orona, Barry Schwartz, J. Robert Tolchin, Scott Tolchin, Jake Foley
III, Raj Mehra, Benjamin Taylor, Mortimer Zuckerman, Jonathan D. Eilian,
Steven J. Dell, M.D., Eric Gertler, James S. Gertler, Adam Dell, Arnold
Freidman Trust, Arnold and Isabel Freidman Trustee, Burt Manning, Robert M.
Pillar, DDS, Hadley Ford, Michael Murray, James L. Sullivan and Mary Ellen
Scanlon Sullivan, Peter Teed, Stephen Finkel, Jeff Buckalew, V.M. Buckalew,
and Ric Calvillo, Jr.). 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, Seth Oxenhorn, 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 John Drew 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
Leonard I. Horowitz and Janet B. Horowitz, the parents 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, Irwin Lieber and Barry Rubenstein, and a
former director, Eli Oxenhorn, 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.
23. On January 12, 2000, the Registrant issued 90,000 shares to
G&R Partnership, L.P., a partnership of which Roger Weiss, 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. The former stockholders of Ithority to
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<PAGE>
whom the Registrant issued shares of common stock are: George W. Constable,
III, Jeremy Epstein, William Herndon, Matthew Carden, Joshua Pickus, George
Constable, Jr., Kathryn Tresness, Douglas Merritt, Paul Resnick, Joseph
Beninato, Perry Arnold, Teresa Kersten and VLG Investments 1999. 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
Zoltan Brenner, 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
Rino Bergonzi, 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, Mark Ticar,
18,000 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 former stockholders of PeopleMover to whom the Registrant issued
shares of common stock are Ali Behnam, Artemis Ventures, LLC, Avalon
Technology, LLC, BridgeGate, LLC, Bryan Plug, Carl Bressler, Christian &
Timbers, David E. Sanders, DynaFund International, L.P., DynaFund, L.P.,
Eric Bergan, Imperial Bancorp, IT Services Advisory, LLC, James L. Jonassen,
James P. Morris, Jeff White, John P. Buckley, Joseph C. Monte, Kenneth M.
Deemer, Kimberly Caccavo, Neil Donahue, Paul Chan, Pedram Abrari, Peter
Halper, Robert Gulovsen, Robert J. Morris, Robert Tolchin, Trustee of the
Alexander Michael Tolchin 1991 Trust U/T/A dated July 10, 1991, Robert
Tolchin, Trustee of the David Carlos Tolchin 1991 Trust U/T/A dated July 10,
1991, Silicon Valley Bancshares, Stephen G. Tolchin, Stephen G. Tolchin and
Veronica M. Howard, Trustees of the Tolchin Family Trust U/D/T dated
7-10-91, Stephen G. Tolchin and Veronica M. Howard, Trustees of the Tolchin
Family Trust U/D/T dated 7-10-91 as the Separate Property of Stephen G.
Tolchin, Stephen G. Tolchin, Trustee of the Tolchin Family Trust U/T/A dated
July 10, 1991, as the Separate Property of Stephen G. Tolchin, The E.B. Hutt
Bush Trust dated September 22, 1993, The Marc Lin Group, Tom Fricks, Tom
Utsch, Troop Steuber Pasich Reddick & Tobey, LLP, Two Roads Professional
Resources, Inc., Williams
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<PAGE>
& Kilkowski, William J. Bestor, William R. Woodward, Windward Ventures,
L.P., and Yves Blehaut. 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.
33. Between February 24, 2000 and March 30, 2000, the Registrant issued 86,931
shares of common stock to fifteen former holders of options under the 1999
PeopleMover Stock Incentive Plan (Sarah Thomas, John Simonelli, Jason
Seldon, Remelyn Fauni, William Hunsinger, Rusty Krutik, Drissro Sampson,
Karen Assunto, Frederick Moore, Eric Moore, Tom Johnson, Nick Svolos, Ali
Behnam, Tom Utsch, Barbara Hart, Tom Cronin, Alex Chavira, Marco Rios and
Kalani Manuel) upon exercise of their options. The issuance of the shares
was made in reliance on Section 4(2) and/or Rule 701.
34. On March 9, 2000, the Registrant issued to an officer, Susan Wu, 37,497
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.
35. On March 17, 2000, the Registrant issued 850 shares of common stock to two
former PeopleMover Employees (Tom Cronin and Alex Chavira) upon their
exercise of options. The issuance of the shares was made in reliance on
Section 4(2) and/or Rule 701.
36. On March 20, 2000, the Registrant issued to an employee, Rony Mukhopdhyay,
7,500 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.
37. On March 22, 2000, the Registrant issued 30,312 shares of common stock to
two employees, Carmen Bellavia and Richard Ziade, upon their exercise of
options. The issuance of the shares was made in reliance on Section 4(2)
and/or Rule 701.
38. On March 22, 2000, the Registrant issued 412 shares of common stock to a
former employee of PeopleMover, Remelyn Fauni, upon exercise of an option.
The issuance of the shares was made in reliance on Section 4(2) and/or
Rule 701.
39. On March 23, 2000, the Registrant issued 300,000 shares of common stock to
an officer, Richard Miller, upon exercise of an option. The issuance of the
shares was made in reliance on Section 4(2) and/or Rule 701.
40. On March 23, 2000, the Registrant issued 13,125 shares of common stock to an
employee, Thomas D'Eletto, upon exercise of an option. The issuance of the
shares was made in reliance on Section 4(2) and/or Rule 701.
41. On March 24, 2000, the Registrant issued 182,500 shares of common stock to
two consultants, Ric Calvillo and Richard Napolitano, upon their exercise of
options. The issuance of the shares was made in reliance on Section 4(2)
and/or Rule 701.
42. On March 27, 2000, the Registrant issued 57,812 shares of common stock to
four employees, Vasyl Zayachivsky, Cliff Resnick, Gary Russo and Anurag
Prasad, upon their exercise of options. The issuance of the shares was made
in reliance on Section 4(2) and/or Rule 701.
43. On March 28, 2000, the Registrant issued 10,156 shares of common stock to an
employee, Danny Chen, upon exercise of an option. The issuance of the shares
was made in reliance on Section 4(2) and/or Rule 701.
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<PAGE>
44. On March 31, 2000, the Registrant issued 1,999 shares of common stock to an
employee, Jay Terrien, upon exercise of an option. The issuance of the
shares was made in reliance on Section 4(2) and/or Rule 701.
45. On April 3, 2000, the Registrant issued 26,250 shares of common stock to two
employees, Jay Chakrapani and Robert Rosenfeld, upon their exercise of
options. The issuance of the shares was made in reliance on Section 4(2)
and/or Rule 701.
Between October 14, 1998 and April 3, 2000, the Registrant granted stock
options to purchase 13,216,813 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. The availability of the exemption provided
for by Rule 701 with respect to options to purchase 178,500 of common shares
granted to the Registrant's FREEAGENT E.OFFICE employees may not be available as
described in the Registration Statement under the caption "Risk Factors--We have
a contingent liability...", and the Registrant intends to make a rescission
offer with respect to these options and any shares of common stock issued in
exercise thereof. The details of the rescission offer are summarized under the
caption "Rescission Offer" in the prospectus.
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.
3.1C* Certificate of Amendment to Certificate of Incorporation.
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 March 6,
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.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
10.6 Loan and Security Agreement dated August 17, 1999, between
Silicon Valley Bank and the Registrant.
10.7* Amended and Restated Registration Rights Agreement dated
March 16, 2000, among the Registrant and the Securityholders
parties thereto.
10.8 The Registrant's 1998 Stock Option Plan.
10.9(+ ) Letter Agreement dated October 15, 1999, between the
Registrant and J.P. Morgan Corporation.
10.10*(+ ) Letter Agreement dated November 21, 1999, between the
Registrant and CareerPath.com, Inc.
10.11 Standard Form of FREEAGENT E.OFFICE services agreement.
10.12 Series A Securities Purchase Agreement dated December 24,
1998, among the Registrant and the signatories thereto.
10.13 Series B Securities Purchase Agreement dated September 3,
1999, among the Registrant and the purchasers of the Series
B Convertible Preferred Stock.
10.14 Agreement and Plan of Merger dated May 27, 1999, among the
Registrant, The Churchill Benefit Corporation, William Bahr
and Churchill Acquisition Corp.
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.
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* Registration Rights Agreement dated February 24, 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.
10.31 Employment Agreement dated as of March 23, 2000 between the
Registrant and Dr. Ram Chillarege.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
10.32 Non-Statutory Option Agreement dated as of March 23, 2000 by
and between the Registrant and Dr. Ram Chillarege.
10.33 Amended and Restated Non-Statutory Option Agreement dated as
of February 2, 2000 by and between the Registrant and
Richard S. Miller.
10.34* Promissory Note of Richard S. Miller.
10.35* Pledge Agreement between Registrant and Richard S. Miller.
10.36* Form of Agreement between the Registrant and the FREEAGENT
E.OFFICE employee.
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.
23.4* Consent of KPMG, 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 Form of Stock Purchase Agreement between the Registrant,
Safeguard Scientifics and CompuCom relating to the Safeguard
Subscription Program.
</TABLE>
- ------------------------
* Filed herewith.
+ 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.
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.
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<PAGE>
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-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Opus360 Corporation has duly caused this Amendment No. 5 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 April 3, 2000.
<TABLE>
<S> <C> <C>
OPUS360 CORPORATION
By: /s/ ARI B. HOROWITZ
-----------------------------------------
Ari B. Horowitz
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 5 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 April 3, 2000
Ari B. Horowitz Executive Officer)
** President, Chief Operating Officer
- ------------------------------------ and Director April 3, 2000
Richard S. Miller
Senior Vice President, Chief
** Financial Officer, and Secretary
- ------------------------------------ (Principal Financial Officer and April 3, 2000
Richard McCann Principal Accounting Officer)
** Director
- ------------------------------------ April 3, 2000
James Cannavino
** Director
- ------------------------------------ April 3, 2000
Irwin Lieber
** Director
- ------------------------------------ April 3, 2000
Roger J. Weiss
** Director
- ------------------------------------ April 3, 2000
Barry Rubenstein
** Director
- ------------------------------------ April 3, 2000
William R. Nuti
** Director
- ------------------------------------ April 3, 2000
John K. Halvey
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
** Director
- ------------------------------------ April 3, 2000
John L. Drew
</TABLE>
<TABLE>
<C> <S> <C>
/s/ RICHARD MCCANN
------------------------------------
**By Richard McCann
ATTORNEY-IN-FACT
</TABLE>
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<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.
3.1C* Certificate of Amendment to Certificate of Incorporation.
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 March 6,
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* Amended and Restated Registration Rights Agreement dated
March 16, 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.
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page
- --------------------- ------------------------------------------------------------ --------
<C> <S> <C>
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* Registration Rights Agreement dated February 24, 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.
10.31 Employment Agreement dated as of March 23, 2000 between the
Registrant and Dr. Ram Chillarege.
10.32 Non-Statutory Option Agreement dated as of March 23, 2000 by
and between the Registrant and Dr. Ram Chillarege.
10.33 Amended and Restated Non-Statutory Option Agreement dated as
of February 2, 2000 by and between the Registrant and
Richard S. Miller.
10.34* Promissory Note of Richard S. Miller.
10.35* Pledge Agreement between Registrant and Richard S. Miller.
10.36* Form of Agreement between the Registrant and the FREEAGENT
E.OFFICE employee.
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.
23.4* Consent of KPMG, 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 Form of Stock Purchase Agreement between the Registrant,
Safeguard Scientifics and CompuCom relating to the Safeguard
Subscription Program.
</TABLE>
- ------------------------
* Filed herewith.
+ 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 1.1
FLEETBOSTON ROBERTSON STEPHENS INC.
UNDERWRITING AGREEMENT
7,700,000 SHARES
----------------
March __, 2000
FleetBoston Robertson Stephens Inc.
Bear, Stearns & Co. Inc.
J.P. Morgan Securities Inc.
E*OFFERING Corp.
As Representatives of the several Underwriters
c/o FleetBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
INTRODUCTORY. Opus 360 Corporation, a Delaware corporation
(the "Company), proposes to issue and sell to the several underwriters named in
SCHEDULE A (the "Underwriters") an aggregate of 5,950,000 shares (the "Firm
Shares") of its Common Stock, par value $.001 per share (the "Common Shares").
In addition, the Company has granted to the Underwriters an option to purchase
up to an additional 1,155,000 Common Shares (the "Option Shares") as provided in
Section 2. The Firm Shares and, if and to the extent such option is exercised,
the Option Shares are collectively called the "UNDERWRITTEN SHARES". FleetBoston
Robertson Stephens Inc. ("Robertson Stephens"), Bear, Stearns & Co. Inc. ("Bear
Stearns"), J.P. Morgan Securities Inc. and E*OFFERING Corp. have agreed to act
as representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Underwritten
Shares.
As a part of the offering contemplated by this Agreement,
Robertson Stephens and Bear Stearns have agreed to reserve out of the Firm
Shares set forth opposite their names on the Schedule A to this Agreement, up to
385,000 shares in the aggregate for sale to the Company's employees, officers
and directors and other parties associated with the Company (collectively,
"Participants"), as set forth in the Prospectus (as defined herein) under the
heading "Underwriting" (the "Directed Share Program"). The Firm Shares to be
sold by Robertson Stephens and Bear Stearns pursuant to the Directed Share
Program (the "Directed Shares") will be sold by them pursuant to this Agreement
at the initial public offering price. Any Directed Shares not orally confirmed
for purchase by any Participants as of 7:00 am California time on the first day
that trading of the shares commences or paid for by any Participants in
accordance with the customary policies of Robertson Stephens or Bear Stearns, as
the case may be, will be offered to the public by them as set forth in the
Prospectuses (as defined herein).
It is understood that the Company, Safeguard Scientifics,
Inc., a Pennsylvania corporation ("Safeguard"), and CompuCom Systems, Inc., a
Delaware corporation
<PAGE>
("CompuCom"), two of the Company's stockholders, are offering to certain
shareholders of Safeguard the right to subscribe to purchase up to an aggregate
of 1,750,000 shares of Common Stock, of which 1,050,000 shares are newly issued
shares of the Company (the "Primary Safeguard Shares"), 300,000 shares are
outstanding shares held by CompuCom and 400,000 shares are outstanding shares
held by Safeguard (collectively, the "Safeguard Shares") pursuant to a
subscription program that will be administered by Safeguard (the "Safeguard
Subscription Program"). The Underwritten Shares and the Safeguard Shares are
hereinafter collectively called the "Shares". Only Safeguard shareholders owning
at least 100 shares of common stock of Safeguard as of the close of business on
December 16, 1999 (the "Safeguard Record Date") are eligible to participate in
the Safeguard Subscription Program. These shareholders may subscribe for one
Safeguard Share for every twenty 20 shares of common stock of Safeguard held by
them on the Safeguard Record Date and may not transfer their subscription rights
to another person. The purchase price for each of the Safeguard Shares will
equal the public offering price per Common Share of the Company set forth on the
cover page of the Safeguard Prospectus (as defined). Payments and deliveries of
the Safeguard Shares under the Safeguard Subscription Program will occur on the
Closing Date (as defined). If any of the Safeguard Shares are not purchased by
shareholders of Safeguard, then Safeguard will purchase those shares pursuant to
a standby stock subscription agreement among Safeguard, CompuCom, Robertson
Stephens and the Company of even date herewith (the "Purchase Agreement").
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-1
(File No. 333-93185), which contains the forms of prospectuses to be used in
connection with the public offering and sale of the Shares. Such registration
statement, as amended, including the financial statements, exhibits and
schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including any
information deemed to be a part thereof at the time of effectiveness pursuant to
Rule 430A or Rule 434 under the Securities Act, is called the "Registration
Statement". Any registration statement filed by the Company pursuant to Rule
462(b) under the Securities Act is called the "Rule 462(b) Registration
Statement", and from and after the date and time of filing of the Rule 462(b)
Registration Statement the term "Registration Statement" shall include the Rule
462(b) Registration Statement. Two forms of prospectus are to be used in
connection with the offering and sale of the Shares: one for use in the U.S. and
Canada (the "U.S. Prospectus"), and one for use outside of the U.S. and Canada
(the "International Prospectus", and together with the U.S. Prospectus (the
"Primary Prospectuses"). The Primary Prospectuses are identical except for the
front cover pages and U.S. Prospectus, when delivered by Safeguard to its
shareholders (as so delivered, the "Safeguard Prospectus," and together with the
Primary Prospectuses, the "Prospectuses") will be accompanied by a letter to
such shareholders detailing the procedures for the Safeguard Subscription
Program; provided, however, if the Company has, with the consent of Robertson
Stephens, elected to rely upon Rule 434 under the Securities Act, the term
"Prospectuses" shall mean the Company's prospectuses subject to completion (the
"preliminary prospectuses") (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together with the applicable term sheet (the "Term
Sheet") prepared and filed by the Company with the Commission under Rules 434
and 424(b) under the Securities Act and all references in this Agreement to the
date of the Prospectuses shall mean the date of the Term Sheet. All references
in this Agreement to (i) the Registration Statement, the Rule 462(b)
Registration Statement, any preliminary prospectus, the Prospectuses or the Term
Sheet, or any amendments or supplements to any of the foregoing, shall include
any copy thereof filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR").
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The Company hereby confirms its agreements with the
Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents, warrants and covenants to each
Underwriter as follows:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectuses when filed
complied in all material respects with the Securities Act and, if filed by
electronic transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Securities Act), was identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sale of
the Underwritten Shares. Each of the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment thereto, at the time it
became effective and on the Closing Date, complied and will comply in all
material respects with the Securities Act and did not and will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
Each preliminary prospectus, as of its date, and the Prospectuses, as amended or
supplemented, as of their date and on the Closing Date, did not and will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Each preliminary
prospectus, as of their date, and the Prospectuses, as amended or supplemented,
as of their date and on the Closing Date, complied and will comply in all
material respects with any applicable laws or regulations of foreign
jurisdictions, if applicable, in which the Prospectuses and such preliminary
prospectuses, as amended or supplemented, if applicable, are distributed in
connection with the offer and sale of the Directed Shares. The representations
and warranties set forth in the four immediately preceding sentences do not
apply to (i) the preliminary prospectuses included in the registration statement
as originally filed with the Commission on December 20, 1999, (ii) the
preliminary prospectuses included in Amendment No. 1 to the Registration
Statement filed with the Commission on February 9, 2000 or (iii) statements in
or omissions from the Registration Statement, any Rule 462(b) Registration
Statement, or any post-effective amendment thereto, any preliminary prospectus
or the Prospectuses, or any amendments or supplements thereto, made in reliance
upon and in conformity with information relating to any Underwriter furnished to
the Company in writing by the Representative expressly for use therein. There
are no contracts or other documents required to be described in the Prospectuses
or to be filed as exhibits to the Registration Statement which have not been
described or filed as required.
(b) OFFERING MATERIALS FURNISHED TO UNDERWRITERS. The Company has
delivered to the each of Representatives one complete conformed copy of the
Registration Statement, each amendment thereto and of each consent and
certificate of experts filed as a part thereof, and conformed copies of the
Registration Statement and
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preliminary prospectuses and the Prospectuses, as amended or supplemented, in
such quantities and at such places as the Representatives have reasonably
requested for each of the Underwriters.
(c) DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the distribution of the
Shares, any offering material in connection with the offering and sale of the
Shares other than a preliminary prospectus, the Prospectuses or the Registration
Statement.
(d) THE UNDERWRITING AGREEMENT AND THE PURCHASE AGREEMENT. This
Agreement and the Purchase Agreement have been duly authorized, executed and
delivered by, and are valid and binding agreements of, the Company, enforceable
in accordance with their terms, except as rights to indemnification and
contribution hereunder and thereunder may be limited by applicable law and
except as the enforcement hereof and thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles.
(e) AUTHORIZATION OF THE SHARES. The Underwritten Shares to be
purchased by the Underwriters from the Company and the Primary Safeguard Shares
to be purchased in connection with the Safeguard Subscription Program have been
duly authorized for issuance and sale pursuant to this Agreement and the
Purchase Agreement, and, when issued and delivered by the Company against
payment therefor pursuant to this Agreement and the Purchase Agreement, will be
validly issued, fully paid and nonassessable.
(f) NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.
(g) NO MATERIAL ADVERSE CHANGE. Subsequent to the respective dates as
of which information is given in the Prospectuses: (i) there has been no
material adverse change, or any development that could reasonably be expected to
result in a material adverse change, in the condition, financial or otherwise,
or in the earnings, business, operations or prospects, whether or not arising
from transactions in the ordinary course of business, of the Company and its
subsidiaries, considered as one entity (any such change or effect, where the
context so requires, is called a "Material Adverse Change" or a "Material
Adverse Effect"); (ii) there has been no loss or damage (whether or not insured)
to the property of the Company or its subsidiaries which has been sustained
which could reasonably be expected to have a Material Adverse Effect; (iii) the
Company and its subsidiaries, considered as one entity, have not incurred any
material liability or obligation, indirect, direct or contingent, not in the
ordinary course of business nor entered into any material transaction or
agreement not in the ordinary course of business; (iv) there has been no change
in the capital stock or outstanding indebtedness of the
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Company or its subsidiaries that is material to the Company and its subsidiaries
considered as one entity; and (v) there has been no dividend or distribution of
any kind declared, paid or made by the Company or, except for dividends paid to
the Company or its subsidiaries on any class of capital stock or repurchase or
redemption by the Company or its subsidiaries of any class of capital stock.
(h) INDEPENDENT ACCOUNTANTS. KPMG LLP and PricewaterhouseCoopers LLP,
who have expressed their opinions with respect to the financial statements
(which term as used in this Agreement includes the related notes thereto) filed
with the Commission as a part of the Registration Statement and included in the
Prospectuses, are independent public or certified public accountants as required
by the Securities Act.
(i) PREPARATION OF THE FINANCIAL STATEMENTS. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectuses present fairly the consolidated financial position of each
of the Company and its subsidiaries, The Churchill Benefit Corporation and
PeopleMover, Inc., as of and at the dates indicated and the results of their
operations and cash flows for the periods specified. Such financial statements
have been prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved, except as may be
expressly stated in the related notes thereto. No other financial statements or
supporting schedules are required to be included in the Registration Statement.
The historical financial data set forth in the Prospectuses under the captions
"Summary--Summary Historical and Pro Forma Financial Information",
"Capitalization", "Unaudited Pro Forma Combined Financial Statements", "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" fairly present the information set forth therein on a
basis consistent with that of the audited financial statements of the Company
contained in the Registration Statement. The pro forma combined financial
statements of the Company and its subsidiaries and the related notes thereto
included under the caption "Unaudited Pro Forma Combined Financial Statements"
present fairly the information contained therein, have been prepared in
accordance with the Commission's rules and guidelines with respect to pro forma
financial statements and have been properly presented on the bases described
therein, and the assumptions used in the preparation thereof are reasonable and
the adjustments used therein are appropriate to give effect to the transactions
referred to therein; and the pro forma financial information of the Company and
its subsidiaries and the related notes thereto included under the captions
"Summary-Summary Historical and Pro Forma Financial Information",
"Capitalization" and elsewhere in the Prospectuses and in the Registration
Statement fairly prevents the information on the bases described therein, and
the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions
referred to therein. No other pro forma financial information is required to be
included in the Registration Statement pursuant to Regulation S-X of the
Commission.
(j) COMPANY'S ACCOUNTING SYSTEM. The Company and its subsidiaries
maintain a system of accounting controls sufficient to provide reasonable
assurances that
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(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles as applied in the United States and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(k) SUBSIDIARIES OF THE COMPANY. The Company does not own or control,
directly or indirectly, any corporation, association or other entity other than
the subsidiaries listed in Exhibit 21.1 to the Registration Statement.
(l) INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS
SUBSIDIARIES. Each of the Company and its subsidiaries has been duly organized
and is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation with full corporate power and authority to own its
properties and conduct its business as described in the Prospectuses, and is
duly qualified to do business as a foreign corporation and is in good standing
under the laws of each jurisdiction which requires such qualification, except
where the failure to be so qualified or in good standing would not have a
Material Adverse Effect.
(m) CAPITALIZATION OF THE SUBSIDIARIES. All the outstanding shares of
capital stock of the Company's subsidiaries have been duly authorized and
validly issued and are fully paid and nonassessable, and all outstanding shares
of capital stock of the subsidiaries are directly owned by the Company free and
clear of any security interests, claims, liens or encumbrances.
(n) NO PROHIBITION ON SUBSIDIARIES FROM PAYING DIVIDENDS OR MAKING
OTHER DISTRIBUTIONS. No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from making
any other distribution on such subsidiary's capital stock, from repaying to the
Company any loans or advances to such subsidiary from the Company or from
transferring any of such subsidiaries' property or assets to the Company or any
other subsidiary of the Company, except for any such prohibitions as would not
have a Material Adverse Effect.
(o) CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectuses under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectuses or upon exercise of outstanding options or warrants described in
the Prospectuses). The Common Shares (including the Shares) conform in all
material respects to the description thereof contained in the Prospectuses. All
of the issued and outstanding Common Shares have been duly authorized and
validly issued, are fully paid and nonassessable and have been issued in
compliance with federal and state securities laws in transactions not subject to
the registration requirements of the Securities Act. None of the outstanding
Common Shares were issued in violation of any preemptive rights, rights of first
refusal or other similar
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<PAGE>
rights to subscribe for or purchase securities of the Company, except for any
violations which have been duly waived or which would not have a Material
Adverse Effect. There are no authorized or outstanding options, warrants,
preemptive rights, rights of first refusal or other rights to purchase, or
equity or debt securities convertible into or exchangeable or exercisable for,
any capital stock of the Company or any of its subsidiaries other than those
described in the Prospectuses. The Company has not issued any securities at any
time in any offering that is required to be integrated under the Securities Act
with the offering contemplated hereby. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted thereunder, set forth in the Prospectuses accurately and
fairly presents in all material respects the information required to be shown
with respect to such plans, arrangements, options and rights.
(p) STOCK EXCHANGE LISTING. The Common Shares have been approved for
listing on the Nasdaq National Market, subject only to official notice of
issuance.
(q) NO CONSENTS, APPROVALS OR AUTHORIZATIONS REQUIRED. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and the Exchange Act and such as may be required (i) under the
blue sky laws of any jurisdiction in connection with the purchase and
distribution of the Shares by the Underwriters, Safeguard and CompuCom in the
manner contemplated herein and in the Prospectuses and (ii) by the National
Association of Securities Dealers, Inc. (the "NASD").
(r) NON-CONTRAVENTION OF EXISTING INSTRUMENTS OR AGREEMENTS. Neither
the issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation of, or the imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries pursuant to, (i) the charter or by-laws of the Company or its
subsidiaries, (ii) the terms of any indenture, contract, lease, mortgage, deed
of trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which the Company or any of its
subsidiaries is a party or bound or to which its or their property is subject or
(iii) any statute, law, rule, regulation, judgment, order or decree applicable
to the Company or any of its subsidiaries of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its subsidiaries or any of its or their
properties, except in the case of clause (ii), such conflicts, breaches,
violations or impositions as would not have a Material Adverse Effect.
(s) NO DEFAULTS OR VIOLATIONS. Neither the Company nor any of its
subsidiaries is in violation or default of (i) any provision of its charter or
by-laws, (ii) the terms of any indenture, contract, lease, mortgage, deed of
trust, note agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which it is a party or bound or to which its property
is subject or (iii) any statute, law, rule, regulation, judgment, order or
decree of any court, regulatory body, administrative
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agency, governmental body, arbitrator or other authority having jurisdiction
over the Company or such subsidiaries or any of its properties, as applicable,
except any such violation or default which would not, singly or in the
aggregate, result in a Material Adverse Effect, except as otherwise disclosed in
the Prospectuses.
(t) NO ACTIONS, SUITS OR PROCEEDINGS. Except as otherwise disclosed in
the Prospectuses, no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or any of its subsidiaries or its or their property is pending or, to the best
knowledge of the Company, threatened that (i) could reasonably be expected to
have a Material Adverse Effect on the performance of this Agreement or the
consummation of any of the transactions contemplated hereby or (ii) could
reasonably be expected to have a Material Adverse Effect.
(u) ALL NECESSARY PERMITS, ETC. Except as otherwise disclosed in the
Prospectuses, the Company and each of its subsidiaries possess such valid and
current certificates, authorizations or permits (collectively, "Permits") issued
by the appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct their respective businesses, except where the failure to
possess such Permits would not have a Material Adverse Effect, and neither the
Company nor its subsidiaries has received any notice of proceedings relating to
the revocation or modification of, or non-compliance with, any Permit which,
either individually or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, is reasonably likely to result in a Material
Adverse Change.
(v) TITLE TO PROPERTIES. Except as otherwise disclosed in the
Prospectuses, the Company and each of its subsidiaries have good and marketable
title to all the properties and assets reflected as owned in the financial
statements referred to in Section 1(i) above, in each case free and clear of any
security interests, mortgages, liens, encumbrances, equities, claims and other
defects, except such as do not materially and adversely affect the value of such
property and do not materially interfere with the use made or proposed to be
made of such property by the Company or such subsidiaries. The real property,
improvements, equipment and personal property held under lease by the Company or
each of its subsidiaries are held under valid and enforceable leases, with such
exceptions as are not material and do not materially interfere with the use made
or proposed to be made of such real property, improvements, equipment or
personal property by the Company or such subsidiaries.
(w) TAX LAW COMPLIANCE. The Company and each of its subsidiaries have
filed all necessary federal, state and foreign income and franchise tax returns
and have paid all taxes required to be paid by any of them and, if due and
payable, any related or similar assessment, fine or penalty levied against them,
except where the failure to file such tax returns or the failure to pay such
taxes, assessments, fines or penalties would not have a Material Adverse Effect.
The Company has made adequate charges, accruals and reserves in the applicable
financial statements referred to in Section 1(i) above in respect of all
material federal, state and foreign income and franchise taxes for all periods
as to
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which the tax liability of the Company or any of its subsidiaries have been
finally determined. The Company is not aware of any tax deficiency that has been
or might be asserted or threatened against the Company or any of its
subsidiaries that would result in a Material Adverse Change.
(x) INTELLECTUAL PROPERTY RIGHTS. Each of the Company and its
subsidiaries owns or possesses adequate rights to use all patents, patent rights
or licenses, inventions, collaborative research agreements, trade secrets,
know-how, trademarks, service marks, trade names and copyrights which are
necessary to conduct its businesses as described in the Registration Statement
and Prospectuses, except where the failure to own or possess such rights would
not have a Material Adverse Effect; the expiration of any patents, patent
rights, trade secrets, trademarks, service marks, trade names or copyrights
would not result in a Material Adverse Change that is not otherwise disclosed in
the Prospectuses; except as disclosed in the Prospectuses, neither the Company
nor any of its subsidiaries has received any notice of, and has no knowledge of,
any infringement of or conflict with asserted rights of the Company or its
subsidiaries by others with respect to any patent, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names or copyrights;
and, except as disclosed in the Prospectuses, neither the Company nor its
subsidiaries has received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, either individually or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would have a
Material Adverse Change. Except as otherwise disclosed in the Prospectuses,
there is no claim being made against the Company or its subsidiaries regarding
patents, patent rights or licenses, inventions, collaborative research, trade
secrets, know-how, trademarks, service marks, trade names or copyrights. To the
best of the Company's knowledge, the Company and its subsidiaries do not in the
conduct of their business as now or proposed to be conducted as described in the
Prospectuses infringe or conflict with any right or patent of any third party,
or any discovery, invention, product or process which is the subject of a patent
application filed by any third party, known to the Company or any of its
subsidiaries, which such infringement or conflict would result in a Material
Adverse Change.
(y) Y2K. There are no Y2K issues related to the Company, or any of its
subsidiaries, that (i) are of a character required to be described or referred
to in the Registration Statement or Prospectus by the Securities Act which have
not been accurately described in all material respects in the Registration
Statement or Prospectus or (ii) might reasonably be expected to result in any
Material Adverse Change or that might materially affect their properties, assets
or rights.
(z) NO TRANSFER TAXES OR OTHER FEES. There are no transfer taxes or
other similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the Shares.
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(aa) COMPANY NOT AN "INVESTMENT COMPANY". The Company is not, and after
receipt of payment for the Shares will not be, an "investment company" or an
entity "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940 (the "Investment Company Act"), and will conduct
its business in a manner so that it will not become subject to the Investment
Company Act.
(bb) INSURANCE. The Company and its subsidiaries are insured by
recognized, financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for their businesses including, but not limited
to, policies covering acts or omissions by employees of the Company or its
subsidiaries that result in claims against the Company, real and personal
property owned or leased by the Company and its subsidiaries against theft,
damage, destruction, acts of vandalism and natural disasters, general liability
and Directors and Officers liability. The Company has no reason to believe that
it or its subsidiaries will not be able (i) to renew its existing insurance
coverage as and when such policies expire or (ii) to obtain comparable coverage
from similar institutions as may be necessary or appropriate to conduct its
business as now conducted and at a cost that would not result in a Material
Adverse Change. Neither of the Company nor any subsidiaries has been denied any
insurance coverage which it has sought or for which it has applied.
(cc) LABOR MATTERS. To the best of Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers or principal
customers that might be expected to result in a Material Adverse Change. To the
best of the Company's knowledge, both the Company and its subsidiaries are in
compliance with all applicable federal and state laws pertaining to its
employees, including but not limited to the Family Medical Leave Act, the Fair
Labor Standards Act and the Americans with Disabilities Act, as well as state
laws relating to workers compensation, employee benefits and minimum wage,
except where the failure to be in such compliance would not have a Material
Adverse Effect.
(dd) NO PRICE STABILIZATION OR MANIPULATION. The Company has not taken
and will not take, directly or indirectly, any action designed to or that might
be reasonably expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares.
(ee) LOCK-UP AGREEMENTS. Each officer and director of the Company, each
securityholder of the Company named in the Prospectuses and the holders of at
least 95% of the Company's shares of common stock, including shares of common
stock issuable upon exercise of stock options and warrants, has agreed to sign
an agreement substantially in the form attached hereto as EXHIBIT A (the
"Lock-up Agreements"). The Company has provided to the Representatives and to
counsel for the Underwriters a complete and accurate list of all securityholders
of the Company and the number and type of securities held by each
securityholder. The Company has provided to the
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Representatives and to counsel for the Underwriters true, accurate and complete
copies of all of the Lock-up Agreements presently in effect or effected hereby.
The Company hereby represents and warrants that it will not release any of its
officers, directors or other stockholders from any Lock-up Agreements currently
existing or hereafter effected without the prior written consent of Robertson
Stephens.
(ff) RELATED PARTY TRANSACTIONS. There are no business relationships or
related-party transactions involving the Company or any subsidiaries or any
other person required to be described in the Prospectuses which have not been
described as required.
(gg) ERISA COMPLIANCE. Except as otherwise disclosed in the
Prospectuses, the Company and its subsidiaries and any "employee benefit plan"
(as defined under the Employee Retirement Income Security Act of 1974, as
amended, and the regulations and published interpretations thereunder
(collectively, "ERISA")) established or maintained by the Company, its
subsidiaries or their "ERISA Affiliates" (as defined below) are in compliance in
all material respects with ERISA, except where the failure to be in compliance
would not have a Material Adverse Effect. "ERISA Affiliate" means, with respect
to the Company or its subsidiaries, any member of any group of organizations
described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of
1986, as amended, and the regulations and published interpretations thereunder
(the "Code") of which the Company or such subsidiaries is a member. No
"reportable event" (as defined under ERISA) has occurred or is reasonably
expected to occur with respect to any "employee benefit plan" established or
maintained by the Company, its subsidiaries or any of their ERISA Affiliates. No
"employee benefit plan" established or maintained by the Company, its
subsidiaries or any of their ERISA Affiliates, if such "employee benefit plan"
were terminated, would have any "amount of unfunded benefit liabilities" (as
defined under ERISA). Neither the Company, its subsidiaries nor any of their
ERISA Affiliates has incurred or reasonably expects to incur any liability under
(i) Title IV of ERISA with respect to termination of, or withdrawal from, any
"employee benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B of the Code.
Each "employee benefit plan" established or maintained by the Company, its
subsidiaries or any of their ERISA Affiliates that is intended to be qualified
under Section 401(a) of the Code is so qualified and nothing has occurred,
whether by action or failure to act, which would cause the loss of such
qualification, except where the failure to be so qualified or the loss of such
qualification would not have a Material Adverse Effect.
(hh) NO BUSINESS IN CUBA. Neither the Company nor any of its affiliates
does business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida Statutes and the
Company agrees to comply with such Section if prior to the completion of the
distribution of the Shares it commences doing such business.
(ii) NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS. Neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge, any
employee or agent of the Company or any subsidiary, has made any contribution or
other payment to
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any official of, or candidate for, any federal, state or foreign office in
violation of any law or of the character required to be disclosed in the
Prospectuses.
(jj) ENVIRONMENTAL LAWS. (i) The Company and each of its subsidiaries
is in compliance in all material respects with all rules, laws and regulations
relating to the use, treatment, storage and disposal of toxic substances and
protection of health or the environment ("Environmental Laws") which are
applicable to its business, except where the failure to comply would not result
in a Material Adverse Change, (ii) neither the Company or any of its
subsidiaries has received any notice from any governmental authority or third
party of an asserted claim under Environmental Laws, which claim is required to
be disclosed in the Registration Statement and the Prospectuses, (iii) the
Company is not currently aware that it or any of its subsidiaries will be
required to make future material capital expenditures to comply with
Environmental Laws and (iv) no property which is owned, leased or occupied by
the Company or any of its subsidiaries has been designated as a Superfund site
pursuant to the Comprehensive Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. Section 9601, et seq.), or otherwise designated as a
contaminated site under applicable state or local law.
(kk) NO IMPROPER INFLUENCE IN CONNECTION WITH THE DIRECTED SHARE
PROGRAM. The Company has not offered, or caused Robertson Stephens to offer,
Directed Shares to any person pursuant to the Directed Share Program with the
specific intent to unlawfully influence (i) a customer or supplier of the
Company to alter the customer's or supplier's level or type of business with the
Company or (ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.
(ll) WRITTEN MATERIALS IN CONNECTION WITH THE DIRECTED SHARE PROGRAM.
Neither the Company nor any person acting on its behalf has furnished any
written materials of any kind to any individual or entity with respect to the
Directed Share Program unless such recipient first received a copy of the
Company's preliminary prospectus.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) THE FIRM SHARES. The Company agrees to issue and sell to the
several Underwriters the Firm Shares upon the terms herein set forth. On the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Underwriters
agree, severally and not jointly, to purchase from the Company the respective
number of Firm Shares set forth opposite their names on SCHEDULE A. The purchase
price per Firm Share to be paid by the several Underwriters to the Company shall
be $[___] per share.
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(b) THE FIRST CLOSING DATE. Delivery of the Firm Shares to be purchased
by the Underwriters and payment therefor shall be made by the Company and the
Representatives at 6:00 a.m. San Francisco time, at the offices of O'Sullivan
Graev & Karabell, LLP (or at such other place as may be agreed upon among the
Representatives and the Company), (i) on the third (3rd) full business day
following the first day that the Shares are traded, (ii) if this Agreement is
executed and delivered after 1:30 P.M., San Francisco time, the fourth (4th)
full business day following the day that this Agreement is executed and
delivered or (iii) at such other time and date not later that seven (7) full
business days following the first day that the Shares are traded as the
Representatives and the Company may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to Section 8 hereof),
such time and date of payment and delivery being herein called the "Closing
Date"; provided, however, that if the Company has not made available to the
Representatives copies of the Prospectuses within the time provided in Section
2(g) hereof, the Representatives may, in their sole discretion, postpone the
Closing Date until no later that two (2) full business days following delivery
of copies of the Prospectuses to the Representatives.
(c) THE OPTION SHARES; THE SECOND CLOSING DATE. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase up to an
aggregate of 1,155,000 Option Shares from the Company at the purchase price per
share to be paid by the Underwriters for the Firm Shares. The option granted
hereunder is for use by the Underwriters solely in covering any over-allotments
in connection with the sale and distribution of the Firm Shares. The option
granted hereunder may be exercised at any time upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. The time and date of delivery of the
Option Shares, if subsequent to the First Closing Date, is called the "Second
Closing Date" and shall be determined by the Representatives and shall not be
earlier than three nor later than five full business days after delivery of such
notice of exercise. If any Option Shares are to be purchased, (i) each
Underwriter agrees, severally and not jointly, to purchase the number of Option
Shares (subject to such adjustments to eliminate fractional shares as the
Representatives may determine) that bears the same proportion to the total
number of Option Shares to be purchased as the number of Firm Shares set forth
on SCHEDULE A opposite the name of such Underwriter bears to the total number of
Firm Shares and (ii) the Company agrees to sell the number of Option Shares
(subject to such adjustments to eliminate fractional shares as the
Representatives may determine) that bears the same proportion to the total
number of Option Shares as set forth in the paragraph "Introductory" of this
Agreement). The Representatives may cancel the option at any time prior to its
expiration by giving written notice of such cancellation to the Company.
(d) PUBLIC OFFERING OF THE SHARES. The Representatives hereby advise
the Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectuses, their respective portions of the Shares as soon
after this Agreement has been executed and the Registration Statement has been
declared effective as the Representatives, in their sole judgment, have
determined is advisable and practicable.
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Under no circumstances are the Underwriters intending to offer any Safeguard
Shares for sale.
(e) PAYMENT FOR THE SHARES. Payment for the Underwritten Shares shall
be made at the First Closing Date (and, if applicable, at the Second Closing
Date) by wire transfer in immediately available-funds to the order of the
Company.
It is understood that Robertson Stephens has been authorized,
for its own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Shares and any Option Shares the Underwriters have agreed to purchase.
Robertson Stephens, individually and not as a Representative of the
Underwriters, may (but shall not be obligated to) make payment for any Shares to
be purchased by any Underwriter whose funds shall not have been received by the
Representatives by the First Closing Date or the Second Closing Date, as the
case may be, for the account of such Underwriter, but any such payment shall not
relieve such Underwriter from any of its obligations under this Agreement.
(f) DELIVERY OF THE SHARES. The Company shall deliver, or cause to be
delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representatives for the
accounts of the Representatives and the several Underwriters at the First
Closing Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company shall
also deliver, or cause to be delivered a credit representing the Option Shares
the Underwriters have agreed to purchase at the First Closing Date (or the
Second Closing Date, as the case may be), to an account or accounts at The
Depository Trust Company as designated by the Representatives for the accounts
of the Representatives and the several Underwriters, against the irrevocable
release of a wire transfer of immediately available funds for the amount of the
purchase price therefor. Time shall be of the essence, and delivery at the time
and place specified in this Agreement is a further condition to the obligations
of the Underwriters.
(g) DELIVERY OF PROSPECTUSES TO THE UNDERWRITERS. Not later than 12:00
noon on the second business day following the date the Underwritten Shares are
released by the Underwriters for sale to the public, the Company shall deliver
or cause to be delivered copies of the Primary Prospectuses in such quantities
and at such places as the Representatives shall request.
SECTION 3. COVENANTS OF THE COMPANY.
The Company further covenants and agrees with each Underwriter as
follows:
(a) REGISTRATION STATEMENT MATTERS. The Company will (i) cause a
registration statement on Form 8-A (the "Form 8-A Registration Statement") as
required by the Securities Exchange Act of 1934 (the "Exchange Act") to become
effective simultaneously with the Registration Statement, (ii) use its best
efforts to cause the Registration Statement to become effective or, if the
procedure in Rule 430A of the Securities Act is followed, to prepare and timely
file with the Commission under Rule
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424(b) under the Securities Act one or more Prospectuses in a form approved by
the Representatives containing information previously omitted at the time of
effectiveness of the Registration Statement in reliance on Rule 430A of the
Securities Act and (iii) not file any amendment to the Registration Statement or
supplement to the Prospectuses of which the Representatives shall not previously
have been advised and furnished with a copy or to which the Representatives
shall have reasonably objected in writing or which is not in compliance with the
Securities Act. If the Company elects to rely on Rule 462(b) under the
Securities Act, the Company shall file a Rule 462(b) Registration Statement with
the Commission in compliance with Rule 462(b) under the Securities Act prior to
the time confirmations are sent or given, as specified by Rule 462(b)(2) under
the Securities Act, and shall pay the applicable fees in accordance with Rule
111 under the Securities Act.
(b) SECURITIES ACT COMPLIANCE. The Company will advise the
Representatives promptly (i) when the Registration Statement or any
post-effective amendment thereto shall have become effective, (ii) of receipt of
any oral or written comments from the Commission, (iii) of any request of the
Commission for amendment of the Registration Statement or for supplement to the
Prospectuses or for any additional information and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectuses or of the institution of any
proceedings for that purpose. The Company will use its reasonable best efforts
to prevent the issuance of any such stop order preventing or suspending the use
of the Prospectuses and to obtain as soon as possible the lifting thereof, if
issued.
(c) BLUE SKY COMPLIANCE. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Firm Shares and the Option Shares, including the Directed Shares to be offered
in connection with the Directed Share Program, for sale under the securities
laws of such jurisdictions (both national and foreign) as the Representatives
may reasonably have designated in writing and will make such applications, file
such documents, and furnish such information as may be reasonably required for
that purpose, provided the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction where it is not now so qualified or required to file such a
consent. The Company will, from time to time, prepare and file such statements,
reports and other documents, as are or may be required to continue such
qualifications in effect for so long a period as the Representatives may
reasonably request for distribution of the Shares.
(d) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUSES AND OTHER SECURITIES
ACT MATTERS. The Company will comply with the Securities Act and the Exchange
Act, and the rules and regulations of the Commission thereunder, so as to permit
the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectuses. If during the period in which prospectuses are
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Representatives or counsel for the Underwriters, it becomes
necessary to amend or supplement the Prospectuses in order to make the
statements therein, in the light of the circumstances existing at the time
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the Prospectuses are delivered to a purchaser, not misleading, or, if it is
necessary at any time to amend or supplement the Prospectuses to comply with any
law, the Company promptly will prepare and file with the Commission, and
furnish, at its own expense, for a period of nine months after the date of this
Agreement and thereafter at the expense of the Underwriters, to the Underwriters
and to dealers, an appropriate amendment to the Registration Statement or
supplement to the Prospectuses so that the Prospectuses as so amended or
supplemented will not, in the light of the circumstances when they are so
delivered, be misleading, or so that the Prospectuses will comply with
applicable laws.
(e) COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUSES. The
Company agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, not to exceed nine months from the date of this Prospectus (after
which time such deliveries shall be made at the expense of the Underwriters), as
in the opinion of counsel for the Underwriters, the Prospectuses are no longer
required by law to be delivered in connection with sales by an Underwriter or
dealer (the "Prospectus Delivery Period"), as many copies of the Prospectuses
and any amendments and supplements thereto as the Representatives may request.
(f) INSURANCE. The Company shall (i) obtain Directors and Officers
liability insurance in the minimum amount of $10 million which shall apply to
the offering contemplated hereby and (ii) cause Robertson Stephens to be added
to such policy such that up to $500,000 of its expenses pursuant to Section 7(a)
shall be paid directly by such insurer.
(g) SUBSEQUENT EVENTS. If at any time during the ninety (90) day period
after the Registration Statement becomes effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of which in
your opinion the market price of the Shares has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectuses), the Company
will, after notice from Robertson Stephens advising the Company to the effect
set forth above, to the extent practicable under the circumstances, consult with
Robertson Stephens in good faith concerning the substance of and the decision
whether or not to disseminate a press release or other public statement
responding to or commenting on such rumor, publication or event, it being
understood that the decision as to whether or not to disseminate any such press
release or other public statement, the timing thereof, and the substance thereof
shall be within the sole and absolute discretion of the Company; it being
understood that nothing set forth in this paragraph shall require the Company to
delay the dissemination of any press release or other public statement in a
manner that would violate applicable securities laws or the requirements of the
Nasdaq National Market.
(h) USE OF PROCEEDS. The Company shall apply the net proceeds from the
sale of the Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectuses, it being understood that no specific use has been
set forth under such
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caption with respect to any of the net proceeds except as set forth in the third
and sixth sentences of the second paragraph under such caption.
(i) TRANSFER AGENT. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Shares.
(j) EARNINGS STATEMENT. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending March 31, 2001 that satisfies the provisions of Section 11(a) of the
Securities Act.
(k) PERIODIC REPORTING OBLIGATIONS. During the Prospectus Delivery
Period, the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market, all reports and documents required to be filed under
the Exchange Act.
(l) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES. The Company
will not (i) consent to the disposition of any shares subject to the lock-up
agreements described in Section 1(ee) of this Agreement prior to the expiration
of the lock-up period or (ii) directly or indirectly issue, sell, contract to
sell, or otherwise dispose of (whether by actual disposition or effective
economic disposition due to cash settlement or otherwise by the Company or any
subsidiary of the Company or any person in privity with the Company or any
subsidiary of the Company), any Common Shares, any options to purchase any
Common Shares or any securities convertible into, exercisable for or
exchangeable for Common Shares other than (A) the sale of the Underwritten
Shares and the sale of Common Shares to Dell USA L.P. on the Closing Date on the
terms contemplated by the Prospectuses, (B) the issuance of Common Shares upon
the exercise of options or warrants that are outstanding as of the date of this
Agreement, (C) the issuance of options under existing stock option plans
provided that no portion of the options vests before the expiration of the
period set forth in this paragraph, (D) the issuance of Common Shares in
connection with a bona fide merger or acquisition transaction and (E) the
issuance of up to an aggregate of 1,500,000 Common Shares (or warrants to
purchase Common Shares) in connection with the formation of new strategic
alliances, provided that, in the case of each of (A) to (E), the terms of such
issuance provide that the Common Shares so issued shall be subject to the terms
of a lock-up agreement having provisions that are substantially the same as the
agreements described in Section 1(ee) of this Agreement. The Company shall enter
stop transfer instructions with its transfer agent and registrar against the
transfer of any Common Shares issued in accordance with this paragraph that are
subject to restrictions on transfer hereby. These restrictions shall terminate
after the closing of trading of the Common Shares on the 180th date after (and
including) the day the Common Shares commenced trading on the Nasdaq National
Market (the "Lock-Up Period").
(m) FUTURE REPORTS TO THE REPRESENTATIVES. During the period of five
years hereafter the Company will furnish to the Representatives (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of
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income, stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public or certified public
accountants; (ii) as soon as practicable after the filing thereof, copies of
each proxy statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
Current Report on Form 8-K or other report filed by the Company with the
Commission, the National Association of Securities Dealers, Inc. or any
securities exchange; and (iii) as soon as available, copies of any report or
communication of the Company mailed generally to holders of its capital stock.
(n) DIRECTED SHARE PROGRAM. The Company will comply with all applicable
securities and other applicable laws, rules and regulations in each jurisdiction
in which the Directed Shares are offered in connection with the Directed Share
Program. The Company hereby agrees that it will direct the Company's transfer
agent to place a stop transfer restriction for a period of three months from the
date of this Agreement upon any Directed Shares that are restricted by the NASD
or the NASD rules from sale, transfer, assignment, pledge or hypothecation for
such three month period following the date of this Agreement. The
Representatives will notify the Company in writing as to which persons
purchasing Directed Shares will need to be so restricted. If the Company shall
release, or seek to release, from such restrictions any of such Directed Shares,
the Company agrees to reimburse the Representatives for any reasonable expenses
(including without limitation legal expenses) they incur in connection with, or
as a result of, such release.
SECTION 4. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Underwritten
Shares as provided herein on the First Closing Date or the Second Closing Date,
as applicable, shall be subject to the accuracy of the representations and
warranties on the part of the Company set forth in Section 1 hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Option Shares, as of the Second Closing Date as though then made,
to the timely performance by the Company of its covenants and other obligations
hereunder, and to each of the following additional conditions:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER; NO
OBJECTION FROM THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. The
Registration Statement shall have become effective prior to the execution of
this Agreement, or at such later date as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectuses or otherwise) shall have been
complied with to the satisfaction of Underwriters' Counsel; and the National
Association of Securities Dealers, Inc. shall have raised no objection to the
fairness and reasonableness of the underwriting terms and arrangements.
(b) CORPORATE PROCEEDINGS. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectuses, and the registration, authorization, issue, sale and
delivery of the Shares,
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shall have been reasonably satisfactory to Underwriters' Counsel, and such
counsel shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section.
(c) NO MATERIAL ADVERSE CHANGE. Subsequent to the execution and
delivery of this Agreement and prior to the First Closing Date or the Second
Closing Date, as the case may be, there shall not have been any Material Adverse
Change in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company and its subsidiaries considered as one
enterprise from that set forth in the Registration Statement or Prospectuses,
which, in your sole judgment, is material and adverse and that makes it, in your
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectuses; and
(d) OPINION OF COUNSEL FOR THE COMPANY. You shall have received on the
First Closing Date, or the Second Closing Date, as the case may be, an opinion
of O'Sullivan Graev & Karabell, LLP, counsel for the Company substantially in
the form of EXHIBIT B attached hereto, dated the First Closing Date or the
Second Closing Date, as the case may be, addressed to the Underwriters and with
reproduced copies or signed counterparts thereof for each of the Underwriters.
(e) OPINION OF INTELLECTUAL PROPERTY COUNSEL FOR THE COMPANY. You shall
have received on the First Closing Date or the Second Closing Date, as the case
may be, an opinion of Cooper & Dunham LLP, intellectual property counsel for the
Company, substantially in the form of EXHIBIT C attached hereto.
(f) OPINION OF STATE LABOR AND EMPLOYMENT COUNSEL FOR THE COMPANY. You
shall have received on the First Closing Date or the Second Closing Date, as the
case may be, an opinion of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.,
special counsel for the Company, substantially in the form of EXHIBIT D attached
hereto.
(g) OPINION OF FEDERAL LABOR AND EMPLOYMENT COUNSEL FOR THE COMPANY.
You shall have received on the First Closing Date or the Second Closing Date, as
the case may be, an opinion of Winthrop, Stimson, Putnam & Roberts, special
counsel for the Company, substantially in the form of EXHIBIT F attached hereto.
(h) OPINION OF COUNSEL FOR THE UNDERWRITERS. You shall have received on
the First Closing Date or the Second Closing Date, as the case may be, an
opinion of Morrison & Foerster LLP, substantially in the form of EXHIBIT F
hereto. The Company shall have furnished to such counsel such documents as they
may have reasonably requested for the purpose of enabling them to pass upon such
matters.
(i) ACCOUNTANTS' COMFORT LETTER. You shall have received on the First
Closing Date and on the Second Closing Date, as the case may be, a letter from
each of KPMG LLP and PricewaterhouseCoopers LLP addressed to the Underwriters,
dated the First Closing Date or the Second Closing Date, as the case may be,
confirming that they are independent certified public accountants with respect
to the Company and The Churchill Benefits Corporation, in the case of KPMG LLP,
and PeopleMover, Inc., in the case of PricewaterhouseCoopers LLP, within the
meaning of the Securities Act and the applicable published Rules and
Regulations, and based upon the procedures described in such letter delivered to
you concurrently with the execution of
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this Agreement (each of which is herein called an "Original Letter"), but
carried out to a date not more than four (4) business days prior to the First
Closing Date or the Second Closing Date, as the case may be, (i) confirming, to
the extent true, that the statements and conclusions set forth in the Original
Letters are accurate as of the First Closing Date or the Second Closing Date, as
the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letters which are necessary
to reflect any changes in the facts described in the Original Letters since the
date of such letters, or to reflect the availability of more recent financial
statements, data or information. The letters shall not disclose any change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise from that set forth in the Registration Statement or Prospectuses,
which, in your sole judgment, is material and adverse and that makes it, in your
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectuses. The Original Letter from KPMG
LLP shall be addressed to or for the use of the Underwriters in form and
substance satisfactory to the Representatives and shall (i) set forth their
opinion with respect to their examination of (a) the consolidated balance sheets
of the Company as of December 31, 1999 and 1998 and related consolidated
statements of operations, stockholders' equity, and cash flows for the twelve
(12) months ended December 31, 1999 and the period from August 17, 1998
(inception) to December 31, 1998 and (b) the balance sheets of The Churchill
Benefit Corporation as of December 31, 1998 and 1997 and the related statements
of operations, stockholders' equity, and cash flows for the twelve (12) months
ended December 31, 1998 and 1997, (ii) state that KPMG LLP has performed the
procedures set out in Statement on Auditing Standards No. 71 ("SAS 71") for a
review of interim financial information and providing the report of KPMG LLP as
described in SAS 71 on the financial statements for each of the quarters with
respect to which financial information is set forth in the Prospectuses (the
"Opus 360 Quarterly Financial Statements") and (iii) state that in the course of
such review, nothing came to their attention that leads them to believe that any
material modifications need to be made to any of the Opus Quarterly Financial
Statements in order for them to be in compliance with generally accepted
accounting principles consistently applied across the periods presented, and
address other matters agreed upon by KPMG LLP and you. The Original Letter from
PricewaterhouseCoopers LLP shall be addressed to or for the use of the
Underwriters in form and substance satisfactory to the Representatives and shall
(i) set forth their opinion with respect to their examination of the
consolidated balance sheets of PeopleMover, Inc. of the Company as of December
31, 1999 and 1998 the and related consolidated statements of operations,
stockholders' deficit, and cash flows for the twelve (12) months ended December
31, 1999 and 1998, and (ii) address other matters agreed upon by
PricewaterhouseCoopers LLP and you. In addition, you shall have received from
KPMG LLP a letter addressed to the Company and made available to you for the use
of the Underwriters stating that their review of the Company's system of
internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's consolidated
financial statements as of December 31, 1999, did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
(j) OFFICERS' CERTIFICATE. You shall have received on the First Closing
Date and the Second Closing Date, as the case may be, a certificate of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, signed by the Chief Executive Officer and Chief Financial Officer of the
Company, to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this Agreement
are true and correct, as if made on and as of the First Closing Date or
the Second
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Closing Date, as the case may be, and the Company has complied with
all the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the First Closing Date or the
Second Closing Date, as the case may be; and
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or, to the knowledge of such officers,
contemplated or threatened under the Securities Act.
(k) LOCK-UP AGREEMENT FROM CERTAIN STOCKHOLDERS OF THE COMPANY. The
Company shall have obtained and delivered to you an agreement substantially in
the form of EXHIBIT A attached hereto from each officer and director of the
Company, each securityholder of the Company named in the Prospectuses, and the
holders of at least 95% of the Company's outstanding Common Shares, including
Common Shares issuable upon the exercise of outstanding stock options and
warrants.
(l) STOCK EXCHANGE LISTING. The Common Shares shall have been approved
for inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(m) COMPLIANCE WITH PROSPECTUS DELIVERY REQUIREMENTS. The Company shall
have complied with the provisions of Sections 2(g) and 3(e) hereof with respect
to the furnishing of Prospectuses.
(n) ADDITIONAL DOCUMENTS. On or before each of the First Closing Date
and the Second Closing Date, as the case may be, the Representatives and counsel
for the Underwriters shall have received such information, documents and
opinions as they may reasonably require for the purposes of enabling them to
pass upon the issuance and sale of the Shares as contemplated herein, or in
order to evidence the accuracy of any of the representations and warranties, or
the satisfaction of any of the conditions or agreements, herein contained.
(o) SAFEGUARD SHARES. The Company, Safeguard, CompuCom and Robertson
Stephens shall have entered into the Purchase Agreement; contemporaneously with
the purchase by the Underwriters of the Firm Shares on the First Closing Date,
Safeguard or Safeguard Delaware, Inc., pursuant to the Purchase Agreement, as
the case may be, shall have purchased the Primary Safeguard Shares and the
Safeguard Shares to be sold by CompuCom that are not purchased by Safeguard's
shareholders, all documents reasonably requested by the Underwriters and their
counsel with respect to such transactions shall have been furnished to them, and
all proceedings taken with respect to such arrangements shall be reasonably
acceptable to the Representatives.
(P) CONCURRENT PLACEMENT. DELL USA L.P. shall have purchased the
Company's Common Shares in the manner and on the terms set forth in the stock
purchase agreements dated March 1, 2000, all documents reasonably requested by
the Underwriters and their counsel with respect to such transactions shall have
been
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furnished to them, and all proceedings taken with respect to such arrangements
shall be reasonably acceptable to the Representatives.
If any condition specified in this Section 4 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Option Shares, at any time on or prior to
the Second Closing Date, which termination shall be without liability on the
part of any party to any other party, except that Section 5 (Payment of
Expenses), Section 6 (Reimbursement of Underwriters' Expenses), Section 7
(Indemnification and Contribution) and Section 10 (Representations and
Indemnities to Survive Delivery) shall at all times be effective and shall
survive such termination.
SECTION 5. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Shares (including all printing and engraving costs), (ii) all fees and expenses
of the registrar and transfer agent of the Common Shares, (iii) all necessary
issue, transfer and other stamp taxes in connection with the issuance and sale
of the Underwritten Shares to the Underwriters, including the Directed Shares to
be offered in connection with the Directed Share Program, (iv) all fees and
expenses of the Company's counsel, independent public or certified public
accountants and other advisors, (v) all costs and expenses incurred in
connection with the preparation, printing, filing, shipping and distribution of
the Registration Statement (including financial statements, exhibits, schedules,
consents and certificates of experts), each preliminary prospectus and the
Prospectuses, and all amendments and supplements thereto, and this Agreement,
(vi) all costs and expenses incurred by the Underwriters in connection with the
Directed Share Program, including reasonable fees and disbursements of counsel,
(vii) all filing fees and reasonable attorneys' fees and expenses incurred by
the Company or the Underwriters in connection with qualifying or registering (or
obtaining exemptions from the qualification or registration of) all or any part
of the Shares for offer and sale under the state securities or blue sky laws or
the provincial securities laws of Canada or any other country, and, if requested
by the Representatives, preparing and printing a "Blue Sky Survey", an
"International Blue Sky Survey" or other memorandum, and any supplements
thereto, advising the Underwriters of such qualifications, registrations and
exemptions, (viii) the filing fees incident to, and the reasonable fees and
expenses of counsel for the Underwriters in connection with, the National
Association of Securities Dealers, Inc.'s review and approval of the
Underwriters' participation in the offering and distribution of the Shares, (ix)
the fees and expenses associated with listing the Common Shares on the Nasdaq
National Market, (x) all costs and expenses incident to the travel and
accommodation of the Company's employees on the "road show", and (xi) all other
fees, costs and expenses referred to in Item 13 of Part II of the Registration
Statement. Except as provided in this Section 5, Section 6, and Section 7
hereof, the Underwriters shall pay their own expenses, including the fees and
disbursements of their counsel.
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SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement
is terminated by the Representatives pursuant to Section 4, Section 8 or Section
9, or if the sale to the Underwriters of the Firm Shares on the First Closing
Date is not consummated because of any refusal, inability or failure on the part
of the Company to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse the Representatives and the other
Underwriters (or such Underwriters as have terminated this Agreement with
respect to themselves), severally, upon demand for all out-of-pocket expenses
that shall have been reasonably incurred by the Representatives and the
Underwriters in connection with the proposed purchase and the offering and sale
of the Underwritten Shares, including but not limited to fees and disbursements
of counsel, printing expenses, travel and accommodation expenses, postage,
facsimile and telephone charges.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION OF THE UNDERWRITERS.
(1) The Company agrees to indemnify and hold harmless each
Underwriter, its officers and employees, and each person, if any, who controls
any Underwriter within the meaning of the Securities Act and the Exchange Act
against any loss, claim, damage, liability or expense, as incurred, to which
such Underwriter or such controlling person may become subject, under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company, which consent shall not be unreasonably withheld), insofar as such
loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based (i) upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, or any amendment thereto, including any information deemed to be a
part thereof pursuant to Rule 430A under the Securities Act, or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading; or (ii) upon any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus or the Prospectuses (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; or (iii) in whole or
in part upon any inaccuracy in the representations and warranties of the Company
contained herein; or (iv) in whole or in part upon any failure of the Company to
perform its obligations hereunder or under law; or (v) any untrue statement or
alleged untrue statement of any material fact contained in any audio or visual
materials provided by the Company or based upon written information furnished by
or on behalf of the Company including, without limitation, slides, videos, films
or tape recordings, used in connection with the marketing of the Shares,
including without limitation, statements communicated to securities analysts
employed by the Underwriters; or (vi) the violation of any applicable laws or
regulations of foreign jurisdictions where Directed Shares have been offered; or
(vii) any act or failure to act or any alleged act or failure to act by any
Underwriter in connection
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with, or relating in any manner to, the Shares or the offering contemplated
hereby, and which is included as part of or referred to in any loss, claim,
damage, liability or action arising out of or based upon any matter covered by
clause (i), (ii), (iii), (iv), (v) or (vi) above, provided that the Company
shall not be liable under this clause (vi) to the extent that a court of
competent jurisdiction shall have determined by a final judgment that such loss,
claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter through
its bad faith or willful misconduct; and to reimburse each Underwriter and each
such controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by Robertson Stephens) as such expenses are
reasonably incurred by such Underwriter or such controlling person in connection
with investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that the
foregoing indemnity agreement shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, arising out of or
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Representatives expressly for use in
the Registration Statement, any preliminary prospectus or the Prospectuses (or
any amendment or supplement thereto); and provided, further, that with respect
to any preliminary prospectus, the foregoing indemnity agreement shall not inure
to the benefit of any Underwriter from whom the person asserting any loss,
claim, damage, liability or expense purchased Shares, or any person controlling
such Underwriter, if copies of the Primary Prospectuses were timely delivered to
the Underwriter pursuant to Section 2 and a copy of the Primary Prospectuses (as
then amended or supplemented if the Company shall have furnished any amendments
or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered, and if
the Primary Prospectuses (as so amended or supplemented) would have cured the
defect giving rise to such loss, claim, damage, liability or expense. The
indemnity agreement set forth in this Section 7(a) shall be in addition to any
liabilities that the Company may otherwise have.
(b) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND OFFICERS. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectuses (or any amendment or supplement
thereto), or arises out of or is 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, in each case to the extent, but only to
the extent, that such untrue statement or
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alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any preliminary prospectus, the Prospectuses (or any
amendment or supplement thereto), in reliance upon and in conformity with
written information furnished to the Company by the Representatives expressly
for use therein; and to reimburse the Company, or any such director, officer or
controlling person for any legal and other expense reasonably incurred by the
Company, or any such director, officer or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action. The indemnity agreement set forth in this
Section 7(b) shall be in addition to any liabilities that each Underwriter may
otherwise have.
(c) INFORMATION PROVIDED BY THE UNDERWRITERS. The Company hereby
acknowledges that the only information that the Underwriters have furnished to
the Company expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectuses (or any amendment or supplement thereto) are the
names of the Underwriters, the information set forth in the table under the
caption "Underwriting - Underwritten Public Offering" and the statements set
forth in the paragraph under such table (other than the last sentence thereof),
the statements set forth under the caption "Underwriting-Internet Distribution"
(which have been furnished by E*Offering Corp.), the statements set forth under
the caption "Underwriting-Stabilization" and the last sentence of the third
paragraph under the caption "Risk Factors-Risks Related to this Offering-Shares
eligible for public sale may..."; and the Underwriters confirm that such
statements are correct.
(d) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 7 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt
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of notice from the indemnifying party to such indemnified party of such
indemnifying party's election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying party will not be
liable to such indemnified party under this Section 7 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed separate
counsel in accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel (together with local counsel),
approved by the indemnifying party (Robertson Stephens in the case of Section
7(b)), representing the indemnified parties who are parties to such action),
(ii) the indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action, or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party, in each of which cases the fees and expenses of counsel
shall be at the expense of the indemnifying party.
(e) SETTLEMENTS. The indemnifying party under this Section 7 shall not
be liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 7(d) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 60 days
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(f) CONTRIBUTION. If the indemnification provided for in this Section 7
is unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Underwritten Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law then each indemnifying party shall contribute to such amount
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<PAGE>
paid or payable by such indemnified party in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of such
party on the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, (or actions or proceedings in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bears to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectuses. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company and the
"control" stockholders on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 7(f) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7(f). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 7(f) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (f), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this Section 7(f)
to contribute are several in proportion to their respective underwriting
obligations and not joint.
(g) TIMING OF ANY PAYMENTS OF INDEMNIFICATION. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than forty-five
(45) days of invoice to the indemnifying party.
(h) SURVIVAL. The indemnity and contribution agreements contained in
this Section 7 and the representation and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
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(i) ACKNOWLEDGEMENTS OF PARTIES. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 7, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectuses as required by
the Securities Act and the Exchange Act.
(j) INDEMNIFICATION FOR DIRECTED SHARE PROGRAM. The Company agrees to
indemnify and hold harmless Robertson Stephens, Bear Stearns and their
respective affiliates and each person, if any, who controls Robertson Stephens,
Bear Stearns or their respective affiliates within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act ("Indemnified
Entities"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) (i)
caused by any untrue statement or alleged untrue statement of a material fact
contained in any material prepared by or with the consent of the Company for
distribution to participants in connection with the Directed Share Program, or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; (ii) the failure of any participant to pay for and accept delivery
of Directed Shares that the participant has agreed to purchase; or (iii) related
to, arising out of, or in connection with the Directed Share Program other than
losses, claims, damages or liabilities (or expenses relating thereto) that are
finally judicially determined to have resulted from the bad faith or gross
negligence of Indemnified Entities.
SECTION 8. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Shares that
it or they have agreed to purchase hereunder on such date, and the aggregate
number of Common Shares which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase does not exceed 10% of the aggregate number of
the Shares to be purchased on such date by the Underwriters, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Shares set forth opposite their respective names on SCHEDULE A bears to
the aggregate number of Firm Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as may be specified by
the Representatives with the consent of the non-defaulting Underwriters, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date. If, on the First Closing Date or the
Second Closing Date, as the case may be, any one or more of the Underwriters
shall fail or refuse to purchase Shares and the aggregate number of Shares with
respect to which such default occurs exceeds 10% of the aggregate number of
Shares to be purchased by the Underwriters on such date, and arrangements
satisfactory to the Representatives and the Company for the purchase of such
Shares are not made within 48 hours after such default, this Agreement shall
terminate without liability of any party to any other party except that the
provisions of Section 5, and Section 7 shall at all times be effective and shall
survive such termination. In any such case either the Representatives or the
Company shall have the right to postpone the First Closing Date or the Second
Closing Date, as the case may be,
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but in no event for longer than seven days in order that the required changes,
if any, to the Registration Statement and the Prospectuses or any other
documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be
deemed to include any person substituted for a defaulting Underwriter under this
Section 8. Any action taken under this Section 8 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 9. TERMINATION OF THIS AGREEMENT. This Agreement may be
terminated by the Representatives by notice given to the Company if (a) at any
time after the execution and delivery of this Agreement and prior to the First
Closing Date (i) trading or quotation in any of the Company's securities shall
have been suspended or limited by the Commission or by the Nasdaq Stock Market,
or trading in securities generally on either the Nasdaq Stock Market or the New
York Stock Exchange shall have been suspended or materially limited, or minimum
or maximum prices shall have been generally established on any of such stock
exchanges by the Commission or the National Association of Securities Dealers,
Inc.; (ii) a general banking moratorium shall have been declared by any of
federal, New York or Delaware authorities; (iii) there shall have occurred any
outbreak or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective change in
United States' or international political, financial or economic conditions, as
in the judgment of the Representatives is material and adverse and makes it
impracticable or inadvisable to market the Common Shares in the manner and on
the terms contemplated by in the Primary Prospectuses or to enforce contracts
for the sale of securities; (iv) in the judgment of the Representatives there
shall have occurred any Material Adverse Change; or (v) the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other calamity
of such character as in the judgment of the Representatives may interfere
materially with the conduct of the business and operations of the Company
regardless of whether or not such loss shall have been insured and (b) in the
case of any of the events specified 9(a)(i)-(v), such event individually or
together with any other event, makes it, in your judgment, impracticable or
inadvisable to market the Common Shares in the manner and on the terms
contemplated the Prospectuses. Any termination pursuant to this Section 9 shall
be without liability on the part of (x) the Company to any Underwriter, except
that the Company shall be obligated to reimburse the expenses of the
Representatives and the Underwriters pursuant to Sections 5 and 6 hereof, (y)
any Underwriter to the Company or any person controlling the Company, or (z) of
any party hereto to any other party except that the provisions of Section 7
shall at all times be effective and shall survive such termination.
SECTION 10. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company or any person controlling the Company, of its officers
and of the several Underwriters set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any investigation made by or
on behalf of any Underwriter or the
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Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Shares sold hereunder and any termination of this Agreement.
SECTION 11. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
FleetBoston Robertson Stephens Inc.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2675
Attention: General Counsel
with copies to:
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104
Facsimile: (212) 468-7900
Attention: Mark L. Mandel, Esq.
If to the Company:
Opus 360 Corporation
733 3rd Avenue, 17th Floor
New York, New York 10017
Facsimile: (212) 599-8481
Attention: Ari B. Horowitz
with copies to:
O'Sullivan, Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Facsimile: (212) 408-2420
Attention: John J. Suydam, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 12. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 8 hereof, and to the benefit of the employees, officers and
directors and
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controlling persons referred to in Section 7, and to their respective
successors, and no other person will have any right or obligation hereunder. The
term "successors" shall not include any purchaser of the Shares as such from any
of the Underwriters merely by reason of such purchase.
SECTION 13. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 14. GOVERNING LAW PROVISIONS.
(a) GOVERNING LAW. This agreement shall be governed by and construed in
accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
(b) CONSENT TO JURISDICTION. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of New York or the
courts of the State of New York in each case located in the City and County of
New York (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such
court. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the Specified Courts
and irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum.
SECTION 15. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Section headings herein are for the convenience of the parties only and
shall not affect the construction or interpretation of this Agreement.
31
<PAGE>
[The remainder of this page has been intentionally left blank.]
32
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
OPUS360 CORPORATION
By: __________________________
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives as of the date first above written, on their behalf and
on behalf of each of the several underwriters named in SCHEDULE A hereto.
FleetBoston Robertson Stephens Inc.
Bear, Stearns & Co. Inc.
J.P. Morgan Securities Inc.
E*OFFERING Corp.
As Representatives of the several Underwriters
By: FLEETBOSTON ROBERTSON STEPHENS INC.
By: _________________________________
Name:
Title:
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriters to be Purchased
------------ ---------------
<S> <C>
FLEETBOSTON ROBERTSON STEPHENS INC. [___]
BEAR, STEARNS & CO. INC. ................................. [___]
J.P. MORGAN SECURITIES INC. .............................. [___]
E*OFFERING CORP. ......................................... [___]
------
Total............................................ 5,950,000
</TABLE>
F-1
<PAGE>
Exhibit 3.1(c)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
OPUS360 CORPORATION
(pursuant to Section 242 of the General
Corporation Law of the State of Delaware)
OPUS360 CORPORATION (hereinafter called the "Corporation"), organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
FIRST: The Board of Directors of the Corporation, by unanimous written
consent in lieu of a meeting thereof dated as of March 16, 2000, in accordance
with the provisions of Sections 141(f) and 242 of the General Corporation Law of
the State of Delaware, duly adopted a resolution setting forth a proposed
amendment to the Certificate of Incorporation, declaring said amendment to be
advisable and calling for consideration of said proposed amendment by the
stockholders of the Corporation. The resolution setting forth the proposed
amendment is as follows:
RESOLVED: That it is hereby proposed and declared advisable to amend
the Corporation's Certificate of Incorporation, as amended,
as follows:
The first paragraph of Article III shall be deleted and the following
shall be inserted in lieu thereof:
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 175,000,000, consisting of (a)
150,000,000 shares of Common Stock, par value $.001 per share (the "Common
Stock"), and (b) 25,000,000 shares of Preferred Stock, par value $.001 per share
(the "Preferred Stock"), consisting of 8,400,000 shares of Series A Convertible
Preferred Stock, par value $.001 per share (the "Series A Preferred Stock") and
8,700,000 shares of Series B Convertible Preferred Stock, par value $.001 per
share (the "Series B Preferred Stock") and 7,900,000 shares reserved for
issuance in the discretion of the Board.
Upon the filing of this Certificate of Amendment with the Secretary of
State of the State of Delaware, each two (2) issued and outstanding shares of
Common Stock shall be reclassified into three (3) shares of Common Stock.
Pending the surrender of certificates representing the Common Stock reclassified
pursuant to the preceding sentence, each certificate therefor shall, from and
after the time of such reclassification, be deemed to represent the number of
shares of Common Stock into which the shares evidenced thereby were so
reclassified. No fractional shares of Common Stock shall be issued upon the
reclassification pursuant to this paragraph. The number of full and fractional
shares of Common Stock to which a holder is entitled upon the reclassification
pursuant to this paragraph shall be determined on the
<PAGE>
basis of the total number of full and fractional shares being reclassified held
by such holder. Any remaining fraction of a share of Common Stock shall be
settled by a cash payment made by the Corporation in an amount equal to such
fraction multiplied by the fair market value of the Common Stock as of the date
that the Certificate of Amendment with respect hereto is filed with the
Secretary of State of the State of Delaware, as such fair market value is
determined by the Corporation's Board of Directors.
SECOND: The stockholders of the Corporation duly approved this
Certificate of Amendment of Certificate of Incorporation and the amendment
contained herein by written consent in accordance with Sections 228 and 242 of
the General Corporation Law of the State of Delaware.
THIRD: Prompt notice of the action taken by this Certificate of
Amendment shall be given to those stockholders who have not consented in writing
to the amendment affected hereby in accordance with Section 228 of the General
Corporation Law of the State of Delaware.
-2-
<PAGE>
IN WITNESS WHEREOF, the Corporation had caused its corporate
seal to be affixed hereto and this Certificate of Amendment to be signed by an
authorized officer this 27 day of March, 2000.
OPUS360 CORPORATION
By: /s/ Ari B. Horowitz
-------------------------------------
Ari B. Horowitz
Chairman and Chief Executive Officer
<PAGE>
Exhibit 5.1
[LETTERHEAD OF O'SULLIVAN GRAEV & KARABELL, LLP]
April 4, 2000
Opus360 Corporation
39 West 13th Street, 3rd Floor
New York, New York 10011
OPUS360 CORPORATION
8,855,000 SHARES OF COMMON STOCK, $.001 PAR VALUE
Ladies and Gentlemen:
We have acted as special counsel to Opus360 Corporation, a Delaware
corporation (the "Company"), in connection with (i) the initial public offering
by the Company of up to 8,155,000 shares (including 1,155,000 shares subject to
an over-allotment option) (the "Company Shares") of the Company's Common Stock,
$.001 par value per share (the "Common Stock"), that are being offered to the
public generally and to stockholders of Safeguard Scientifics, Inc.
("Safeguard") and (ii) the offering by Safeguard and CompuCom Systems, Inc. of
up to 700,000 outstanding shares (the "Safeguard Shares" and together with the
Company Shares, the "Shares") of Common Stock to stockholders of Safeguard.
In connection with this opinion, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records, certificates of public officials and officers of the Company
and other instruments as we have deemed necessary for the purpose of rendering
the opinion set forth herein. In our examination, we have assumed the legal
capacity of all natural persons, the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such latter
documents. In making our examination of documents executed or to be executed by
parties other than the Company, we have assumed that such parties had or will
have the power, corporate or other, to enter into and perform all obligations
thereunder and have also assumed the due authorization by all requisite action,
corporate or other, and execution and delivery by such parties of such documents
and the validity and binding effect thereof. As to any facts material to the
opinion expressed herein which we have not independently established or
verified, we have relied upon statements and representations of officers and
other representatives of the Company and others.
<PAGE>
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company Shares have been duly authorized and when
the underwriting agreement referred to in the Registration Statement
defined below has been duly executed and delivered by the Company and
the Company Shares have been issued and delivered by the Company
against payment therefor in accordance with the terms of the
underwriting agreement, the Company Shares will be validly issued,
fully paid and nonassessable.
2. The Safeguard Shares have been duly authorized and are
validly issued, fully paid and nonassessable.
We are admitted to the Bar of the State of New York and we express no
opinion as to the laws of any other jurisdiction other than the General
Corporation Law of the State of Delaware.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement on Form S-1 (File No. 333-93185) relating to the Shares
(the "Registration Statement"). We also consent to the reference to us under the
caption "Legal Matters" in the prospectus, which forms a part of the
Registration Statement. In giving this consent, we do not thereby admit that we
are included in the category of persons whose consent is required under Section
7 of the Act or the rules and regulations promulgated thereunder.
Very truly yours,
/s/ 0'Sullivan Graev & Karabell, LLP
<PAGE>
Exhibit 10.7
Amended and Restated Registration Rights Agreement
AMENDED AND RESTATED REGISTRATION
RIGHTS AGREEMENT dated as of March 16,
2000, among OPUS360 CORPORATION, a Delaware
corporation (the "Corporation"), and the
PRE-IPO SECURITYHOLDERS (as herein defined).
The Corporation and the Pre-IPO Securityholders have entered into a
Registration Rights Agreement dated as of December 24, 1998 (as amended by that
certain Amendment No. 1 dated September 1, 1999 and as otherwise heretofore
amended or modified, the "Original Registration Rights Agreement"). The
Corporation desires to amend and restate the Original Registration Rights
Agreement in its entirety as and pursuant to this Agreement. Effective upon the
execution of this Agreement by those Pre-IPO Securityholders with the requisite
power and authority to amend and restate the Original Registration Rights
Agreement pursuant to the terms of Section 19 thereof, this Agreement shall
amend and restate the Original Registration Rights Agreement in its entirety as
and pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and obligations hereinafter set forth, the Corporation and the Pre-IPO
Securityholders agree that the Original Registration Rights Agreement shall be
amended and restated in its entirety to read 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 Amended and Restated 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.
<PAGE>
"Corporation" has the meaning assigned to such term in the caption
to this Agreement.
"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, ordinance or similar provision having the
force or effect of law or any Order.
"Majority of Registering Pre-IPO Securityholders" means, with
respect to any registration of Pre-IPO Registrable Shares, those Pre-IPO
Securityholders who or which hold in the aggregate in excess of 50% of all of
the Pre-IPO Registrable Shares included in such registration.
"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.
"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.
2
<PAGE>
"Original Registration Rights Agreement" has the meaning assigned to
such term in the preamble to this Agreement.
"Other Shares" means, at any time, those shares of Common Stock
which do not constitute Primary Shares, Pre-IPO 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.
"Pre-IPO Registrable Shares" means the Registrable Shares that are
Initial Common Shares, Series A Conversion Shares, Series B Conversion Shares
and Warrant Shares.
"Pre-IPO Securityholders" means, collectively, (i) any Persons
listed on Schedule I on the effective date hereof, (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 Pre-IPO
Securityholder as a party to this Agreement, the Corporation shall amend
Schedule I solely to reflect the name and address of such new Pre-IPO
Securityholder, and the Corporation shall distribute to the Pre-IPO
Securityholders such amended Schedule I.
"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 Pre-IPO 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 Pre-IPO Securityholders" means, with respect to any
registration of Pre-IPO Registrable Shares, those Pre-IPO Securityholders who or
which hold the Pre-IPO Registrable Shares included in such registration.
"Registrable Shares" means, at any time with respect to any Pre-IPO
Securityholder or Additional Securityholder, the shares of Common Stock held by
such Pre-IPO Securityholder or Additional Securityholder that constitute
Restricted Securities. For purposes of this definition, a Pre-IPO Securityholder
or Additional
3
<PAGE>
Securityholder shall be deemed to be the holder of shares of Common Stock
whenever such Pre-IPO 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 Pre-IPO 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.
4
<PAGE>
"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 Pre-IPO 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 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.
"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. Required Registration.
(a) If, at any time at least 180 days after the Registration Date,
Pre-IPO Securityholders who or which hold in the aggregate Pre-IPO Registrable
Shares that constitute not less than 25% of (1) the Initial Common Shares, (2)
the Series A Conversion Shares, or (3) the Series B Conversion Shares shall
notify the Corporation in writing that such Pre-IPO Securityholders desire to
sell any of such Pre-IPO Registrable Shares in the public securities market and
request that the Corporation effect the registration under the Securities Act of
Pre-IPO Registrable Shares having an anticipated aggregate gross offering price
(before underwriting discounts and commissions) of at least $5,000,000, the
Corporation shall:
(i) promptly give written notice of the proposed registration
to all other Pre-IPO Securityholders, who or which shall have the right,
subject to the applicable terms of this Agreement, to include in such
registration Pre-IPO Registrable Shares held
5
<PAGE>
by them (exercisable by delivering to the Corporation a written notice
specifying the number of Pre-IPO Registrable Shares requested to be
included within 30 days after receipt of such notice of such registration
from the Corporation); and
(ii) use its best efforts to effect the registration under the
Securities Act of the Pre-IPO Registrable Shares which the Corporation has
been so requested to register.
(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) (i) more than one
Registration Statement requested pursuant to Section 2(a)(1), (ii) more
than two Registration Statements requested pursuant to Section 2(a)(2), or
(iii) more than two Registration Statements requested pursuant to Section
2(a)(3), in each case on Form S-1 promulgated under the Securities Act or
any successor form thereto, 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
Pre-IPO Registrable Shares may include Pre-IPO Registrable Shares pursuant
to Section 3 or (B) is engaged in a Material Transaction.
(iii) With respect to any registration of Pre-IPO 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
Pre-IPO 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 Pre-IPO 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 Pre-IPO Registrable Shares constituting
Conversion Shares or Warrant Shares requested by the Pre-IPO
Securityholders to be included in such registration (or, if
necessary, such Shares pro rata among all such Pre-IPO
Securityholders based upon the aggregate number of Pre-IPO
Registrable Shares
6
<PAGE>
constituting Conversion Shares and Warrant Shares held by each such
Pre-IPO Securityholder at the time of registration);
(B) second, the Pre-IPO Registrable Shares constituting
Initial Common Shares requested by the Pre-IPO Securityholders to be
included in such registration (or, if necessary, such Shares pro
rata among all such Pre-IPO Securityholders based upon the number of
Pre-IPO Registrable Shares constituting Initial Common Shares held
by each such Pre-IPO Securityholder at the time of registration);
(C) third, the Additional Registrable Shares
constituting 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 constituting SP Registrable Shares held by each
such Additional Securityholder at the time of registration);
(D) fourth, Primary Shares;
(E) fifth, the Additional Registrable Shares not
constituting 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 SP Registrable Shares held by
each such Additional Securityholder at the time of registration);
and
(F) sixth, the Other Shares.
(c) If the Majority of Registering Pre-IPO Securityholders in a
registration requested pursuant to Section 2(a) or Section (4) intend to
distribute the Pre-IPO 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. In such event, the Majority of Registering Pre-IPO
Securityholders shall select one or more nationally recognized firms of
investment bankers reasonably acceptable to the Corporation to act as the lead
managing underwriter or underwriters in connection with such offering. The right
of any Registering Pre-IPO Securityholder to registration pursuant to Section
2(a) or Section 4 shall be conditioned upon such Registering Pre-IPO
Securityholder's participation in such underwriting and the inclusion of such
Registering Pre-IPO Securityholder's Pre-IPO Registrable Shares in the
underwriting (unless otherwise mutually agreed by the Majority of Registering
Pre-IPO Securityholders and
7
<PAGE>
such Registering Pre-IPO Securityholder) to the
extent provided herein. The Corporation and the Registering Pre-IPO
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) or Section 4 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 Registering
Pre-IPO Securityholders requesting such registration; provided, however, if such
registration was requested pursuant to Section 2(a), such registration shall not
count as a Registration Statement requested pursuant thereto for purposes of
clause (A) of Section 2(b)(i) if (x) such request for withdrawal shall have been
caused by, or made in response to, the material adverse effect of an event on
the business, operations, assets, condition (financial or otherwise) or
operating results of the Corporation and its Subsidiaries taken as a whole or
(y) 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.
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 Pre-IPO
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 Pre-IPO Securityholder to
include in such registration Pre-IPO Registrable Shares (which request shall
specify the number of Pre-IPO Registrable Shares proposed to be included in such
registration and shall state the desire of such Pre-IPO Securityholder to sell
such Pre-IPO Registrable Shares in the public securities markets), the
Corporation shall use its best efforts to cause all such Pre-IPO Registrable
Shares to be included in such registration on the same terms and conditions as
the Primary Shares, the 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 Pre-IPO 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
Pre-IPO 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 SP Registrable Shares, or by any holder of the foregoing:
(A) first, the Primary Shares;
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(B) second, the Additional Registrable Shares
constituting SP Registrable Shares requested by the Additional
Securityholders to be included in such registration and the Pre-IPO
Registrable Shares requested by the Pre-IPO Securityholders to be
included in such registration, or, if necessary, such Shares
allocated between (x) the Additional Securityholders who or which
have requested the inclusion of SP Registrable Shares in such
registration on the one hand and (y) the Pre-IPO Securityholders who
or which have requested the inclusion of Pre-IPO Registrable 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 (i) the aggregate number of Shares
allocated to the Additional Securityholders described in clause (x)
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 SP
Registrable Shares held by each such Additional Securityholder at
the time of registration and (ii) the aggregate number of Shares
allocated to the Pre-IPO Securityholders described in clause (y)
above further allocated among such Pre-IPO Securityholders in the
following order:
(1) first, the Pre-IPO Registrable Shares
constituting Conversion Shares or Warrant Shares requested by
the Pre-IPO Securityholders to be included in such
registration (or, if necessary, such Pre-IPO Registrable
Shares pro rata among all such Pre-IPO Securityholders based
upon the aggregate number of Pre-IPO Registrable Shares
constituting Conversion Shares and Warrant Shares held by each
such Pre-IPO Securityholder at the time of registration); and
(2) second, the Pre-IPO Registrable Shares
constituting Initial Common Shares requested by the Pre-IPO
Securityholders to be included in such registration (or, if
necessary, such Pre-IPO Registrable Shares pro rata among all
such Pre-IPO Securityholders based upon the number of Pre-IPO
Registrable Shares constituting Initial Common Shares held by
each such Pre-IPO Securityholder at the time of registration);
(C) third, the Additional Registrable Shares not
constituting 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 SP Registrable Shares held by
each such Additional Securityholder at the time of registration);
and
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(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 (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 SP Registrable Shares held by each
such Additional Securityholder at the time of registration);
(B) second, the Pre-IPO Registrable Shares constituting
Conversion Shares or Warrant Shares requested by the Pre-IPO
Securityholders to be included in such registration (or, if
necessary, such Shares pro rata among all such Pre-IPO
Securityholders based upon the aggregate number of Pre-IPO
Registrable Shares constituting Conversion Shares and Warrant Shares
held by each such Pre-IPO Securityholder at the time of
registration);
(C) third, the Pre-IPO Registrable Shares constituting
Initial Common Shares requested by the Pre-IPO Securityholders to be
included in such registration (or, if necessary, such Shares pro
rata among all such Pre-IPO Securityholders based upon the number of
Pre-IPO Registrable Shares constituting Initial Common Shares held
by each such Pre-IPO Securityholder at the time of registration);
(D) fourth, the Primary Shares;
(E) fifth, the Additional Registrable Shares not
constituting 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 SP Registrable Shares
held by each such Additional Securityholder at the time of
registration); and
(F) sixth, the Other Shares.
4. Registrations on Form S-3.
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Anything contained in Section 2 to the contrary notwithstanding, at
such time after the Registration Date as 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 Pre-IPO Registrable Shares held by the
Pre-IPO Securityholders, the Pre-IPO Securityholders shall have the right to
request in writing of the Corporation an unlimited number of registrations on
Form S-3 (or any successor form thereto) of their Pre-IPO Registrable Shares
with an anticipated aggregate gross offering price (before underwriting
discounts and commissions) of at least $250,000, which request or requests shall
(i) specify the number of Pre-IPO Registrable Shares intended to be sold or
disposed of and the holders thereof and (ii) state the intended method of
disposition of such Pre-IPO Registrable Shares. A registration on Form S-3 (or
any such successor form thereto) requested by any Pre-IPO Securityholder
pursuant to this Section 4 shall not count as a Registration Statement requested
pursuant to Section 2(a) for purposes of clause (A) of Section 2(b)(i), but
shall otherwise be subject in all respects to Section 2(b) as if such
registration was requested pursuant to Section 2(a).
5. Holdback Agreement.
If the Corporation at any time shall register shares of Common Stock
under the Securities Act (including any registration pursuant to Section 2, 3 or
4) for sale to the public, no Pre-IPO 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, 3 or 4)
without the prior written consent of the Corporation, for a period designated by
the Corporation in writing to the Pre-IPO 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 Pre-IPO Securityholder participates in
such registration. The Corporation shall obtain the agreement of any Person
permitted to sell shares of capital stock of the Corporation in a registration
to be bound by and to comply with the requirements of this Section 5 as if such
Person was a party to this Agreement and a Pre-IPO Securityholder hereunder;
provided, however, subject to the provisions of Section 16, the Corporation
shall not be required to obtain any such agreement from any Strategic Partner to
which the Corporation may issue shares of its capital stock or other securities
which by their terms are directly or indirectly exercisable or exchangeable for
or convertible into such shares. Each Pre-IPO Securityholder agrees that the
Corporation may instruct its transfer agent to place stop transfer notations on
its records to enforce this Section 5.
6. 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 Pre-IPO
Registrable Shares, the Corporation shall, as expeditiously as practicable:
(a) use its best efforts to cause a Registration Statement that
registers such Pre-IPO Registrable Shares to become and remain effective for a
period of 90 days or until all of such Pre-IPO Registrable Shares have been
disposed of (if earlier);
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(b) furnish, at least five Business Days before filing a
Registration Statement that registers such Pre-IPO 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
Registering Pre-IPO Securityholders (the "Pre-IPO 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 Pre-IPO 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 Pre-IPO 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 Pre-IPO Registrable
Shares;
(d) notify the Pre-IPO 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 Pre-IPO 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 Pre-IPO
Registrable Shares under such other securities or blue sky laws of such
jurisdictions as any Registering Pre-IPO Securityholder may reasonably request,
to keep such registrations or qualifications in effect for so long as such
Registration Statement covering such Pre-IPO 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 Pre-IPO Securityholder to
consummate the disposition in such jurisdictions of the Pre-IPO Registrable
Shares owned by such Registering Pre-IPO 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 6(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 Pre-IPO 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 Pre-IPO Securityholder may
reasonably request in order to facilitate the public sale
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<PAGE>
or other disposition of the Pre-IPO Registrable Shares held by Registering
Pre-IPO Securityholder;
(g) use its best efforts to cause such Pre-IPO 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 Pre-IPO Securityholders to consummate the disposition of such
Pre-IPO Registrable Shares;
(h) notify on a timely basis each Registering Pre-IPO Securityholder
at any time when a Prospectus relating to such Pre-IPO Registrable Shares is
required to be delivered under the Securities Act within the appropriate period
mentioned in Section 6(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 Pre-IPO Securityholder, prepare
and furnish to such Registering Pre-IPO 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 Pre-IPO 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
Pre-IPO Securityholders any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney, accountant or other
agent retained by the Registering Pre-IPO 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 Pre-IPO 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;
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(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 Pre-IPO Registrable Shares;
(m) issue to any underwriter to which any Registrable Pre-IPO
Securityholder may sell such Pre-IPO Registrable Shares in such offering,
certificates evidencing such Pre-IPO Registrable Shares;
(n) list such Pre-IPO 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 Pre-IPO 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 Pre-IPO 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 Pre-IPO Registrable Shares contemplated hereby.
Each Registering Pre-IPO Securityholder, upon the receipt of any
notice from the Corporation of any event of the kind described in Section 6(h),
shall forthwith discontinue disposition of Pre-IPO Registrable Shares pursuant
to the Registration Statement until such Registering Pre-IPO Securityholder's
receipt of copies of the supplemented or amended Prospectus contemplated by
Section 6(h), and, if so directed by the Corporation, such Registering Pre-IPO
Securityholder shall deliver to the Corporation all copies, other than permanent
file copies then in such Pre-IPO Securityholder's possession, of the Prospectus
covering such Pre-IPO Registrable Shares at the time of receipt of such notice.
7. Expenses.
All expenses incurred by the Corporation in complying with Section
6, 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 Pre-IPO
Securityholders' Counsel, shall be paid by the Corporation; provided, however,
that all underwriting discounts and selling commissions applicable to the
Pre-IPO Registrable Shares shall not be borne by the Corporation and shall be
borne by the Registering Pre-IPO Securityholders selling such Registrable
Securities, in proportion to the number of Pre-IPO Registrable Shares sold by
each such Registering Pre-IPO Securityholder.
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8. Indemnification.
(a) In connection with any registration of any Pre-IPO Registrable
Shares under the Securities Act pursuant to this Agreement, the Corporation
shall indemnify and hold harmless each holder of such Pre-IPO 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 Pre-IPO 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 Pre-IPO 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 Pre-IPO 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 Pre-IPO 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 Pre-IPO Registrable Shares to
such Person.
(b) In connection with any registration of Pre-IPO Registrable
Shares under the Securities Act pursuant to this Agreement, each holder of
Pre-IPO 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
8(a)) the Corporation, each director of the Corporation, each officer of the
Corporation who signs such Registration Statement, each other holder of Pre-IPO
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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
8(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 Pre-IPO 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
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 Pre-IPO Registrable Shares, to
an amount equal to the net proceeds actually received by such holder from the
sale of Pre-IPO 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 8(a) or
Section 8(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 8, 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 8. 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 8 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, claim,
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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 Pre-IPO Registrable Shares, to an amount equal to the
net proceeds actually received by such holder from the sale of Pre-IPO
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.
9. Underwriting Agreement.
Notwithstanding the provisions of Sections 5 through 8, to the
extent that the Pre-IPO 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.
10. 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 Pre-IPO
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, 3 or 4 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.
11. Information by Holder.
17
<PAGE>
Each holder of Pre-IPO 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.
12. 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 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 Pre-IPO
Securityholders in supplying such information as may be necessary for the
Pre-IPO 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.
13. Legends on Certificates.
(a) Each certificate issued after the effective date of this
Agreement that represents Restricted Securities shall (unless otherwise
permitted by the provisions of this Section 13) 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 OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT
SUCH REGISTRATION IS NOT REQUIRED."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO THE TERMS AND CONDITIONS OF AN AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT DATED AS OF FEBRUARY __, 2000,
AMONG OPUS360 CORPORATION AND CERTAIN SECURITYHOLDERS OF SUCH
COMPANY, 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
18
<PAGE>
SECRETARY OF SUCH COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE."
The Corporation agrees to remove the legend set forth in this
Section 13(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.
(b) Each Pre-IPO Securityholder consents to the Corporation making a
notation on its records and giving instructions to any transfer agent of such
Pre-IPO Securityholder's Restricted Securities in order to implement the
restrictions on transfer established in this Section 13.
14. 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."
15. 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.
16. No Conflict of Rights.
The Corporation shall not, after the date hereof, grant any
registration rights which conflict with the registration rights granted hereby.
17. Termination.
19
<PAGE>
This Agreement shall terminate and be of no further force or effect
when there shall no longer be any Pre-IPO Registrable Shares or Additional
Registrable Shares outstanding, provided, however, that Section 7 and Section 8
shall survive the termination of this Agreement.
18. Successors and Assigns.
This Agreement shall bind and inure to the benefit of the
Corporation and the Pre-IPO Securityholders and, subject to Section 19, the
respective successors and assigns of the Corporation and the Pre-IPO
Securityholders.
19. Assignment.
Each Pre-IPO Securityholder may sell, assign or otherwise transfer
its rights hereunder to any purchaser, assignee or other transferee of the
Pre-IPO Registrable Shares of such Pre-IPO 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 Pre-IPO 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 Pre-IPO
Securityholder and had originally been a party hereto.
20. 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:
(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]
20
<PAGE>
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 Pre-IPO Securityholder, to such Pre-IPO
Securityholder at the address set forth on Schedule I
immediately below the name of such Pre-IPO
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.
21. Entire Agreement.
Effective upon the execution of this Agreement by the Corporation
and those Pre-IPO Securityholders with the requisite power and authority to
amend and restate the Original Registration Rights Agreement pursuant to the
terms of Section 19 thereof, this Agreement shall amend and restate the Original
Registration Rights Agreement in its entirety, and this Agreement shall contain
the sole and entire agreement among the Corporation and the Pre-IPO
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, and the Corporation and the Pre-IPO Securityholders
shall forever release, waive and disclaim any and all rights thereunder.
22. 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, (ii) the Pre-IPO Securityholders who or which hold in the
aggregate Pre-IPO Registrable Shares that constitute in excess of 50% of all of
the Initial Common Shares, (iii) the Pre-IPO Securityholders who or which hold
in the aggregate Pre-IPO Registrable Shares that constitute in excess of 50% of
all of the Series A Conversion Shares, and (iv) the Pre-IPO Securityholders who
or which hold in the aggregate Pre-IPO Registrable Shares that constitute in
excess of 50% of all of the Series B Conversion Shares; 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 Pre-IPO 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
21
<PAGE>
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 22, whether
or not such Restricted Securities shall have been marked to indicate such
consent.
23. 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.
24. 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.
25. 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.
26. 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 reference to the masculine, feminine or neuter gender shall
include such other genders and any
22
<PAGE>
reference to the singular or plural shall include the other, in each case unless
the context otherwise requires. Schedule I annexed hereto is 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.
27. 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.
28. 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.
* * * * *
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement as of the date first written
above.
OPUS360 CORPORATION
By:________________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement as of the date first written
above.
ANTARES INVESTMENTS PARTNERS
By:_________________________________________
Name:
Title:
APPLEGREEN PARTNERS
By:_________________________________________
Name:
Title:
ARISTA CAPITAL PARTNERS, LP
BY: ARISTA CAPITAL MANAGEMENT LLC,
A DELAWARE LIMITED LIABILITY COMPANY
By:_________________________________________
Name:
Title:
ARKAP PARTNERS, LP
By:_________________________________________
Name:
Title:
____________________________________________
Eric Aroesty
____________________________________________
Matthew Arpano
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement on the date first written
above.
ARTHUR SACHS INSURANCE AGENCY, INC.
RETIREMENT PLAN F/B/O ARTHUR SACHS
By:_________________________________________
Name:
Title:
____________________________________________
William Bahr
BANCBOSTON VENTURES
By:_________________________________________
Name:
Title:
BCIP ASSOCIATES II
By:_________________________________________
Name:
Title:
BLACK MARLIN INVESTMENTS, LLC
By:_________________________________________
Name:
Title:
____________________________________________
Alexander L. Bolen
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement as of the date first written
above.
HEATHER MARIE BOOSE TRUST 30
By:________________________________________________
Name:
Title:
SUSAN BROWN & GREG BROWN,
AS JOINT TENANTS WITH RIGHT OF
SURVIVORSHIP
___________________________________________________
Susan Brown, as joint tenant with right of
survivorship
___________________________________________________
Greg Brown, joint tenant with right of survivorship
___________________________________________________
Jeff Buckalew
___________________________________________________
V.M. Buckalew
___________________________________________________
Marco Cardamone
___________________________________________________
Ric Calvillo, Jr.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement on the date first written
above.
CAMBRIDGE TECHNOLOGY CAPITAL
FUND I L.P.
BY: CAMBRIDGE TECHNOLOGY GPLP, L.P.
BY: CAMBRIDGE TECHNOLOGY CGP, INC.
By:_________________________________________
Name:
Title:
____________________________________________
Carlos Cashman
____________________________________________
Gerald Cashman, Sr.
CDI CORPORATION
By:_________________________________________
Name:
Title:
____________________________________________
Robert I. Choi
COMPUCOM SYSTEMS, INC.
By:_________________________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement on the date first written
above.
CROSSPOINT VENTURE PARTNERS
By:_________________________________________
Name:
Title:
CROSSPOINT VENTURE PARTNERS 1997, L.P.
By:_________________________________________
Name:
Title:
CROSSPOINT VENTURE PARTNERS LS 1999, L.P.
By:_________________________________________
Name:
Title:
____________________________________________
Frank Cutler
DALEWOOD ASSOCIATES, L.P.
BY: DALEWOOD ASSOCIATES, INC.
By:_________________________________________
Name:
Title:
____________________________________________
James P. Deccio
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement on the date first written
above.
____________________________________________
Adam Dell
____________________________________________
Steven J. Dell, M.D.
____________________________________________
John Drew
____________________________________________
Jonathan D. Eilian
____________________________________________
Barry Fingerhut
____________________________________________
Stephen Finkel
____________________________________________
Michael Finkelstein
____________________________________________
Jake Foley III
____________________________________________
Hadley Ford
ARNOLD FRIEDMAN TRUST
By:_________________________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement on the date first written
above.
G&R PARTNERSHIP, LP
By:_________________________________________
Name:
Title:
____________________________________________
John Gallagher
____________________________________________
Eric Gertler
____________________________________________
James S. Gertler
____________________________________________
Bruce Gilpin
____________________________________________
Robert Gladstone
GREENHILL O360 HOLDINGS, LLC
By:_________________________________________
Name:
Title:
PAUL & TROY GREGORY,
JOINT TENANTS
____________________________________________
Paul Gregory, as Joint Tenant
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement on the date first written
above.
____________________________________________
Troy Gregory, as Joint Tenant
____________________________________________
Ron Gutfleish
____________________________________________
Ron Hoffner
____________________________________________
Ari Horowitz
LEONARD & JANET HOROWITZ,
JOINT TENANTS
____________________________________________
Leonard Horowitz, as Joint Tenant
____________________________________________
Janet Horowitz, as Joint Tenant
____________________________________________
Ruthanne Iselin
JAL, LLC
By:_________________________________________
Name:
Title:
____________________________________________
Rick Juarez
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement on the date first written
above.
____________________________________________
Scott Kabak
____________________________________________
Harvey Klein, M.D.
____________________________________________
Michael S. Kramer
____________________________________________
Shawn Kreloff
____________________________________________
Alex Lapins
____________________________________________
Tony Lechich
____________________________________________
Seth Lieber
____________________________________________
Irwin Lieber
____________________________________________
Jonathan Lieber
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement on the date first written
above.
MSD PORTFOLIO, L.P. INVESTMENTS
BY: MSD CAPITAL, L.P., ITS GENERAL
PARTNER
By:_________________________________________
Name:
Title:
____________________________________________
Burt Manning
____________________________________________
Andrew Marshak
____________________________________________
Daisy McCann
____________________________________________
Hugh McCann, Jr.
____________________________________________
Richard McCann
____________________________________________
Thomas McCann
TOM MCCANN - IRA CIBC WORLD MARKETS CORP.,
AS CUSTODIAN
By:_________________________________________
Thomas McCann
____________________________________________
Raj Mehra
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement on the date first written
above.
____________________________________________
Doug Mellinger
____________________________________________
Michael A. Monteleone
____________________________________________
Michael J. Murray
____________________________________________
David M. Nussbaum
ODEON CAPITAL PARTNERS
By:_________________________________________
Name:
Title:
OPUS FRIENDS, LLC
By:_________________________________________
Shary Moalemzadeh
Partner
____________________________________________
Lonny J. Orona
O'SULLIVAN GRAEV & KARABELL, LLP
PROFIT SHARING PLAN
By:_________________________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement on the date first written
above.
____________________________________________
Eli Oxenhorn
PENNSYLVANIA EARLY STAGE PARTNERS, L.P.
BY: PENNSYLVANIA EARLY STAGE PARTNERS GP,
L.L.C., ITS GENERAL PARTNER
By:_________________________________________
Name:
Title:
____________________________________________
Robert M. Pillar
____________________________________________
John G. Popp
____________________________________________
Brett Prager
RECKSON SERVICE INDUSTRIES, INC.
By:_________________________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement on the date first written
above.
RH CAPITAL ASSOCIATES NUMBER
ONE, L.P.
BY: RH CAPITAL ASSOCIATES LLC,
ITS GENERAL PARTNER
By:_________________________________________
Name:
Title:
____________________________________________
Ennis Rimawi
THE ROMAN ARCH FUND, L.P.
By:_________________________________________
Name:
Title:
THE ROMAN ARCH FUND II L.P.
By:_________________________________________
Name:
Title:
____________________________________________
Brian Roberts
____________________________________________
Sanford R. Robertson
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement on the date first written
above.
RSA VENTURES
By:_________________________________________
Name:
Title:
RT PARTNERS
By:_________________________________________
Name:
Title:
____________________________________________
Barry Rubenstein
____________________________________________
Fred Ryan
SAFEGUARD 99 CAPITAL L.P.,
a Delaware limited partnership
By:_________________________________________
Name:
Title:
____________________________________________
January Sarasohn
____________________________________________
Anthony Schmitz
____________________________________________
Barry Schwartz
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement on the date first written
above.
SENECA VENTURES
By:_________________________________________
Name:
Title:
SI VENTURE ASSOCIATES, LLC
By:_________________________________________
Name:
Title:
SILICON VALLEY BANK
By:_________________________________________
Name:
Title:
____________________________________________
Nicholas F. Smith
____________________________________________
Gene Spence
JAMES L. SULLIVAN & MARY ELLEN
SUNLAN SULLIVAN, JOINT TENANTS
____________________________________________
James L. Sullivan, as Joint Tenant
____________________________________________
Mary Ellen Sunlan Sullivan, as Joint Tenant
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement on the date first written
above.
____________________________________________
Ben Taylor
____________________________________________
Peter Teed
____________________________________________
J. Robert Tolchin
____________________________________________
Scott Tolchin
____________________________________________
Stuart Topkis
TREISTMAN PARTNERS
By:_________________________________________
Name:
Title:
____________________________________________
Wayne Tsuchitani
USWEB/CKS CORPORATION
By:_________________________________________
Name:
Title:
VERMEER INVESTMENTS, LLC
By:_________________________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement on the date first written
above.
____________________________________________
Philip Waterman, Jr.
JONATHAN SCOTT WEISS TRUST 30
By:_________________________________________
Name:
Title:
MICHAEL DAVID WEISS TRUST 30
By:_________________________________________
Name:
Title:
NATHALIE C. WEISS TRUST 30
By:_________________________________________
Name:
Title:
RACHEL WEISS & GREG WEISS,
JOINT TENANTS
____________________________________________
Rachel Weiss, as Joint Tenant
____________________________________________
Greg Weiss, as Joint Tenant
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement on the date first written
above.
WESTBURY EQUITY PARTNERS, L.P.
BY: JG FOGG & CO., INC. ITS GENERAL PARTNER
By:_________________________________________
Name:
Title:
WHEATLEY FOREIGN PARTNERS, L.P.
BY: WHEATLEY PARTNERS, LLC,
ITS GENERAL PARTNER
By:_________________________________________
Name:
Title:
WHEATLEY PARTNERS, L.P.
BY: WHEATLEY PARTNERS, LLC,
ITS GENERAL PARTNER
By:_________________________________________
Name:
Title:
WOODLAND VENTURE FUND
By:_________________________________________
Name:
Title:
____________________________________________
Sanford Yosowitz
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Registration Rights Agreement on the date first written
above.
____________________________________________
Andy Zimmerman
____________________________________________
Mortimer Zuckerman
<PAGE>
SCHEDULE I
Pre-IPO Securityholders
<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, FreeAgent 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;[***] FreeAgent agrees
not to offer revenue sharing arrangements on terms
more favorable than those set forth above during
the course of the term of this agreement
- 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. MINIMUM REVENUE SHARING. FreeAgent shall pay to CareerPath
in each of the first three years of the term hereof, a
minimum of $500,000 per year against its share of all fees,
revenues and bounties generated through the Co-Branded Site
as contemplated in this document (the "Minimum Revenue
Share"). This revenue sharing obligation shall run from the
Launch Date ("Launch Date") and terminate three (3) years
thereafter.
7. PAYMENT OF REVENUE SHARE. FreeAgent shall pay CareerPath
its revenue share as follows:
- The Minimum Revenue Share for the first year of the
agreement shall be prepaid in advance by FreeAgent
to CareerPath by delivery of shares of Common Stock
of Opus as set forth in paragraph 9 below. All
additional amounts payable by FreeAgent to
CareerPath hereunder in excess of the Minimum
Revenue Share ($500,000) for the first year of the
agreement will be made within thirty (30) days
after the first anniversary of the Launch Date.
Payments due to CareerPath for each of the next two
years shall be paid in quarterly installments,
provided that, should the total amount be less than
$500,000 in years 2 and 3, FreeAgent shall pay the
difference between the amount received by
CareerPath and $500,000 within thirty (30) days
after the second and third anniversary of the
Launch Date, respectively.
[***] 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 first year's Minimum Revenue Share.
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.
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<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: /s/ Jonathan Swerdlow
----------------------
Jonathan Swerdlow
Its: Vice President
By: /s/ Ari Horowitz
--------------------------
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 10.27
REGISTRATION RIGHTS AGREEMENT dated
as of the "Closing Date" (as such term is
defined in the Merger Agreement), between
OPUS360 CORPORATION, a Delaware corporation
(the "Corporation"), and the PM
SECURITYHOLDERS (as defined herein).
The PM Securityholders have been issued shares of the Corporation's
Common Stock (as defined below) pursuant to that certain agreement and plan of
merger (the "Merger Agreement") dated as of January 30, 2000, among the
Corporation, Opus PM Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of the Corporation ("OpusPM"), PeopleMover, Inc., a Delaware
corporation ("PeopleMover"), the Stockholder Representative (as defined in
Section 8.5 of the Merger Agreement), and the PM Securityholders (as to Article
II, Section 4.2 and Article IX thereof, and as to certain PM Securityholders,
Article VIII thereof). The Corporation and the PM Securityholders deem it to be
in their respective best interests to enter into this Agreement to set forth the
rights of the PM Securityholders 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 Registration Rights Agreement, as amended,
supplemented or otherwise modified from time to time.
"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.
<PAGE>
"Corporation" has the meaning assigned to such term in the caption
to this Agreement.
"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, ordinance or similar provision having the
force or effect of law or any Order.
"Majority of the PM Securityholders" means those PM Securityholders
who or which hold in the aggregate in excess of 50% of all of the PM 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.
"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.
2
<PAGE>
"Other Shares" means, at any time, those shares of Common Stock
which do not constitute Primary Shares, PM Registrable Shares or Additional
Registrable Shares.
"Person" shall be construed as broadly as possible and shall include
an individual, a corporation (including a not-for-profit 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.
"PM Registrable Shares" means the Registrable Shares that are (i)
shares of Common Stock issued to the Persons listed on Schedule I on the date
hereof, but only to the extent of the number of such shares of Common Stock set
forth opposite their names on Schedule I (which aggregate number shall not
exceed ___________ shares of Common Stock) or (ii) shares of Common Stock issued
on or with respect to the shares of Common Stock referred to in clause (i)
above.
"PM Securityholders" means, collectively, (i) the Persons listed on
Schedule I on the date hereof, (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 17 and in which such purchaser, assignee
or other transferee has complied in full with the joinder requirements set forth
in Section 17. Upon the addition of each new PM Securityholder as a party to
this Agreement, the Corporation shall amend Schedule I solely to reflect the
name and address of such new PM Securityholder, and the Corporation shall
distribute to the PM Securityholders such amended Schedule I.
"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 PM 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 PM Securityholders" means, with respect to any
registration of PM Registrable Shares, those PM Securityholders who or which
hold the PM Registrable Shares included in such registration.
"Registrable Shares" means, at any time with respect to any PM
Securityholder or Additional Securityholder, the shares of Common Stock held by
such PM Securityholder or Additional Securityholder that constitute Restricted
Securities. For purposes of this definition, a
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<PAGE>
PM Securityholder or Additional Securityholder shall be deemed to be the holder
of shares of Common Stock whenever such PM Securityholder or Additional
Securityholder has the right to 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 PM 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 of the Securities
Act within any consecutive three-month period (including, without limitation,
subsection (k) of Rule 144) 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.
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<PAGE>
"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 PM 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 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.
"Stockholders' Agreement" means the Stockholders' Agreement dated as
of December 24, 1998, among the Company and the other parties thereto, as
amended, supplemented, 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. Piggyback Registration.
(a) If the Corporation proposes for any reason to register Primary
Shares, Additional Registrable Shares or Other Shares under the Securities Act
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 PM
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<PAGE>
Securityholders of its intention to so register such Primary Shares, Additional
Registrable Shares or Other Shares at least 20 days before the initial filing of
the registration statement for such Primary Shares, Additional Registrable
Shares or Other Shares and, upon the written request, delivered to the
Corporation within 10 days after delivery of any such written notice by the
Corporation, of any PM Securityholder to include in such registration PM
Registrable Shares (which written request shall specify the number of PM
Registrable Shares proposed to be included in such registration) and shall state
the request of such PM Securityholder to sell or dispose of such PM Registrable
Shares), the Corporation shall use its reasonable best efforts to cause all such
PM 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 or disposed of in such registration; provided, however, if
the managing underwriter(s) advise the Corporation that the inclusion of all or
any portion of the PM 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 or any
portion of such securities, then the number of PM 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 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 Additional Securityholders who or which
have requested the inclusion of 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 Additional Securityholders at the time of such
registration, with the aggregate number of Shares allocated to the
Additional Securityholders described in each of clauses (x) and (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 such registration, or, in the absence of any
applicable provisions (i) with respect to the Additional
Securityholders described in clause (x) above, pro rata among all
such Additional Securityholders based upon the number of Additional
Registrable Shares constituting SP Registrable Shares held by each
such Additional Securityholder at the time of such registration, and
(ii) with respect to the Additional
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Securityholders described in clause (y) above, 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 such registration);
(C) third, the PM Registrable Shares requested by the PM
Securityholders to be included in such registration (or, if
necessary, such Shares pro rata among all such PM Securityholders
based on the aggregate number of PM Registrable Shares held by each
such Person at the time of such registration);
(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 such 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 such registration); and
(E) fifth, 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 (or, if necessary, such Shares pro
rata among all such Additional Securityholders based on the
aggregate number of SP Registrable Shares held by each such Person
at the time of such 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 such
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 such registration);
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(C) third, the Primary Shares;
(D) fourth, the PM Registrable Shares requested by the PM
Securityholders to be included in such registration (or, if
necessary, such Shares pro rata among all such PM Securityholders
based on the aggregate number of PM Registrable Shares held by each
such Person at the time of such registration);
(E) fifth, 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 such 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 such registration); and
(F) six, 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 such
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 such registration);
(B) second, 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 Additional Securityholders based on the
aggregate number of SP Registrable Shares held by each such
Additional Securityholder at the time of such registration);
(C) third, the Primary Shares;
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(D) fourth, the PM Registrable Shares requested by the PM
Securityholders to be included in such registration (or, if
necessary, such Shares pro rata among all such PM Securityholders
based on the aggregate number of PM Registrable Shares held by each
such PM Securityholder at the time of such registration);
(E) fifth, 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 such 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 such registration); and
(F) six, the Other Shares.
(b) Anything contained in this Agreement to the contrary
notwithstanding, the Corporation shall not be obligated pursuant to Section 2(a)
to include all or any portion of the PM Registrable Shares of the PM
Securityholders in more than one registration of Primary Shares, Additional
Registrable Shares and/or Other Shares under the Securities Act after the
closing of an initial Public Offering of Common Stock (with the participation of
the PM Securityholders in such registration being subject to the terms and
conditions of Section 2(a)). The Majority of the PM Securityholders in
compliance with this Section 2 shall determine the applicable registration
statement with respect to which a request for the registration of PM Registrable
Shares shall be submitted to the Corporation pursuant to Section 2(a). The PM
Securityholders requesting a registration of PM Registrable Shares pursuant to
Section 2(a) shall provide written notice to the Corporation of the satisfaction
of such requirement; provided, however, that in no event shall such one
registration request be fulfilled if such registration statement is withdrawn
for any reason prior to effectiveness; and provided, further, however, the
Corporation shall have fulfilled its obligations pursuant to Section 2(a) if at
least 25% of the aggregate number of PM Registrable Shares requested by PM
Securityholders to be registered on such registration statement are included in
such registration statement at the time of its initial effectiveness.
3. 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
(excluding any registrations on Form S-4 or S-8) for sale to the public, no PM
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
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pursuant to Section 2(a)) without, in each such instance, the prior written
consent of the Corporation, for a period designated by the Corporation in
writing to the PM Securityholders, which period shall begin not more than 15
days prior to the expected date of 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 PM Securityholder participates in such
registration. Each PM Securityholder agrees that the Corporation may instruct
its transfer agent to place stop transfer notations on its records to enforce
this Section 3.
4. Preparation and Filing.
If the Corporation is obligated pursuant to Section 2 to use its
reasonable best efforts to cause any PM Registrable Shares to be included in a
registration of Primary Shares, Additional Registrable Shares or Other Shares
otherwise being sold in such registration, the Corporation shall, subject to,
and only to the extent not contrary to or inconsistent with, the terms and
conditions on which such Primary Shares, Additional Registrable Shares or Other
Shares otherwise being sold in such registration:
(a) use its reasonable best efforts to cause the Registration
Statement that registers such PM Registrable Shares to become and remain
effective until the earlier to occur of (i) 90 days from the date of the
effectiveness of such Registration Statement and (ii) such time as all of such
PM Registrable Shares have been disposed of;
(b) furnish, at least five Business Days before filing the
Registration Statement that registers such PM Registrable Shares, a Prospectus
relating thereto and any amendments or supplements relating to such Registration
Statement or Prospectus, to one counsel designated in writing by the Majority of
the PM Securityholders (the "PM Securityholders' Counsel"), copies of all such
documents proposed to be filed with the SEC (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 PM
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 until the earlier
to occur of (i) 90 days or (ii) such time as all of such PM Registrable Shares
have been disposed of, and to comply with the provisions of the Securities Act
with respect to the sale or other disposition of such PM Registrable Shares;
(d) notify the PM 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 reasonable best efforts to prevent the issuance thereof or, if issued, to
obtain its withdrawal) and (iii) the receipt
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by the Corporation of any notification with respect to the suspension of the
qualification of such PM Registrable Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding(s) for such purposes;
(e) use its reasonable best efforts to register or qualify such PM
Registrable Shares under such other securities or blue sky laws of such
jurisdictions as any Registering PM Securityholder may reasonably request, to
keep such registrations or qualifications in effect for so long as such
Registration Statement covering such PM 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 PM Securityholder to consummate the sale or
disposition in such jurisdictions of the PM Registrable Shares owned by such
Registering PM 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 4(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 or not
in the best interests of the Corporation;
(f) furnish to each Registering PM 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 PM Securityholder may
reasonably request in order to facilitate the public sale or other disposition
of the PM Registrable Shares held by Registering PM Securityholder;
(g) notify on a timely basis each Registering PM Securityholder at
any time when a Prospectus relating to such PM Registrable Shares is required to
be delivered under the Securities Act within the appropriate period specified in
Section 4(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 PM Securityholder, prepare and furnish to such
Registering PM 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 PM 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;
(h) subject to the execution of confidentiality or similar
agreements in form and substance satisfactory to the Corporation, make
available, upon reasonable notice and during normal business hours, for
inspection by the Registering PM Securityholders any underwriter participating
in any disposition pursuant to such Registration Statement and any attorney,
accountant or other agent retained by the Registering PM 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 such
Persons to exercise their due diligence responsibility, and cause the
Corporation's officers, directors and employees to supply all information
(together with the
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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 PM 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 by the Corporation);
(i) use its reasonable 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;
(j) use its reasonable best efforts to obtain from its counsel an
opinion or opinions in customary form;
(k) provide a transfer agent and registrar (which may be the same
Person and which may be the Corporation) for such PM Registrable Shares;
(l) issue to any underwriter to which any Registrable PM
Securityholder may sell such PM Registrable Shares in such offering,
certificates evidencing such PM Registrable Shares;
(m) list such PM 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 reasonable best efforts to
qualify such PM 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 PM Registrable Shares shall reasonably request in writing; and
(n) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC and make generally available to its
securityholders, as soon as reasonably practicable, earnings statements (in form
complying with Rule 158 under the Securities Act) covering a 12-month period
beginning not later than the first day of the Corporation's fiscal quarter next
following the effective date of the Registration Statement.
Each Registering PM Securityholder, upon the receipt of any notice
from the Corporation of any event of the kind described in Section 4(h), shall
forthwith discontinue disposition of PM Registrable Shares pursuant to the
Registration Statement until such Registering PM Securityholder's receipt of
copies of the supplemented or amended Prospectus contemplated by Section 4(h),
and, if so directed by the Corporation, such Registering PM Securityholder shall
deliver to the Corporation all copies, other than permanent file copies then in
such PM Securityholder's possession, of the Prospectus covering such PM
Registrable Shares
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at the time of receipt of such notice or, if so directed by the Corporation,
destroy all such copies and deliver to the Corporation a certificate of
destruction in respect thereof.
5. Expenses.
All expenses incurred by the Corporation in complying with Section
4, 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, expenses and
disbursements of the Corporation's counsel and accountants and fees, expenses
and disbursements (in an aggregate amount not to exceed $7,500) of the PM
Securityholders' Counsel shall be paid or satisfied by the Corporation;
provided, however, that all underwriting discounts and selling commissions
applicable to the PM Registrable Shares shall not be borne by the Corporation
and shall be borne by the Registering PM Securityholders selling such
Registrable Securities, in proportion to the number of PM Registrable Shares
sold by each such Registering PM Securityholder.
6. Indemnification.
(a) In connection with any registration of any PM Registrable Shares
under the Securities Act pursuant to this Agreement, the Corporation shall
indemnify and hold harmless each holder of such PM 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, 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 PM 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 (i) 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, final
Prospectus, amendment, supplement or document incident to registration or
qualification of any PM Registrable Shares in reliance upon and in conformity
with information furnished to the Corporation or such underwriter by the PM
Securityholders, or a Person duly acting on the PM Securityholder's
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behalf, by written materials provided by the PM Securityholders, or a Person
duly acting on the PM Securityholder's behalf, specifically for use in
connection with the preparation thereof, and (ii) for any amounts paid in
settlement of any such loss, claim, damage or liability if such settlement is
effected without the prior written consent of the Corporation which consent
shall not be unreasonably withheld or delayed; 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 Prospectus, as amended or supplemented (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 PM Registrable Shares which are the subject
thereof, if a copy of such Prospectus, as amended or supplemented, had been
timely made available to such indemnified Person and such Prospectus, as amended
or supplemented, was not delivered to such Person with or prior to the written
confirmation of the sale of such PM Registrable Shares to such Person.
(b) In connection with any registration of PM Registrable Shares
under the Securities Act pursuant to this Agreement, each holder of PM
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 6(a)) the
Corporation, each director of the Corporation who signs such Registration
Statement, each officer of the Corporation who signs such Registration
Statement, each other holder of PM Registrable Shares, Primary Shares,
Additional Registrable Shares or Other Shares included in such Registration
Statement, 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
contained in 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 PM Registrable Shares, if such statement or
omission was made in reliance upon and in conformity with information furnished
to the Corporation or such underwriter by written materials provided by such PM
Securityholder, or a Person duly acting on such PM Securityholder's behalf,
specifically for use in connection with the preparation thereof; provided,
however, that the maximum amount of liability in respect of such indemnification
shall be limited, in the case of each holder of PM Registrable Shares, to an
amount equal to the net proceeds actually received by such holder from the sale
of PM Registrable Shares effected pursuant to such registration.
(c) Promptly after receipt by an indemnified party of written notice
of the commencement of any action involving a claim referred to in Section 6(a)
or Section 6(b), such indemnified party will, if a claim in respect thereof is
made against an indemnifying party, promptly 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 in writing 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
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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 based upon the advice of external counsel that there may be one or
more legal or equitable defenses available to such indemnified party which
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 6, 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
reasonable fees, expenses and reasonable disbursements of any one counsel
satisfactory to the indemnifying party which is reasonably related to the
matters covered by the indemnity agreement provided in this Section 6. The
indemnifying party shall not be liable to indemnify any indemnified party for
any settlement of any claim or action effected without the written consent of
the indemnifying party. Unless otherwise agreed to in writing by the indemnified
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 6 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 PM
Registrable Shares, to an amount equal to the net proceeds actually received by
such holder from the sale of PM 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 omission to
state a material fact or alleged omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party or
their respective agents 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.
7. Underwriting Agreement.
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Notwithstanding the provisions of Sections 4 through 6, to the
extent that the PM Securityholders shall enter into an underwriting or similar
agreement, which agreement contains provisions covering one or more matters
addressed in such Sections, the provisions contained in such Sections addressing
such matters 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 as evidenced by a written
instrument.
8. Suspension.
Anything contained in this Agreement to the contrary
notwithstanding, the Corporation may (but not more than twice with respect to
each Registration Statement), by notice in writing to each holder of PM
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 the Registration Statement filed under Section 2 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 aggregate number of
days which equal the Suspension Period. The Corporation may (but shall not be
obligated to) withdraw the effectiveness of any Registration Statement subject
to this provision.
9. Information by Holder.
(a) Each holder of PM Registrable Shares to be included in any such
registration shall promptly 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 and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Agreement.
(b) Each holder of PM Registrable Shares, by such holder's
acceptance of inclusion of all or a portion of its PM Registrable Shares in a
Registration Statement, agrees to cooperate with the Corporation as reasonably
requested by the Corporation in connection with the preparation and filing of
the Registration Statement.
(c) No holder of PM Registrable Shares to be included in an
underwritten Registration Statement may participate in such offering unless it:
(i) agrees to sell its PM Registrable Shares on the basis provided in any
underwriting arrangement in usual and customary form entered into by the
Corporation; (ii) completes and executes all questionnaires, lock-up agreements
and other documents required under the terms of such underwriting agreements and
(iii) agrees to pay its pro rata share of all underwriting discounts and
commissions and any expenses in excess of those payable by the Corporation in
Section 5.
10. 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 shall have become effective, the
Corporation shall comply with all of the reporting requirements
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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 applicable to it and which are
conditions to the availability of Rule 144 of the Securities Act for the sale of
Common Stock. The Corporation shall cooperate with the PM Securityholders in
supplying such information as may be necessary for the PM 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 of the
Securities Act.
11. 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 11) 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 OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO THE TERMS AND CONDITIONS OF A REGISTRATION RIGHTS
AGREEMENT DATED AS OF FEBRUARY __, 2000, BETWEEN OPUS360
CORPORATION AND THE PM SECURITYHOLDERS (AS DEFINED THEREIN),
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, or cause its transfer agent to
remove, the legend set forth in this Section 11(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 counsel selected by the
holder of such certificate, which counsel and opinion shall each be reasonably
satisfactory to the Corporation, that the securities represented thereby need no
longer be subject to restrictions on resale under the Securities Act.
17
<PAGE>
(b) Each PM Securityholder consents to the Corporation making a
notation on its records and giving instructions to any transfer agent of such PM
Securityholder's Restricted Securities in order to implement the restrictions on
transfer as set forth in this Section 11.
12. 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";
provided, however, nothing contained in this Section 12 shall enlarge or
otherwise modify the voting power in respect of the PM Registrable Shares as it
relates to the approval or consent of any such fundamental transaction.
13. 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.
14. Termination.
This Agreement shall terminate and be of no further force or effect
when there shall no longer be any PM Registrable Shares or Additional
Registrable Shares outstanding, provided, however, that Section 5 and Section 6
shall survive the termination of this Agreement.
15. Successors and Assigns.
This Agreement shall bind and inure to the benefit of the
Corporation and the PM Securityholders and, subject to Section 16, the
respective successors and assigns of the Corporation and the PM Securityholders.
16. Assignment.
Subject to the applicable limitations and conditions contained in
the Stockholders' Agreement and each of the Investment Letter, the Escrow
Agreement, the Merger Agreement, the Restricted Stock Vesting Agreement, any
applicable employment agreements between
18
<PAGE>
employees of PeopleMover and the Surviving Corporation (as such term is defined
in Section 1.1 of the Merger Agreement) (each of the foregoing agreements as
entered into in connection with and contemplated by the Merger Agreement), each
PM Securityholder may sell, assign or otherwise transfer its rights hereunder to
any purchaser, assignee or other transferee of the PM Registrable Shares of such
PM 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 PM
Securityholder under this Agreement, and to be bound by and comply with all of
the applicable terms and provisions hereof (and, if necessary, any other
agreement or instrument requested by the Corporation), 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 PM Securityholder and had originally been a party hereto. Any
assignment in violation of the above provision shall be null and void.
17. 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 previously specified by like notice by such party:
19
<PAGE>
(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 PM Securityholder, to such PM Securityholder
at the address set forth on Schedule I opposite the name
of such PM 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.
18. Entire Agreement; No Third Party Beneficiaries.
This Agreement and the other writings referred to herein or
delivered pursuant hereto contain the sole and entire agreement among the
Corporation and the PM Securityholders with respect to the subject matter hereof
and thereof and shall supersede all prior or contemporaneous arrangements or
understandings (whether written or oral) with respect hereto or thereto and,
except for the provisions of Section 6, are not intended to confer upon any
Persons other than the parties to this Agreement any rights or remedies
hereunder.
19. 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 PM 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 PM 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
20
<PAGE>
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence. 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 19, whether or not such Restricted Securities shall have been
marked to indicate such consent.
20. 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.
21. 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.
22. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
23. Enforcement.
The parties hereto 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 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 Agreement and to enforce specifically the terms and provisions of this
21
<PAGE>
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 New York state court located in
the Borough of Manhattan, City of New York in the event any dispute arises out
of this Agreement or any of the transactions contemplated by this Agreement, (b)
agrees that it will not attempt to deny or defeat such personal 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 will
not bring any action relating to this Agreement or any of the transactions
contemplated by this 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 17 shall be deemed effective service of process on such party.
24. 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 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 is 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.
25. 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
SUBJECT MATTER HEREOF.
26. Attorney's Fees.
<PAGE>
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.
* * * * *
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Registration Rights Agreement as of the date first written above.
OPUS360 CORPORATION
By: /s/ Ari B. Horowitz
-----------------------------
Name: Ari B. Horowitz
Title: Chairman and Chief
Executive Officer
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Registration Rights Agreement as of the date first written above.
[PM SECURITYHOLDER]
/s/ James L. Jonassen
-----------------------------
James L. Jonassen
/s/ David E. Sanders
-----------------------------
David E. Sanders
/s/ Ali Behnam
-----------------------------
Ali Behnam
/s/ Tom Utsch
-----------------------------
Tom Utsch
Williams & Kilkowski
By: /s/ Lee Williams
-----------------------------
Lee Williams
Title: Partner
The E.B. Hutt Bush Trust dated 9/22/1993
By: /s/ Hutt Bush
-----------------------------
Hutt Bush, Trustee
By: /s/ William R. Woodward
-----------------------------
William R. Woodward
Robert Tolchin, Trustee of David Carlos
Tolchin 1991 Trust U/T/A dated July, 10, 1991
By: /s/ Robert Tolchin
-----------------------------
Robert Tolchin, Trustee
<PAGE>
Robert Tolchin, Trustee of Alexander Michael
Tolchin 1991 Trust U/T/A dated July, 10, 1991
By: /s/ Robert Tolchin
-----------------------------
Robert Tolchin, Trustee
By: /s/ William J. Bestor
-----------------------------
William J. Bestor
By: /s/ Pedram Abrari
-----------------------------
Pedram Abrari
Troop Steuber Pasich Reddick & Tobey, LLP
By: /s/ David H. Sands
-----------------------------
David H. Sands, Partner
By: /s/ Robert Morris
-----------------------------
Robert Morris
Artemis Management Co., LLC
By: /s/ Kimball S. Alwood
-----------------------------
Name: Kimball S. Alwood
Title: Managing Director
<PAGE>
BridgeGate, LLC
By: /s/ Dudley Brown
-----------------------------
Name: Dudley Brown
Title: Managing Director
Christian & Timber
By: /s/ David C. Nocifora
-----------------------------
Name: David C. Nocifora
Title: VP/CFO
Avalon Technology, LLC
By: /s/ Richard Snyder
-----------------------------
Richard Snyder, Managing Editor
DynaFund, L.P.
By: /s/ Denny R.S. Ko
-----------------------------
Its General Partner
By: /s/ DynaFund L.P.
-----------------------------
Name: Denny R.S. Ko
Title: General Partner
DynaFund, International, L.P.
By: /s/ Denny R.S. Ko
-----------------------------
Its General Partner
By: /s/ DynaFund, International, L.P.
-----------------------------
Name: Denny R.S. Ko
Title: General Partner
<PAGE>
Windward Ventures, L.P.
By: /s/ Windward Ventures Management, L.P.
-----------------------------
Its General Partner
By: /s/ David Titus
-----------------------------
Name: David Titus
Title: General Partner
By: /s/ Tom Fricks
-----------------------------
Tom Fricks
By: /s/ Kenneth M. Deemer
-----------------------------
Kenneth M. Deemer
By: /s/ Yves Blehaut
-----------------------------
Yves Blehaut
By: /s/ Joseph C. Monte
-----------------------------
Joseph C. Monte
By: /s/ Kimberly Caccavo
-----------------------------
Kimberly Caccavo
Stephen G. Tolchin and Veronica M. Howard,
Trustees of the Tolchin Family Trust U/D/T
dated 7-10-91 as the Separate Property of
Stephen G. Tolchin
By: /s/Stephen G. Tolchin
-----------------------------
Stephen G. Tolchin, Co-Trustee
By: /s/Veronica M. Howard
-----------------------------
Veronica M. Howard, Co-Trustee
<PAGE>
Stephen G. Tolchin and Veronica M. Howard,
Trustees of the Tolchin Family Trust U/D/T
dated 7-10-91
By: /s/Stephen G. Tolchin
-----------------------------
Stephen G. Tolchin, Co-Trustee
By: /s/Veronica M. Howard
-----------------------------
Veronica M. Howard, Co-Trustee
/s/ Neil Donahue
-----------------------------
Neil Donahue
/s/ Robert Gulovsen
-----------------------------
Robert Gulovsen
/s/ Carl Bressler
-----------------------------
Carl Bressler
/s/ James P. Morris
-----------------------------
James P. Morris
/s/ John P. Buckley
-----------------------------
John P. Buckley
/s/ Jeff White
-----------------------------
Jeff White
SILICON VALLEY BANK
By:/s/ Lydia Burke
-----------------------------
Name: Lydia Burke
Title: Treasurer
<PAGE>
IMPERIAL BANCORP
By:/s/ Richard M. Baker
-----------------------------
Name: Richard M. Baker
Title: SVP, General Counsel & Secretary
/s/ Peter Halper
-----------------------------
Peter Halper
/s/ Paul Chan
-----------------------------
Paul Chan
/s/ Bryan Plug
-----------------------------
Bryan Plug
/s/ Eric Bergan
-----------------------------
Eric Bergan
THE MARC LIN GROUP
By:/s/ Marc Francone
-----------------------------
Name: Marc Francone
Title: Partner
TWO ROADS PROFESSIONAL
RESOURCES, INC.
By:/s/ Christopher R. Hoff
-----------------------------
Name: Christopher R. Hoff
Title: VP/Co-Founder
/s/ Stephen G. Tolchin
-----------------------------
Stephen G. Tolchin
<PAGE>
IT SERVICES ADVISORY, LLC
By:/s/ Susan Miranda
-----------------------------
Name: Susan Miranda
Title: President & CEO
<PAGE>
Exhibit 10.34
Secured Full-Recourse
PROMISSORY NOTE
$1,538,000 March 23, 2000
FOR VALUE RECEIVED, RICHARD S. MILLER (the "MAKER"), hereby promises to
pay to OPUS360 CORPORATION (the "PAYEE"), the principal amount of ONE MILLION
FIVE HUNDRED THIRTY EIGHT THOUSAND ($1,538,000) on March 23, 2003, in such coin
or currency of the United States of America as at the time of payment shall be
legal tender therein for the payment of public and private debts, and to pay
interest on the unpaid principal amount from time to time outstanding hereunder
at the rate of 7.00% per annum, compounded annually based on a year of 360 days.
Such interest shall be payable on each anniversary of the date hereof. In
addition, overdue amounts shall be added to principal and the Maker promises to
pay additional interest at 2.00% per annum (to the extent permitted by law) on
overdue amounts, from the due date thereof until the obligation of the Maker
with respect to the payment thereof shall be discharged.
This Secured Full-Recourse Promissory Note (as amended or otherwise
modified from time to time, the "NOTE") is the Note referred to in the Pledge
Agreement dated as of the date hereof (as amended, supplemented or otherwise
modified from time to time, the "PLEDGE AGREEMENT"), between the Maker and the
Payee. Capitalized terms used but not defined herein have the meanings assigned
to such terms in the Pledge Agreement.
The Maker may, at his sole option, at any time and from time to time
prepay this Note, without penalty, in whole or in part, together with interest
on the principal amount so prepaid to the date of such prepayment.
With respect to each cash dividend or distribution or other cash
payment paid on or with respect to the Pledged Collateral which secures this
Note pursuant to the Pledge Agreement (including, but not limited to, the
proceeds of any sale, transfer or other disposition of the Pledged Collateral)
(each, a "DISTRIBUTION"), the Maker shall make a mandatory prepayment (each, a
"MANDATORY PREPAYMENT") of the amount of such Distribution, less an amount equal
to (i) the taxable income allocable to the Maker with respect to such
Distribution (before excluding any such amount), multiplied by (ii) the combined
maximum federal, state, and local tax rate applicable to an individual domiciled
in Morristown, New Jersey with respect to such taxable income (taking into
account the deductibility of state and local income tax for federal income tax
purposes). Each such Mandatory Prepayment shall be due and payable immediately
upon receipt by the Maker of the related Distribution and shall be applied by
the Payee as set forth in Section 9 of the Pledge Agreement.
The Payee shall be entitled to the rights and security granted by the
Maker to the Payee pursuant to the Pledge Agreement.
Payment of the principal of and interest on this Note shall be made in
immediately available funds (whether by delivery of cash or a certified check or
a wire transfer) in accordance with the written payment instructions furnished
by the holder of this Note to the Maker from
<PAGE>
time to time. In the absence of such written instructions, payment shall be made
by delivery of cash or a certified check at the principal executive office of
the holder of this Note.
Should the principal of or interest on this Note become due and payable
on other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day, and interest shall be payable thereon at the rate per
annum herein specified during such extension. As used herein, the term "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.
In case of the occurrence of any of the following events (each, an
"EVENT OF DEFAULT"):
(i) default shall be made in the payment of principal of or
interest on this Note, when and as the same shall become due and
payable, whether at the due date thereof, pursuant to a Mandatory
Prepayment, by acceleration hereof or otherwise;
(ii) the Maker shall (A) apply for or consent to the
appointment of a receiver, trustee or liquidator, (B) admit in writing
his inability to pay his debts as they mature, (C) make a general
assignment for the benefit of creditors, (D) be adjudicated a bankrupt
or insolvent, (E) file a voluntary petition, or have filed against him
a petition in bankruptcy or petition or answer seeking a reorganization
or an arrangement with his creditors, or (F) take advantage of any
bankruptcy, reorganization, insolvency, readjustment of debt,
dissolution or liquidation law or statute or file an answer admitting
the material allegations of a petition filed against him in any
proceeding under any such law;
(iii) an order, judgment or decree shall be entered, without
the application, approval or consent of the Maker, by any court of
competent jurisdiction, approving a petition seeking reorganization of
the Maker, or appointing a receiver, trustee or liquidator for the
Maker;
(iv) the Maker shall become or be in default under the
provisions of this Note or in material default under the provisions of
(A) the Pledge Agreement, (B) the Amended and Restated Employment
Agreement dated as of February 2, 2000, between the Payee and the Maker
(as amended, supplemented or otherwise modified from time to time, the
"EMPLOYMENT AGREEMENT"), or (C) any other material agreement between
the Maker and the Payee; or
(v) the employment of the Maker with the Payee and its
subsidiaries (whether pursuant to the Employment Agreement or
otherwise) shall terminate or be terminated;
then, (1) in the case of CLAUSES (i), (iv) and (v) of this Note, the holder of
this Note may, upon written notice to the Maker or his estate or executor,
declare this Note to be forthwith due and payable, whereupon this Note shall
become forthwith due and payable, both as to principal and interest, without
presentment, demand, protest, or other notice of any kind, all of which are
hereby expressly waived, and (2) in the case of CLAUSES (ii) and (iii) of this
Note, this Note shall
2
<PAGE>
forthwith become due and payable both as to principal and interest,
automatically without any action on the part of the holder hereof and without
presentment, demand, protest, or other notice of any kind, all of which are
hereby expressly waived.
The provisions hereof shall be binding upon and inure to the benefit of
the holder of this Note and its successors and assigns. This Note may not be
assigned or transferred by the Maker.
The Maker agrees to pay all costs of collection, including reasonable
attorneys' fees, incurred by the holder of this Note in collecting or enforcing
this Note, whether in connection with a reorganization, bankruptcy or other
similar proceeding or upon default.
* * * *
3
<PAGE>
This Note shall be governed by the laws of the State of New York
applicable to contracts made and to be performed therein.
/s/ Richard S. Miller
-------------------------------------
Richard S. Miller
<PAGE>
Exhibit 10.35
PLEDGE AGREEMENT dated as of March
23, 2000, between RICHARD S. MILLER, an
individual (the "PLEDGOR"), and OPUS360
CORPORATION, a Delaware corporation (the
"PLEDGEE or ISSUER").
The Pledgor is the holder of an option (the "OPTION") for the purchase
of shares of the Common Stock, par value $0.001 per share, of the Issuer (the
"COMMON STOCK"), granted by the Issuer to the Pledgor pursuant to the terms and
conditions of the Amended and Restated Non-Statutory Option Agreement dated as
of February 2, 2000, between the Pledgor and the Issuer (as amended,
supplemented or otherwise modified from time to time in accordance with its
terms, the "OPTION AGREEMENT"). Capitalized terms used but not otherwise defined
herein have the respective meanings assigned to them in the Option Agreement.
Contemporaneously with the execution of this Agreement, the Pledgor
shall exercise the Option with respect to all of the Option 1 Shares covered
thereby, being 200,000 fully vested shares of Common Stock (the "PLEDGED
SHARES"), before giving effect to the pending three-for-two split of the Common
Stock approved by the Board of Directors of the Issuer prior to the date hereof,
for an aggregate purchase price of $800,000. In order to fund (i) $790,00 of the
aggregate purchase price of $800,000 being paid by the Pledgor in connection
with his exercise of the Option with respect to the Pledged Shares and (ii) the
Pledgor's payment of the federal and state withholding taxes (being $748,000)
arising as a result of his exercise of the Option, the Pledgor proposes to
borrow $1,538,000 (the "LOAN") from the Pledgee, against the issuance by the
Pledgor to the Pledgee of a secured, full-recourse, interest-bearing promissory
note dated the date hereof in the aggregate principal amount of the Loan (as
amended, supplemented, restated or otherwise modified from time to time in
accordance with its terms, the "NOTE").
As contemplated by the Note and to secure to the Pledgee the Pledgor's
due and punctual payment and performance of his obligations under the Note and
this Agreement, the Pledgor is executing and delivering this Agreement to the
Pledgee.
In consideration of the mutual covenants contained herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and in order to induce the Issuer to make the Loan to the Pledgor,
the Pledgor and the Issuer hereby agree as follows:
1. PLEDGE.
The Pledgor hereby pledges, hypothecates, assigns, transfers, sets over
and delivers unto the Pledgee, and grants to the Pledgee a first priority,
perfected security interest in, all of the Pledgor's right, title and interest
in, to and under the following (collectively, the "PLEDGED COLLATERAL"): (a) all
of the Pledged Shares; (b) any cash or other property (including securities) at
any time and from time to time receivable or otherwise distributable in respect
of, in exchange for, or in substitution of, any of the Pledged Shares or other
property referred to in this CLAUSE (b); and (c) any and all products and
proceeds of any of the foregoing, together with any and all other rights,
titles, interests, powers, privileges and preferences pertaining to said
<PAGE>
property; PROVIDED, HOWEVER, that the amount of any Distribution excluded,
pursuant to the Note, from a related Mandatory Prepayment (as such terms are
defined in the Note) shall not be so delivered.
2. OBLIGATIONS SECURED.
This Agreement is made, and the security interest created hereby is
granted to the Pledgee, to secure the due and punctual payment and performance
in full of the following (collectively, the "SECURED OBLIGATIONS"): (a) all
obligations of the Pledgor under this Agreement; (b) all obligations due and
payable under the Note; and (c) any reasonable costs or expenses incurred by the
Pledgee or the Pledgee's counsel in connection with the realization of the
security for which this Agreement provides, including, without limitation, any
reasonable costs or expenses of any proceedings to which this Agreement may give
rise.
3. REPRESENTATIONS AND WARRANTIES.
The Pledgor hereby represents and warrants to the Pledgee as follows:
(a) The Pledgor is, and will at all times continue to be, the legal and
beneficial owner of the Pledged Collateral and none of the Pledged Collateral is
subject to any Lien (other than the Liens created by this Agreement). No
financing statement under the Uniform Commercial Code of any jurisdiction which
names the Pledgor as debtor or covers any of the Pledged Collateral, or any
other notice filed in the public records indicating the existence of a lien
thereon, has been filed and is still effective in any state or other
jurisdiction, other than Uniform Commercial Code financing statements filed in
favor of the Pledgee, and the Pledgor has not signed any such financing
statement or notice or any security agreement authorizing the filing of any such
financing statement or notice, other than Uniform Commercial Code financing
statements filed in favor of the Pledgee.
(b) The Pledgor (i) has the power and authority to pledge the Pledged
Collateral in the manner hereby done or contemplated and (ii) will defend his
title or interest thereto or therein against any and all Liens (other than the
Liens created by this Agreement), however arising, of all persons or entities.
(c) No consent or approval of any Federal, state, local or foreign
government or any court of competent jurisdiction, administrative agency or
commission or other governmental authority ("GOVERNMENTAL ENTITY"), securities
exchange or any other person or entity was or is necessary to the validity of
the pledge effected hereby.
4. COVENANTS.
The Pledgor hereby unconditionally covenants and agrees that the
Pledgor 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) (except for any Lien arising under this Agreement) and will
not sell, lease, assign, transfer or otherwise dispose of all or any portion of
the Pledged Collateral (or any interest therein).
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5. ADDITIONAL SHARES.
The Pledgor agrees that, until this Agreement has terminated in
accordance with its terms, any certificates, instruments or other documents
evidencing Pledged Collateral consisting of additional Securities of the Issuer
at any time issued to the Pledgor or otherwise acquired by the Pledgor in the
manner described in CLAUSE (b) of SECTION 1 shall be promptly delivered or
otherwise transferred to the Pledgee, such additional Securities being
additional Pledged Collateral and subject to the lien of, and the terms and
conditions of, this Agreement.
6. REGISTRATION IN NOMINEE NAME, DENOMINATIONS.
The Pledgee shall have the right (in its sole and absolute discretion)
to hold the Pledged Collateral in its own name as pledgee, the name of its
nominee (as Pledgee or as sub-agent) or the name of the Pledgor, endorsed or
assigned in blank or in favor of the Pledgee. The Pledgor will promptly give to
the Pledgee copies of any notices or other communications received by him with
respect to Pledged Collateral registered in the name of the Pledgor. The Pledgee
shall at all times have the right to exchange the certificates representing
Pledged Collateral for certificates of smaller or larger numbers of shares for
any purpose consistent with this Agreement.
7. VOTING RIGHTS; DIVIDENDS.
(a) So long as no Event of Default (as defined in the Note) shall have
occurred and be continuing, the Pledgor shall be entitled to exercise any and
all voting and consensual rights and powers accruing to an owner of the Pledged
Collateral or any part thereof for any purpose not inconsistent with the terms
and conditions of this Agreement or any agreement giving rise to or otherwise
relating to any of the Secured Obligations; PROVIDED, HOWEVER, that the Pledgor
shall not exercise, or refrain from exercising, any such right or power if any
such action could have a adverse effect on the value of such Pledged Collateral
in the sole judgment of the Pledgee. The Pledgor shall not be entitled to retain
and use any and all dividends or distributions or other payments paid on the
Pledged Collateral, including any and all stock and/or liquidating dividends,
other distributions in property, return of capital or other cash or non-cash
distributions made on or in respect of Pledged Collateral, whether resulting
from a subdivision, combination or reclassification of outstanding Securities of
the Issuer 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 the Issuer, or otherwise, such property, if it is a cash
dividend or distribution or other cash payment, being a Mandatory Prepayment, or
otherwise being additional Pledged Collateral pledged hereunder, and, if
received by the Pledgor, shall forthwith be delivered to the Pledgee to be held
as Pledged Collateral subject to the terms and conditions of this Agreement and
the Note; PROVIDED, HOWEVER, that the amount of any Distribution excluded,
pursuant to the Note, from a related Mandatory Prepayment (as such terms are
defined in the Note) shall not be so delivered. The Pledgee agrees to execute
and deliver to the Pledgor, or cause to be executed and delivered to the
Pledgor, as appropriate, at the sole cost and expense of the Pledgor, all such
proxies, powers of attorney, dividend orders and other instruments as the
Pledgor may request for the purpose of enabling the Pledgor to exercise the
voting and/or consensual rights and powers which Pledgor is entitled to exercise
and/or to receive the dividends which Pledgor is
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authorized to retain. Without limiting the generality of the foregoing, the
Pledgor hereby grants a proxy (which shall be a proxy coupled with an interest)
to the Pledgee to vote the Pledged Collateral upon the occurrence and
continuation of an Event of Default.
(b) Upon the occurrence and during the continuance of an Event of
Default, all rights of the Pledgor to exercise the voting and/or consensual
rights and powers which Pledgor is entitled to exercise pursuant to SECTION 7(a)
shall cease, and all such rights thereupon shall become immediately vested in
the Pledgee, which shall have, to the extent permitted by any law, rule,
regulation, ordinance or code of any Governmental Entity (each, a "LAW"), the
sole and exclusive right and authority to exercise such voting and/or consensual
rights and powers which the Pledgor shall otherwise be entitled to exercise
pursuant to SECTION 7(a). Any and all money and other property paid over to
or received by the Pledgee pursuant to the provisions of this SECTION 7(b)
shall be retained by the Pledgee as additional collateral hereunder and shall
be applied in accordance with the provisions of SECTION 9. If the Pledgor
shall receive any dividends or other property which he is not entitled to
receive under this SECTION 7, the Pledgor shall hold the same in trust for
the Pledgee, without commingling the same with other funds or property of or
held by the Pledgor, and shall promptly deliver the same to the Pledgee upon
receipt by the Pledgor in the identical form received, together with any
necessary endorsements.
8. REMEDIES UPON EVENT OF DEFAULT.
(a) In addition to any right or remedy that the Pledgee may have under
the Note, any other loan documents or otherwise under applicable Law, if an
Event of Default shall have occurred and be continuing, the Pledgee may exercise
any and all of the rights and remedies of a secured party under the Uniform
Commercial Code as in effect in any applicable jurisdiction (the "CODE") and may
otherwise sell, assign, transfer, endorse and deliver the whole or, from time to
time, any part of the Pledged Collateral at a public or private sale or on any
securities exchange, for cash, upon credit or for other property, for immediate
or future delivery, and for such price or prices and on such terms as the
Pledgee in its discretion shall deem appropriate. The Pledgee shall be
authorized at any sale (if it deems it advisable to do so) to restrict the
prospective bidders or purchasers to persons or entities who will represent and
agree that they are purchasing the Pledged Collateral for their own account in
compliance with the Securities Act and upon consummation of any such sale the
Pledgee shall have the right to assign, transfer, endorse and deliver to the
purchaser or purchasers thereof the Pledged Collateral so sold. Each purchaser
at any sale of Pledged Collateral shall take and hold the property sold
absolutely free from any claim or right on the part of the Pledgor, and the
Pledgor hereby waives (to the fullest extent permitted by applicable Law) all
rights of redemption, stay and/or appraisal which the Pledgor now has or may at
any time in the future have under any applicable Law now existing or hereafter
enacted. The Pledgor agrees that, to the extent notice of sale shall be required
by applicable Law, at least ten days' prior written notice to the Pledgor of the
time and place of any public sale or the time after which any private sale is to
be made shall constitute reasonable notification, but notice given in any other
reasonable manner or at any other reasonable time shall constitute reasonable
notification. Such notice, in case of public sale, shall state the time and
place for such sale, and, in the case of sale on a securities exchange, shall
state the exchange on which such sale is to be made and the day on which the
Pledged Collateral, or portion thereof, will first be offered for sale at such
exchange. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as the Pledgee may fix and
shall
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state in the notice or publication (if any) of such sale. At any such sale, the
Pledged Collateral, or portion thereof to be sold, may be sold in one lot as an
entirety or in separate parcels, as the Pledgee may determine in its sole and
absolute discretion. The Pledgee shall not be obligated to make any sale of the
Pledged Collateral if it shall determine not to do so regardless of the fact
that notice of sale of the Pledged Collateral may have been given. The Pledgee
may, without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be made at the time
and place to which the same was so adjourned. In case the sale of all or any
part of the Pledged Collateral is made on credit or for future delivery, the
Pledged Collateral so sold may be retained by the Pledgee until the sale price
is paid by the purchaser or purchasers thereof, but the Pledgee shall not incur
any liability to the Pledgor in case any such purchaser or purchasers shall fail
to take up and pay for the Pledged Collateral so sold and, in case of any such
failure, such Pledged Collateral may be sold again upon like notice. At any
public sale made pursuant to this Agreement, the Pledgee, to the extent
permitted by applicable Law, may bid for or purchase, free from any right of
redemption, stay and/or appraisal on the part of the Pledgor (all said rights
being also hereby waived and released to the extent permitted by applicable
Law), any part of or all the Pledged Collateral offered for sale and may make
payment on account thereof by using any claim then due and payable to the
Pledgee from the Pledgor as a credit against the purchase price, and the Pledgee
may, upon compliance with the terms of sale and to the extent permitted by
applicable Law, hold, retain and dispose of such property without further
accountability to the Pledgor therefor. For purposes hereof, a written agreement
to purchase all or any part of the Pledged Collateral shall be treated as a sale
thereof; the Pledgee shall be free to carry out such sale pursuant to such
agreement; and the Pledgor shall not be entitled to the return of any Pledged
Collateral subject thereto, notwithstanding the fact that after the Pledgee
shall have entered into such an agreement the Secured Obligations may have been
paid in full as herein provided. The Pledgor hereby waives any right to require
any marshaling of assets and any similar right.
(b) If an Event of Default shall have occurred and be continuing, in
addition to exercising the power of sale herein conferred upon it, the Pledgee
shall also have the option to proceed by suit or suits at law or in equity to
foreclose this Agreement and sell the Pledged Collateral or any portion thereof
pursuant to judgment or decree of a court or courts having competent
jurisdiction.
(c) The rights and remedies of the Pledgee under this Agreement are
cumulative and not exclusive of any rights or remedies which it would otherwise
have.
9. APPLICATION OF PROCEEDS OF SALE AND CASH.
The proceeds of any sale of the whole or any part of the Pledged
Collateral, together with any other moneys held by the Pledgee under the
provisions of this Agreement, shall be applied by the Pledgee in the following
order:
(a) FIRST: to the payment of all costs and expenses incurred in
connection with such sale or other realization, including reasonable attorneys'
fees incurred if the Pledgee endeavored to collect the Secured Obligations by or
through an attorney at law;
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(b) SECOND: to the payment of the interest due upon any of the Secured
Obligations, in any order which the Pledgee may elect;
(c) THIRD: to the payment of the principal due upon any of the Secured
Obligations in any order which the Pledgee may elect; and
(d) FOURTH: the balance (if any) of such proceeds shall be paid to the
Pledgor or to whomsoever may be legally entitled thereto.
10. PLEDGEE APPOINTED ATTORNEY-IN-FACT.
The Pledgor hereby constitutes and appoints the Pledgee as the
attorney-in-fact of the Pledgor with full power of substitution either in the
Pledgee's name or in the name of the Pledgor to do any of the following: (a) to
perform any obligation of the Pledgor hereunder in the Pledgor's name or
otherwise; (b) to ask for, demand, sue for, collect, receive, receipt and give
acceptance for any and all moneys due or to become due under and by virtue of
any Pledged Collateral; (c) to prepare, execute, file, record or deliver
notices, assignments, financing statements, continuation statements,
applications for registration or like papers to perfect, preserve or release the
Pledgee's security interest in the Pledged Collateral or any of the documents,
instruments, certificates and agreements described herein; (d) to verify facts
concerning the Pledged Collateral in its own name or a fictitious name; (e) to
endorse checks, drafts, orders and other instruments for the payment of money
payable to the Pledgor, representing any interest or dividend or other
distribution payable in respect of the Pledged Collateral or any part thereof or
on account thereof and to give full discharge for the same; (f) to exercise all
rights, powers and remedies which the Pledgor would have, but for this
Agreement, under the Pledged Collateral; and (g) to carry out the provisions of
this Agreement and to take any action and execute any instrument which the
Pledgee may deem necessary or advisable to accomplish the purposes hereof, and
to do all acts and things and execute all documents in the name of the Pledgor
or otherwise, deemed by the Pledgee as necessary, proper and convenient in
connection with the preservation, perfection or enforcement of its rights
hereunder. Nothing herein contained shall be construed as requiring or
obligating the Pledgee to make any commitment or to make any inquiry as to the
nature or sufficiency of any payment received by it, or to present or file any
claim or notice, or to take any action with respect to the Pledged Collateral or
any part thereof or the moneys due or to become due in respect thereof or any
property covered thereby, and no action taken by the Pledgee or omitted to be
taken with respect to the Pledged Collateral or any part thereof shall give rise
to any defense, counterclaim or offset in favor of the Pledgor or to any claim
or action against the Pledgee. The power of attorney granted herein is
irrevocable and coupled with an interest.
11. FURTHER ASSURANCES.
The Pledgor shall, at his sole cost and expense, take all action that
may be necessary or desirable in the Pledgee's sole discretion, so as at all
times to maintain the validity, perfection, enforceability and priority of the
Pledgee's security interest in the Pledged Collateral, or to enable the Pledgee
to exercise or enforce its rights hereunder, including, without limitation, (a)
delivering to the Pledgee, endorsed or accompanied by such instruments of
assignment as the Pledgee may specify, any and all chattel paper, instruments,
letters of credit and all other advices
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of guaranty and documents evidencing or forming a part of the Pledged Collateral
and (b) executing and delivering financing statements, pledges, designations,
notices and assignments, in each case in form and substance satisfactory to the
Pledgee, relating to the creation, validity, perfection, priority or
continuation of the security interest granted hereunder. The Pledgor agrees to
take, and authorizes the Pledgee to take on the Pledgor's behalf, any or all of
the following actions with respect to any Pledged Collateral as the Pledgee
shall deem necessary to perfect the security interest and pledge created hereby
or to enable the Pledgee to enforce its rights and remedies hereunder: (i) to
register in the name of the Pledgee any Pledged Collateral in certificated or
uncertificated form; (ii) to endorse in the name of the Pledgee any Pledged
Collateral issued in certificated form; and (iii) by book entry or otherwise,
identify as belonging to the Pledgee a quantity of securities that constitutes
all or part of the Pledged Collateral registered in the name of the Pledgee.
Notwithstanding the foregoing the Pledgor agrees that Pledged Collateral which
is not in certificated form or is otherwise in book-entry form shall be held for
the account of the Pledgee. The Pledgor hereby authorizes the Pledgee to execute
and file in all necessary and appropriate jurisdictions (as determined by the
Pledgee) 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 the Pledgor and to sign the Pledgor's name thereto. The Pledgor authorizes
the Pledgee to file any such financing statement, document or instrument without
the signature of the Pledgor to the extent permitted by applicable Law. To the
extent permitted by applicable Law, a carbon, photographic or other reproduction
of this Agreement or any financing statement is sufficient as a financing
statement. Any property comprising part of the Pledged Collateral required to be
delivered to the Pledgee pursuant to this Pledge Agreement shall be accompanied
by proper instruments of assignment duly executed by the Pledgor and by such
other instruments or documents as the Pledgee may reasonably request. In the
event any Pledged Collateral in certificated form becomes eligible for
book-entry treatment, the Pledgor will use its best efforts to effectuate such
book-entry treatment with respect to such Pledged Collateral.
12. SECURITIES LAWS.
In view of the position of the Pledgor in relation to the Pledged
Collateral, or because of other current or future circumstances, a question may
arise under the Securities Act, as now or hereafter in effect, or any similar
applicable Law (whether foreign or domestic) hereafter enacted analogous in
purpose or effect (such Law and any such similar applicable Law as from time to
time in effect being called the "SECURITIES LAWS") with respect to any
disposition of the Pledged Collateral permitted hereunder. The Pledgor
understands that compliance with the Securities Laws might very strictly limit
the course of conduct of the Pledgee if the Pledgee were to attempt to dispose
of all or any part of the Pledged Collateral in accordance with the terms
hereof, and might also limit the extent to which or the manner in which any
subsequent transferee of any Pledged Collateral could dispose of the same.
Similarly, there may be other legal restrictions or limitations affecting the
Pledgee in any attempt to dispose of all or part of the Pledged Collateral in
accordance with the terms hereof under applicable "BLUE SKY" or other state
securities Laws or similar applicable Law analogous in purpose or effect. The
Pledgor recognizes that in light of
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the foregoing restrictions and limitations the Pledgee may, with respect to any
sale of the Pledged Collateral, limit the purchasers to those who will agree,
among other things, to acquire such Pledged Collateral for their own account,
for investment, and not with a view to the distribution or resale thereof. The
Pledgor acknowledges and agrees that in light of the foregoing restrictions and
limitations, the Pledgee, in its sole and absolute discretion, may, in
accordance with applicable Law, (a) proceed to make such a sale whether or not a
registration statement for the purpose of registering such Pledged Collateral or
part thereof shall have been filed under the Securities Laws and (b) approach
and negotiate with a single potential purchaser to effect such sale. The Pledgor
acknowledges and agrees that any such sale might result in prices and other
terms less favorable to the seller than if such sale were a public sale without
such restrictions. In the event of any such sale, the Pledgee shall incur no
responsibility or liability for selling all or any part of the Pledged
Collateral in accordance with the terms hereof at a price that the Pledgee may
in good faith deem reasonable under the circumstances, notwithstanding the
possibility that a substantially higher price might have been realized if the
sale were deferred until after registration as aforesaid. The provisions of this
SECTION 12 will apply notwithstanding the existence of public or private market
upon which the quotations or sales prices may exceed substantially the price at
which the Pledgee sells.
13. CONTINUING SECURITY INTEREST.
This 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 its terms. The Pledgor and the Pledgee hereby agree that the
security interest created by this Agreement in the Pledged Collateral shall not
terminate and shall continue and remain in full force and effect notwithstanding
the transfer to the Pledgee of a portion of the Pledged Collateral.
14. SECURITY INTEREST ABSOLUTE.
All rights of the Pledgee hereunder, the grant of a security interest
in the Pledged Collateral and all obligations of the Pledgor hereunder, shall be
absolute and unconditional irrespective of (a) any lack of validity or
enforceability of the Note or any other loan document, any agreement with
respect to any of the Secured Obligations or any other agreement or instrument
relating to any of the foregoing, (b) any change in the time, manner or place of
the payment of, or in any other term of, all or any of the Secured Obligations,
or any other amendment or waiver of or any consent to any departure from the
Note, any other loan document, or any other agreement or instrument relating to
any of the foregoing, (c) any exchange, release or nonperfection of any other
collateral, or any release or amendment or waiver of or consent to or departure
from any guaranty, for all or any of the Secured Obligations or (d) any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, the Pledgor in respect of the Secured Obligations or in respect of
this Agreement (other than the indefeasible payment in full of all the Secured
Obligations).
15. NO WAIVER.
Neither the failure on the part of the Pledgee to exercise, nor the
delay on its part in exercising, any right, power or remedy hereunder, nor any
course of dealing between the Pledgee and the Pledgor, shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power, or
remedy hereunder preclude any other or the further exercise thereof or the
exercise of any other right, power or remedy.
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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 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 Issuer or Pledgee, to
Opus360 Corporation
39 West 13th Street, 3rd Floor
New York, New York 10011
Attention: Secretary of the Company
Telephone: (212) 884-6300
Facsimile: (212) 301-2842
E-Mail:
with a copy (which shall not constitute notice) to:
Opus360 Corporation
39 West 13th Street, 3rd Floor
New York, New York 10011
Attention: General Counsel
Telephone: (212) 884-6300
Facsimile: (212) 301-2842
E-Mail:
(ii) if to the Pledgor, to
Richard S. Miller
5 Croydon Road
Morristown, New Jersey 07960
Telephone: (973) 267-8448
Facsimile: (973) 267-8397
E-Mail: [email protected]
with a copy (which shall not constitute notice) to:
Walter, Conston, Alexander & Green, P.C.
90 Park Avenue
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New York, New York 10016
Attention: Saul Ben-Meyer
Telephone: (212) 210-9545
Facsimile: (212) 210-9444
E-Mail: [email protected]
As used in this Agreement, the term "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.
17. GOVERNING LAW.
THIS 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 PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
18. AMENDMENTS.
No amendment or waiver of any provision of this Agreement nor consent
to any departure by the Pledgor herefrom shall in any event be effective unless
the same shall be in writing and signed by the parties hereto, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
19. BINDING AGREEMENT.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
Pledgor shall not be permitted to assign this Agreement or any interest herein
or in the Pledged Collateral, or any part thereof, or any cash or property held
by the Pledgee as collateral under this Agreement.
20. TERMINATION.
Upon payment in full of all of the Secured Obligations, this Agreement
shall terminate. The release of Pledged Collateral or reassignment of rights to
the Pledgor upon the termination of this Agreement shall be without recourse to
or warranty by the Pledgee and shall be made by the Pledgee at the sole cost and
expense of the Pledgor, except to the extent such costs and expenses are the
result of Pledgee's bad faith or gross negligence. Upon the release of Pledged
Collateral or reassignment of rights to the Pledgor, the Pledgee will, at the
sole cost and expense of the Pledgor, except to the extent such costs and
expenses are the result of Pledgee's bad faith or gross negligence, execute and
deliver to the Pledgor such documents as the Pledgor shall reasonably request to
evidence such release and reassignment and shall deliver to the Pledgor all
Pledged Collateral so released then in its possession and not applied in
satisfaction of the Secured Obligations.
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21. SEVERABILITY.
In case any provision of this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
22. INTERPRETATION; CONSTRUCTION
The headings contained in this Agreement and in any 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 Article, Section or clause shall be to the
Articles, Sections and clauses of this Agreement. The words "INCLUDE,"
"INCLUDES" and "INCLUDING" are deemed to be followed by the phrase "WITHOUT
LIMITATION." Any 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. 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.
23. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original and all of which shall constitute but one agreement.
This Agreement, the agreements referred to herein, and each other agreement or
instrument entered into in connection herewith or therewith or contemplated
hereby or thereby, 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.
* * * *
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IN WITNESS WHEREOF, the Pledgor and the Pledgee have executed this
Pledge Agreement as of the date first written above.
PLEDGOR:
/s/ Richard S. Miller
--------------------------------------
Richard S. Miller
PLEDGEE:
OPUS360 CORPORATION
By: /s/ Ari B. Horowitz
-------------------------------------
Name: Ari B. Horowitz
Title: Chief Executive Officer
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Exhibit 10.36
We would like take this opportunity to welcome to you FreeAgent.com. There are a
few responsibilities that we would like to cover concerning our relationship. We
have hired you as an employee to provide consulting services for assignments
with one or more clients either directly or through a third party consulting
firm (collectively the "Client").
Please understand that your employment at FreeAgent.com may be terminated by you
or FreeAgent.com at any time, with or without cause. Any notification from the
Client of your inability to perform services required and agreed upon will upon
notice to you terminate our relationship and terminate all agreements,
expectations, and benefits. We request that if you decide to end this
relationship that you provide FreeAgent.com with a customary two-week notice.
You will work as a representative of FreeAgent.com but will not have the right
to bind FreeAgent.com to any agreement with a Client or to incur any obligation
on FreeAgent.com's behalf. It is necessary that any agreement you plan on
entering into be signed by a FreeAgent.com officer or it will not be binding on
FreeAgent.com.
You represent and warrant that: you are not subject to any restrictions which
may prevent FreeAgent.com from hiring you or from assigning you to any Client;
you are not under any obligation to any third party, such as a restrictive
covenant or non-competition agreement, that cold interfere with your performance
of your obligations as an employee of FreeAgent.com; and your performance of
your obligations to the FreeAgent.com during your employment with the
FreeAgent.com will not breach any agreement by which you are bound not to
disclose any proprietary information, such as a non-disclosure or
confidentiality agreement. Also, FreeAgent.com's present policies provide no
legal support for your ventures, plans or disputes.
You are also bound by all agreements, covenants, warranties, and restrictions in
the contract between FreeAgent.com and any Client to whom you are assigned to
perform work. The master contracts are available for your review.
FreeAgent.com's agreement with Clients require that we guarantee confidentiality
of their proprietary information, that our employees assigned to the Client will
not compete with the Client, and the quality of the workmanship of our
employees. These agreements may also impose other restrictions and requirements
on FreeAgent.com and its employees. Such requirements may include warranties
with respect to your work or the delivery of specified deliverables within a
certain period of time. If you violate any of these restrictions or
requirements, such as disclosing proprietary information or causing the breach
of any agreements, warranties, covenants or representations contained in these
agreements, you will be responsible for monetary damages, attorney fees incurred
by FreeAgent.com and the Client, legal costs and other costs and expenses.
As a condition of employment with FreeAgent.com, you agree to defend, indemnify
and hold FreeAgent.com harmless from and against any and all legal actions,
claims, damages, costs and expenses (including, but not limited to, attorney
fees, interest and court costs) resulting from or related to your performance of
your obligations to FreeAgent.com or your acts or omissions causing a breach of
any of FreeAgent.com's agreements with Clients.
You agree that you will not accept any assignment with a Client through
FreeAgent.com or begin work at FreeAgent.com until you have: modified the terms
of the contract with the Client so that it meets with your approval; and
reviewed, satisfied yourself that your are able to comply with, and by accepting
such assignment agree to comply with, any confidentiality, non-solicitation, and
non-competition clauses in the proposed agreement with the Client.
You are required to fax timesheets to FreeAgent.com according to schedule so
invoices can be sent to the Client. Payment to you is made after we receive
funds from the Client and FreeAgent.com will not be held responsible in the
event that the Client does not pay, underpays or overpays for your services.
<PAGE>
You agree to immediately pay to FreeAgent.com, upon written request by
FreeAgent.com, any overpayment made to or on your behalf.
Unless you, FreeAgent.com and the Client otherwise agree in writing, you agree
that all documents deliverables software designs, disks, tapes, and any other
materials ( collectively "Materials") which you create in whole or in part in
the course of or related in any way to providing services to a Client shall be
treated as "work made for hire" (as the term is defined in Section 101 of the
Copyright Act of 1976, as amended) of FreeAgent.com and the copyright and all
other ownership rights in the Materials shall be owned by FreeAgent.com for the
purpose of complying with any requirement of the Client, and you shall
immediately disclose to FreeAgent.com all discoveries, inventions, enhancements,
developments, improvements and similar creations (collectively "Creations") you
make, in whole or in part, in the course of or related in any way to providing
service to FreeAgent.com or Clients. FreAgent.com shall own all rights to the
Materials and Creations, including, without limitation, all copyright,
trademark, service mark, and patent rights and all other intellectual property
rights in, to and under the Materials and Creations (collectively the
"Intellectual Property"). For good and valuable consideration, you hereby assign
to FreeAgent.com all right, title and interest, throughout the world, to the
Intellectual Property.
You also agree to execute, without charge, all documents and assist in all
proceedings to the perfect, register or record FreeAgent.com's or its assignee's
right to the Intellectual Property. In the event that you do not execute the
requested document within five (5) days after they are sent to you, then you
grant to the President of FreeAgent.com a power of attorney to execute all such
documents on your behalf. This power is a power coupled with an interest and is
irrevocable.
Also, if you have not billed any hours on a FreeAgent.com assignment for thirty
(30) days, FreeAgent.com, at its option, may terminate your employment or place
you on an unpaid leave of absence. During any leave of absence you are
responsible for the costs of any benefits you have elected to participate in
through FreeAgent.com, except as otherwise provided by law. If you do not pay
FreeAgent.com for those benefits in advance, FreeAgent.com will terminate those
benefits as of the date your leave of absence began. In addition, if you have
not generated gross billings of at least $10,000 in any consecutive three (3)
month period or if you have failed for two (2) consecutive months to pay to
FreeAgent.com any fees or other payments due from you, then in either event you
shall be deemed to have resigned from your employment with FreeAgent.com at the
end of the relevant period.
You understand FreeAgent.com's policies and schedule for expense reimbursement.
You agree to pay any attorney fees and costs that we incur to enforce this
agreement.
From gross billings you generate, FreeAgent.com will deduct the agreed upon
monthly service charge, the one time initial sign-up fee, all W-2 payroll
withholdings with matching employer payroll taxes, all 401K contributions, all
payments for optional insurance plans, and other appropriate deductions. You
understand that FreeAgent.com does not provide professional liability insurance
coverage for medical doctors, attorneys, Certified Public Accountants, and
certain other professionals; a list of excluded professionals is available for
your review. You agree that you will not accept any assignment with a Client
through FreeAgent.com or begin work at FreeAgent.com until you have a
professional liability insurance policy in force with such coverage, liability
limits and from an insurance carrier acceptable to FreeAgent.com and have
provided FreeAgent.com with a certificate of professional liability insurance
coverage for you; such certificate of insurance shall provide that the policy is
not cancelable by the insurance carrier without at least thirty (30) days
advance written notice given to FreeAgent.com; in addition, you shall
immediately notify FreeAgent.com should you terminate the policy or should you
receive notice from the insurance carrier that the policy is our will be
canceled.
Very truly yours,
CHURCHILL BENEFIT CORP., d/b/a FreeAgent.com
<PAGE>
By:_________________________________ Date:_________________________
Above agreed to:
Employee:___________________________ Date:_________________________
Revd: 1/16/00
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors of
Opus360 Corporation:
We consent to the use of our reports included herein, dated February 8,
2000, except as to paragraphs 5 through 12 of note 13 and paragraphs 18 through
20 of note 13 which are as of March 1, 2000 and paragraphs 1 and 24 through 26
of note 10 and paragraphs 3 through 6 of note 14 which are as of April 3, 2000
and to the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
New York, New York
April 3, 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
April 3, 2000
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors of
Opus360 Corporation:
We consent to the use of our reports relating to the financial statements of
the Churchill Benefit Corporation included herein, dated October 8, 1999 and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
New York, New York
April 3, 2000
