UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: 3/31/2000
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File number 000-29793
---------
Opus360 Corporation
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 134023714
------------------------------- -----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
39 West 13th Street, 3rd Fl. New York, NY 10011
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
212-687-6787
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Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the most recent practicable date May 15, 2000.
Common Stock 50,084,011
- ------------------------------- ---------------------
Class Outstanding Shares
<PAGE>
Opus360 Corporation
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1999, March 31,
2000 and Pro forma March 31, 2000. 1
Consolidated Statements of Operations for the three months
ended March 31, 1999 and March 31, 2000 2
Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and March 31, 2000 3
Notes to the Consolidated Financial Statements 4-16
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Change in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Securities Holders 23
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
a. Exhibits 24
10.1 Employment Agreement dated March 13, 2000
between the registrant and Richard McCann
27 Financial Data Schedule
<PAGE>
Opus360 Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
December 31, March 31, March 31,
1999 2000 2000
------------- ------------- -------------
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 1,326,000 $ 11,610,000 $ 11,610,000
Accounts receivable 2,314,000 3,466,000 3,466,000
Short-term investments 27,137,000 225,000 225,000
Prepaid expenses and other current assets 3,850,000 5,757,000 5,757,000
------------- ------------- -------------
Total current assets 34,627,000 21,058,000 21,058,000
Property and equipment, net 2,990,000 7,274,000 7,274,000
Goodwill, net 1,702,000 35,985,000 35,985,000
Deferred loan costs 16,000 -- --
Due from PeopleMover 575,000 -- --
Other assets 806,000 4,010,000 4,010,000
------------- ------------- -------------
Total assets $ 40,716,000 $ 68,327,000 $ 68,327,000
============= ============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 5,489,000 $ 6,369,000 $ 6,369,000
Accrued expenses 4,818,000 6,304,000 6,304,000
Accrued wages 2,682,000 3,285,000 3,285,000
Line of credit -- 1,358,000 1,358,000
Capital lease obligation -- 142,000 142,000
Deferred revenues -- 6,894,000 6,894,000
Other current liabilities -- 2,056,000 2,056,000
------------- ------------- -------------
Total current liabilities 12,989,000 26,408,000 26,408,000
Long term lease obligation -- 327,000 327,000
------------- ------------- -------------
Total liabilities 12,989,000 26,735,000 26,735,000
Stockholders' equity:
Series A convertible preferred stock, $0.001 par value; 8,400,000 shares
authorized; 8,284,000 and 8,284,000 shares issued and outstanding,
respectively; zero shares outstanding on a pro forma
basis 8,000 8,000 --
Series B convertible preferred stock, $0.001 par value; 8,700,000 shares
authorized; 8,677,000 and 8,677,000 shares issued and outstanding,
respectively; zero shares outstanding on a pro forma basis 9,000 9,000 --
Common stock, $0.001 par value; 150,000,000 shares authorized; 10,880,000 and
16,137,000 issued and outstanding, respectively; 41,578,000
shares outstanding on a pro forma basis 11,000 16,000 41,000
Additional paid-in capital 63,835,000 115,815,000 115,807,000
Stock subscription receivable (239,000) (239,000) (239,000)
Deferred compensation (5,469,000) (18,571,000) (18,571,000)
Accumulated deficit (30,425,000) (55,443,000) (55,443,000)
Accumulated other comprehensive loss (3,000) (3,000) (3,000)
------------- ------------- -------------
Total stockholders' equity 27,727,000 41,592,000 41,592,000
------------- ------------- -------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 40,716,000 $ 68,327,000 $ 68,327,000
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
Opus360 Corporation
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1999 2000
------------ ------------
<S> <C> <C>
Revenue $ -- $ 977,000
Cost of revenue -- 651,000
------------ ------------
Gross profit -- 326,000
Operating expenses:
Sales and marketing, exclusive of $0 and $94,000 reported below as amortization of
equity-based compensation 626,000 8,286,000
Product development, exclusive of $25,000 and $602,000 reported below as amortization
of equity-based compensation 690,000 6,588,000
General and administrative, exclusive of $0 and $2,968,000 reported below as
amortization of equity-based compensation 621,000 4,341,000
Depreciation and amortization of goodwill 39,000 2,667,000
Amortization of equity-based compensation 25,000 3,664,000
------------ ------------
Total operating expenses 2,001,000 25,546,000
------------ ------------
Loss from operations (2,001,000) (25,220,000)
Other income:
Net Interest income -- 202,000
------------ ------------
Loss before income taxes (2,001,000) (25,018,000)
Income tax expense -- --
------------ ------------
Net loss $ (2,001,000) $(25,018,000)
============ ============
Historical basic and diluted net loss per share $ (0.21) $ (1.86)
============ ============
Shares used in the calculation of historical basic and
diluted net loss per share 9,499,000 13,438,000
============ ============
Pro forma basic and diluted net loss per share (note 6) $ (0.49)
============
Shares used in the calculation of pro forma basic and
diluted net loss per share (note 6) 38,879,000
============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
Opus360 Corporation
Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1999 2000
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,001,000) $(25,018,000)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization 39,000 2,667,000
Non cash compensation expense 25,000 3,664,000
Non cash advertising expense -- 83,000
Non cash advisory expense -- 175,000
Loss on disposal of equipment (18,000) --
Changes in operating assets and liabilities:
Account receivables -- (302,000)
Prepaid expenses and other current assets -- (329,000)
Other assets (204,000) 706,000
Accounts payable 1,033,000 (821,000)
Accrued expenses -- (1,057,000)
Accrued wages -- 555,000
Short term lease obligation -- (29,000)
Deferred revenues -- 5,207,000
Other Liabilities -- 735,000
------------ ------------
Net cash used in operating activities $ (1,126,000) $(13,764,000)
============ ============
Cash flows from investing activities:
Acquisition of property and equipment (47,000) (3,523,000)
Decrease in short term investments -- 26,912,000
Cash used in connection with acquisition of subsidiaries -- (975,000)
Cash used in acquisition of assets -- (650,000)
------------ ------------
Net cash (used in) provided by investing activities $ (47,000) $ 21,764,000
============ ============
Cash flows from financing activities:
Net proceeds from loans $ 82,000 $ 1,008,000
Net proceeds from issuance of common stock 4,560,000 1,276,000
------------ ------------
Net cash provided by financing activities 4,642,000 2,284,000
------------ ------------
Net increase in cash 3,469,000 10,284,000
Cash:
Beginning of period 5,818,000 1,326,000
------------ ------------
End of period $ 9,287,000 $ 11,610,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
Opus360 Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
Note 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 services for
putting people and projects together across the service supply chain. The
Company's services are designed to streamline the procurement and management of
professional services and are comprised of two segments.
o FREEAGENT.COM SERVICE which includes FREEAGENT.COM, a web-site that
enables independent professionals to manage their careers by
offering them 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.
o 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 resources 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.
(b) Basis of Presentation
The unaudited consolidated financial statements have been prepared by the
Company in accordance with generally accepted accounting principles and reflect
all adjustments (all of which are normal and recurring in nature) that, in the
opinion of management, are necessary for a fair presentation of the interim
periods presented. The results of operations for the interim periods presented
are not necessarily indicative of the results to be expected for any subsequent
quarters or for the entire year ending December 31, 2000. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted under the Securities and Exchange Commission's ("SEC") rules and
regulations. These unaudited consolidated financial statements and notes
included herein should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto for the year ended December
31, 1999, included in the Company's S-1 registration statement declared
effective by the SEC on April 6, 2000.
On March 27, 2000 the Board of Directors authorized a three-for-two stock
split of the Company's common stock. The financial information included in the
accompanying financial statements gives effect to the stock split.
4
<PAGE>
On April 12, 2000, the Company completed the sale of 7,000,000 shares of
its common stock, in connection with an initial public offering ("IPO") at a
price of $10 per share. Concurrent with its IPO, the Company sold $14,000,000 of
its common stock to Dell USA L.P. at a price of $9.30 per share (the "Concurrent
Placement"). The accompanying financial statements including the pro-forma
balance sheet do not give effect to these transactions.
The accompanying pro-forma balance sheet gives affect to the conversion of
all the Company's outstanding convertible preferred stock into 25,441,000 shares
of common stock, as if such event occurred on March 31, 2000.
(c) Principals of Consolidation
The Company's unaudited consolidated financial statements as of and for
the three months ending March 31, 2000, include the accounts of
INDUSTRYINSITE.COM, Ithority Corporation, and PeopleMover, Inc. from their
respective dates of acquisition. The unaudited consolidated financial statements
for the prior periods only include the accounts of the Company. All significant
intercompany balances and transactions have been eliminated in consolidation.
(d) Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(e) Revenue Recognition
OPUSRM integration revenues consist of fees paid for integration,
installation and customization of OPUSRM and are recognized as revenue only to
extent the Company has incurred third party costs in connection with the
installation projects, as the services are performed.
The Company recognizes revenue from the sale of its PeopleMover 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 PeopleMover software
contracts that require significant modification or customization of the software
on a percentage of completion basis based on costs incurred. The Company's
PeopleMover subsidiary also 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.
(f) Cost of Revenue
Cost of revenue includes salaries paid to staff that provide integration,
installation and customization of the Company's OPUSRM and PeopleMover service.
(g) 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 as of March 31, 2000 was $2,218,000.
5
<PAGE>
(h) 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.
(i) 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 ("SAB")
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 March 31,
2000, 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.
(j) Recent Accounting Pronouncements
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
does not have any derivatives and SFAS 133 will not have any effect on the
Company's financial statements.
On March 31, 2000 the Financial Accounting Standards Board issued FASB
interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation - an interpretation of APB Opinion No. 25 (FIN 44). FIN 44
generally applies prospectively to new awards, exchanges of awards in a business
combination, modifications to outstanding awards, and changes in grantee status
that occur on or after July 1, 2000, except for the provision related to
repricings and the definition of an employee which apply to awards issued after
December 15, 1998. To the extent that events covered by FIN 44 occur after the
applicable date but prior to July 1, 2000, the effects of applying FIN 44 shall
be recognized on a prospective basis. Accordingly, no adjustments shall be made
upon initial application of FIN 44 to financial statements for periods prior to
July 1, 2000. The Company is currently evaluating the impact, if any, of FIN 44.
Note 2. Acquisitions
1999
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.
6
<PAGE>
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. 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 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:
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
----------
2000
IndustryInsite.com
On January 10, 2000, the Company acquired from Brainstorm Interactive,
Inc. ("Brainstorm") all of the related assets and liabilities of
INDUSTRYINSITE.COM, a web-site operated by Brainstorm for an aggregate purchase
price of $1,000,000. The purchase price was paid as follows: $650,000 on closing
and $350,000 on April 12, 2000. The Company allocated the purchase price to
intangible assets which will be amortized over three years.
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 paid on closing and $250,000 to be paid in the second quarter of
2000.
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
7
<PAGE>
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 has recorded deferred
compensation expense of $5,343,000 for the fair market value of the Ithority
Escrow shares, which are subject to employment, and will amortize such amounts
over the vesting period. The Company will only include the vested portion of the
restricted shares for purposes of calculating basic earnings per share. The
Company will also include the unvested portion of the restricted shares for
purposes of calculating diluted earnings per share, if such amounts are
dilutive.
The Company accounted for the acquisition of Ithority using the purchase
method and, accordingly, the results of operations of Ithority are included in
the Company's consolidated financial statements from the date of acquisition.
The purchase price has been allocated to Ithority's historical assets and
liabilities based on the fair values of the assets acquired and liabilities
assumed.
The following financial information represents the allocation of the
purchase price over historical net book values of the acquired assets and
assumed liabilities of Ithority. The resulting goodwill that was created, as a
result of the Ithority acquisition, will be amortized over three years. Actual
fair values are based on financial information as of the acquisition date. On
the acquisition date the allocated values are as follows:
Value of shares not subject to restricted stock vesting agreement $2,155,000
Cash payment 500,000
Negative net assets acquired 107,000
----------
Excess purchase price over net assets acquired $2,762,000
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 exchanged 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 consisted of the following:
o 2,634,000 shares of Opus360 common shares valued at approximately
$23,990,000, or $9.11 per share;
o the assumption by Opus360 of options to purchase shares of
PeopleMover common stock, 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
o the Company also incurred acquisition costs of approximately
$175,000 related to the merger.
Approximately 342,000 shares issued to the PeopleMover shareholders are
subject to a three-year restricted stock vesting agreement, whereby, the Company
has the right but not the obligation to repurchase these shares for $0.01 per
share in the event the shareholder is no longer employed by the Company. The
Company will only include the vested portion of the restricted shares for
purposes of calculating basic earnings per share. The Company will also include
the unvested portion of the restricted shares for purposes of calculating
diluted earnings per share, if such amounts are dilutive.
The value of the approximately 342,000 shares, which are subject to the
three-year vesting agreement, is approximately $3,130,000 and was recorded to
deferred compensation expense and will be amortized over the term of the vesting
agreement.
8
<PAGE>
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 was signed. The $790,000
aggregate amount of the loans, reduced the purchase price of the acquisition on
a dollar-for-dollar basis.
The Company accounted for the acquisition of PeopleMover using the
purchase method and, accordingly, the results of operations of PeopleMover are
included in the Company's consolidated financial statements from the date of
acquisition. The purchase price has been allocated to PeopleMover's historical
assets and liabilities based on the fair values of the assets acquired and
liabilities assumed.
The following financial information represents the allocation of the
purchase price over historical net book values of the acquired assets and
assumed liabilities of PeopleMover. The resulting goodwill will be amortized
over three years.
<TABLE>
<S> <C>
Value of shares not subject to restricted stock vesting agreement $20,860,000
Value of stock options issued, measured using Black-Scholes pricing model 7,875,000
Costs associated with acquisition 175,000
Negative net assets acquired 3,829,000
-----------
Excess purchase price over net assets acquired $32,739,000
</TABLE>
The following table presents the Company's summary pro-forma consolidated
financial information as if the Year 2000 acquisitions had occurred on January
1, 1999.
March 31, 2000
Total revenue 1,024,000
Net Loss (25,580,000)
Pro-forma basic and diluted net loss per share $ (0.65)
March 31, 1999
Total revenue $ 488,000
Net loss (3,474,000)
Pro-forma basic and diluted net loss per share $ (0.29)
Note 3. Related Party Transactions
On March 23, 2000 Richard S. Miller, the Company's President and Chief
Operating Officer exercised stock options to purchase 300,000 shares of the
Company's common stock at an exercise price of $2.67 per share. In connection
with Mr. Miller's exercise of the options, the Company provided Mr. Miller with
a full recourse loan of $1,538,000 at an annual 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 the Company for any reason whatsoever.
In February 2000, the Company entered into an agreement with Lucent
Technologies Inc. ("Lucent"), a company whose Executive Vice President is a
member of the Company's board of directors. The agreement provides for Lucent to
use the Company's OPUSRM and OPUS XCHANGE services and also assist in the
development and marketing of these services by serving as a member of the OPUSRM
9
<PAGE>
and OPUS XCHANGE Customer Advisory Board.
Note 4. Lines of Credit
In February 2000, the Company borrowed $1,044,000 as part of a $1,500,000
equipment facility with a bank. The annual interest rate on the facility is
equal to the three-year Treasury bill as of the date of funding plus 3%. The
Company's current outstanding balance under this line at March 31, 2000 is
$1,017,000 with an interest rate of 9.3% per annum .
Note 5. Commitments and contingencies
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.
Employment Agreements:
In connection with the Ithority and PeopleMover transactions, the Company
entered into various three-year employment contracts with certain employees
which obligate the Company to annual salaries totaling approximately $630,000
plus the opportunity to participate in the Company's bonus and benefit plans.
On January 21, 2000, the Company entered into a three-year employment
agreement with Mr. Richard S. Miller, who assumed 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 to
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
was granted incentive stock options to purchase 32,918 shares of the Company's
common stock at a strike price of $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 recorded deferred compensation of
$6,425,000 in connection with Mr. Miller's option grants of which $1,932,000 was
expensed on the date of grant and the remaining $4,493,000 will be amortized
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 Plans.
On March 24, 2000, the Company entered into a three-year agreement with
Dr. Ram Chillarege, who assumed the role of Executive Vice President
Engineering. In connection with the March 24, 2000 agreement, Dr. Chillarege was
granted incentive stock options to purchase 30,000 of the Company's common stock
at a strike price of $10.00 and non-qualified stock options to purchase 470,000
shares of common stock of which 100,000 have a strike price of $5.00 and are
immediately vested, 150,000 have a strike price of $5.00 and vest over three
years and 220,000 have a strike price of $10.00 and vest over three years. The
Company recorded deferred compensation of $1,250,000 in connection with Dr.
Chillarege's option grants of which $500,000 was expensed on the date of grant
and the remaining $750,000 will be amortized over the three-year vesting term of
Dr. Chillarege's options. The non-qualified options issued to Dr. Chillarege
have been issued outside of the Company's existing Stock Option Plans.
In February 2000, the Company entered into three-year agreements with
several of its employees, who are also stockholders, which obligate the Company
10
<PAGE>
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.
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 April 7, 2000, the date the Company
completed 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.
Note 6. Basic and Diluted Net Loss Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
11
<PAGE>
<TABLE>
<CAPTION>
March 31 March 31
1999 2000
------------ ------------
<S> <C> <C>
Numerator:
Net loss $ (2,001,000) $(25,018,000)
------------ ------------
Denominator:
Basic and diluted loss per share weighted average shares 9,499,000 13,438,000
------------ ------------
Basic and diluted net loss per share $ (0.21) $ (1.86)
------------ ------------
</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
March 31, 2000. Diluted net loss per share for the periods ended March 31, 1999
and March 31, 2000 does not include the effect of options and warrants to
purchase 2,732,000 and 11,457,000 shares of common stock, respectively, 542,000
unvested escrowed shares of common stock issued to former shareholders of
Ithority and PeopleMover, or 12,426,000 and 25,441,000 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 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.
March 31
2000
------------
Numerator:
Net loss $(25,018,000)
------------
Denominator:
Weighted average number of common shares 13,438,000
Assumed conversion of preferred stock
Series A 12,426,000
Series B 13,015,000
------------
38,879,000
------------
Pro forma basic and diluted net loss per share $ (0.49)
------------
Note 7. Stockholders' Equity
Strategic and Advisory Agreements
Greenhill & Co.:
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<PAGE>
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 receives 1) warrants to
immediately purchase 450,000 shares of the Company's common stock at an exercise
price of $3.07 per share upon the commencement of the Initial Term, and is
entitled to receive 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.
These warrants were exercised in the second quarter of 2000.
In January 2000, the Company completed the acquisitions of
INDUSTRYINSITE.COM and Ithority Corporation (see Note 2) 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 an
exercise price of $8.21 per share. In connection with the First Renewal Term
warrants the Company recorded a pre-paid expense of approximately $839,000
calculated using the Black-Scholes pricing model. The Company is amortizing 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 an additional
9,120 warrants to KBP during the quarter ended March 31, 2000, and the Company
recorded sales and marketing expenses of approximately $83,000, representing the
fair market value of the warrants calculated using the Black-Scholes pricing
model.
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. 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. In connection with the granting of
the first warrant to Lucent on February 7, 2000, the Company recorded a prepaid
13
<PAGE>
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 is 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 is 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 it becomes exercisable which will represent the
then fair market value of the warrant calculated using the Black-Scholes pricing
model and will be amortized over the remaining life of the original 2-year
agreement.
Dell:
On March 1, 2000 the Company entered into a stock purchase agreement with
Dell USA L.P. ("Dell"), an affiliate of Dell Computer Corporation, whereby Dell
agreed to purchase up to $14 million of the Company's common stock at a price
equal to the initial public offering price per share less an amount equal to the
per share underwriting discount and commissions received by the underwriters.
The closing of the Concurrent Placement occurred on April 7, 2000. The shares
sold in the Concurrent Placement were not registered for immediate sale under
the Securities Act.
In connection with Dell's purchase of the Company's common stock, Dell
Marketing LP, the marketing affiliate of Dell Computer Corporation entered 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 became
effective with the closing of the Concurrent Placement and is for a period of
one year.
Stock 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.
For the three months ended March 31, 2000, the Company recorded additional
deferred compensation of $8,293,000, primarily related to options granted to our
new President, Executive Vice President Engineering, and in connection with
granting options to employees and board members.
The Company expects to amortize unamortized deferred compensation expense
of $10,576,000, at March 31, 2000, as follows:
For the nine months ending December 31, 2000 $2,567,000
For the year ending December 31, 2001 $3,557,000
For the year ending December 31, 2002 $3,462,000
For the year ending December 31, 2003 $ 990,000
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<PAGE>
In connection with the granting of approximately 32,250 stock options in
the first quarter of 2000 to non-employees, the Company recorded deferred
compensation expense of approximately $29,000 for the quarter ended March 31,
2000. These options have been issued under the 1998 Stock Option 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 reporting date over which the options vest. Fair market value at each
date of grant and interim reporting period is calculated using the Black-Scholes
pricing model.
Note 8. 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:
o FREEAGENT.COM SERVICES which includes FREEAGENT.COM, a web-site that
enables independent professionals to manage their careers by
offering access to project opportunities and corporate products and
services; and, FREEAGENT E.OFFICE, a back-office and employer
service for independent professionals. Independent professionals who
elect to receive FREEAGENT E.OFFICE services are the Company's
contractual employees for federal income tax purposes and for whom
the Company prepares IRS Form W-2's. The Company enters into
contracts with organizations for projects to be performed by
FREEAGENT E.OFFICE employees, process invoices on their behalf and,
upon receipt of amounts due from the contracting organization for
the services rendered by the FREEAGENT E.OFFICE employees, remit the
amount to them after deducting payroll taxes, the fees charged by
the Company and directing amounts to their health insurance and
401(k) retirement plans, as directed by the FREEAGENT E.OFFICE
employee.
o 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 periods ended March 31, 1999 and March
31, 2000.
<TABLE>
<CAPTION>
Application and
Procurement FreeAgent
Services Services Total
------------ ------------ ------------
<S> <C> <C> <C>
March 31, 2000:
Revenues $ 679,000 $ 298,000 $ 977,000
Gross (loss) profit 125,000 201,000 326,000
Net loss before equity-based compensation charges (9,160,000) (12,194,000) (21,354,000)
Total assets 65,076,000 3,251,000 68,327,000
March 31, 1999:
Revenues $ -- $ -- $ --
Gross profit -- -- --
Net income (loss) (1,976,000) -- (1,976,000)
Total assets 9,767,000 -- 9,767,000
</TABLE>
15
<PAGE>
For the periods March 31, 2000 and March 31, 1999, the reconciliation
between segment net loss and net loss from operations is as follows:
March 31, 2000
Segment net operating loss $(21,354,000)
Equity-based compensation 3,664,000
Enterprise net operating loss $(25,018,000)
March 31, 1999
Segment net operating loss $(1,976,000)
Equity-based compensation 25,000
Enterprise net operating loss $(2,001,000)
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this discussion contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Act of 1934, as amended. Such statements are based
upon current expectations that involve risks and uncertainties. Any statements
contained herein that are not statements of historical facts may be deemed to be
forward-looking statements. For example, words such as "may", "will", "should",
"estimates", "predicts", "potential", continue", "strategy", "believes",
"anticipates", "plans", "intends", and similar expressions are intended to
identify forward-looking statements. Our actual results and the timing of
certain events may differ significantly from the results discussed in the
forward-looking statements. Among the important factors that could cause actual
results to differ significantly from those expressed or implied by such
forward-looking statements are our limited operating history and expectation of
future losses; the failure of the Internet to become a proven recruitment and
project search medium; our need to successfully develop awareness of our brand
names; the failure of our products and services to be accepted in the
marketplace; the intense competition in our industry; technological change;
damage to our reputation which could result from unexpected network
interruption;, undetected errors or defects in our services; breaches of our
network security or computer viruses; the imposition of new burdensome
government regulations and legal uncertainties regarding the Internet which
could increase our costs or limit our operations; the potential need for
additional financing; the risk that our proprietary rights may not be fully
protected; uncertainties regarding the application of federal tax and employee
benefit laws to our business which could limit our ability to provide benefits
that will attract free agents; the risk that we may be subject to
employment-related claims relating to free agents, or the organizations that use
their services; legal uncertainties regarding the application of various federal
and state laws into our business; as well as the other risk factors affecting
the Company detailed from time to time in documents filed by the Company with
the Securities Exchange Commission ("SEC") including those discussed under the
caption "Risk Factors" in our Form S-1 registration statement declared effective
by the SEC on April 6, 2000.
Overview
We provide Internet-based services for putting people and projects
together across the service 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, consist
of:
o 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.
o 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 or
other providers of project based labor. 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.
o OPUSRM: a labor resource management service designed to centralize
resource and project information and enable organizations to more
efficiently manage their professional resources.
17
<PAGE>
We launched our FREEAGENT.COM website in July 1999. The general release of
OPUSRM occured 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. 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.
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 $31.9 million payable in
common stock. 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.
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 to be paid in the second quarter of 2000.
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 has recorded deferred
compensation expense of $5,343,000 for the fair market value of the Ithority
Escrow shares, which are subject to employment, and will amortize such amounts
over the vesting period. The Company will only include the vested portion of the
restricted shares for purposes of calculating basic earnings per share. The
Company will also include the unvested portion of the restricted shares for
purposes of calculating diluted earnings per share, if such amounts are
dilutive.
18
<PAGE>
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 $350,000 was paid on April 12, 2000.
INDUSTRYINSITE.COM has 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.
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 March 31, 2000, we had an accumulated deficit of $55.4 million.
Our net losses and resulting accumulated deficit are primarily due to the cost
we incurred to develop our products and services and to expand our sales and
marketing programs.
We intend to devote significant resources to advertising and
brand-marketing programs designed to attract free agents to FREEAGENT.COM and
promote our OPUS XCHANGE, and OPUSRM services. We anticipate increasing
advertising spending in the future. This will result in sales and marketing
expenses increasing as a percentage of total revenues. We also expect to
increase our internal staff, particularly in the area of sales and marketing
programs.
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 our 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.
Revenues
For the quarter ended March 31, 2000 our revenues were approximately $1.0
million of which approximately $0.3 million were related to our FREEAGENT.COM
services consisting of the related portion of the initial sign-up fees and
monthly fees paid by our FREEAGENT E.OFFICE employees as well as sales of
advertising sponsorships on FREEAGENT.COM; and $0.7 million related to the
Application and Procurement Services which consisted of the sale of software
licenses and integration revenues. For the quarter ended March 31, 1999 we had
no revenues.
Cost of Revenues
Cost of revenues for the quarter ended March 31, 2000 were $0.7 million.
Cost of revenues for the quarter ended March 31, 2000 included salaries paid to
staff that help administer our FREEAGENT E.OFFICE services, costs associated
with operating FREEAGENT.COM including certain technical personnel and
19
<PAGE>
telecommunications charges and cost of providing integration services to OPUSRM
customers.
Operating Expenses
Sales and Marketing. Sales and marketing expenses for the quarter ended
March 31, 2000 were $8.3 million, excluding $0.1 million reflected as equity
based compensation below, an increase of 1,224% over sales and marketing
expenses of $0.7 million for the quarter ended March 31, 1999. This increase was
primarily attributable to marketing and advertising expenses for FREEAGENT.COM,
salaries and benefits paid to our sales and marketing staff, and expanded
marketing efforts for our OPUSRM and OPUS XCHANGE products. We believe these
expenses will continue to increase in absolute dollar amounts in future periods
as we expect to continue to expand our sales and marketing efforts to coincide
with the launch of OPUSRM and the enhanced version of OPUSXCHANGE.
Product Development. Product development expenses for the quarter ended
March 31, 2000 were $6.6 million, excluding $0.6 million reflected as equity
based compensation below, an increase of 854% over product development expenses
of $0.6 million for the quarter ended March 31, 1999. The increase was primarily
attributable to the development of our OPUSRM, OPUS XCHANGE, and FREEAGENT.COM
Services, and included salaries and benefits and consulting fees paid to our
engineers. To date, all product development expenses relating to the development
of our OPUSRM and OPUS XCHANGE services have been expensed in the period
incurred. We believe that continued investment in product development is
critical to attaining our strategic objectives, and, as a result, we expect
product development expenses to increase in future periods.
General and Administrative. General and administrative expenses for the
quarter ended March 31, 2000 were $2.7 million, excluding $3.0 reflected as
equity based compensation below, an increase of 599% over general and
administrative expenses of $0.6 million for the quarter ended March 31, 1999.
The increase was primarily attributable to increases in salaries and benefits,
general office expenses, rent and utilities, recruiting fees and professional
fees. Our salaries and benefits increased as we added staff to our executive
management team. Our rent and utilities also increased as a result of new
leasehold facilities and the addition of additional office locations as a result
of our acquisitions.
Depreciation and Amortization. Depreciation and amortization expenses for
the quarter ended March 31, 2000 were $2.7 million and consisted primarily of
amortization of goodwill of $2.2 million associated with our acquisitions.
Depreciation and amortization expense was negligible in the quarter ended March
31, 1999. Depreciation and amortization expense will increase substantially in
future periods, primarily reflecting amortization of goodwill and intangible
assets associated with our first quarter acquisitions of PeopleMover, Ithority
and INDUSTRYINSITE.COM, and depreciation of assets acquired in these
acquisitions. Depreciation and amortization may also increase as a result of
future acquisitions.
Amortization of Equity-based Compensation. The amortization of
equity-based compensation for the quarter ended March 31, 2000 was $3.7 million
and consisted of deferred compensation expense for options to purchase common
stock granted to employees, directors and non-employees having exercise prices
below the fair market value of our common stock at the date of grant and
deferred compensation expense for the Ithority and PeopleMover Escrow shares.
Amortization of equity-based compensation was negligible in the quarter ended
March 31, 1999. Deferred compensation increased by $16.7 million during the
three months ended March 31, 2000 principally as a result of the acquisition of
Ithority, PeopleMover and the granting of options to our new President and
Executive Vice President of Engineering. We will amortize these amounts over the
vesting period, which is generally 3-4 years.
Other Income. Interest income, for the quarter ended March 31, 2000 was $0.2
million and consisted primarily of interest income from short-term investments.
Interest income, was negligible in the quarter ended March 31, 1999.
20
<PAGE>
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.
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 the end of December 31, 1999. On April 7, 2000 we completed our
initial public offering and concurrent private placement to Dell USA L.P. and
raised approximately $75.0 million net of offering costs.
Cash used in operating activities for the for the quarter ended March 31,
2000 was $13.8 million, primarily due to our net loss of $25.0 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 for the quarter ended March 31, 1999 totaled $1.1
million. Because we will continue to need substantial amounts of working capital
to fund the growth of our business, we expect to experience significant negative
operating cash flows for the foreseeable future.
Cash provided by investment activities for the quarter ended March 31,
2000 totaled $21.8 million. Our short-term investments decreased by $26.9
million and was used primarily to fund operations, purchase property and
equipment and fund acquisition costs. We used $3.5 million during the quarter
ended March 31, 2000 to acquire property and equipment. Cash used in connection
with acquisition of subsidiaries and assets were $1.6 million. Cash used in
investing activities for the quarter ended March 31, 1999 was less than $0.1
million.
Net cash provided by financing activities for the quarter ended March 31,
2000 was $2.3 million. The cash from financing activities for the quarter
resulted primarily from the exercises of issued and outstanding options and
warrants and proceeds from loans. Cash flow provided by financing activities for
the quarter ended March 31, 1999 was $4.6 million and consisted of proceeds from
the initial sale of our Series A convertible preferred stock and sales of our
common stock.
We currently anticipate that the net proceeds from our IPO and the
concurrent placement, which were completed on April 15, 2000, 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. 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.
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, we intend to make a rescission offer to these employees as a
result of this violation, and we may have a contingent liability of up to $0.9
million plus interest.
Year 2000 Compliance
To date, we have not experienced any material Year 2000 problems and we
have not incurred any costs to evaluate, test and remediate, if necessary, our
internal computer software and operating systems, collectively, our Internal
Programs and Systems, for Year 2000
21
<PAGE>
compliance problems. These costs if incurred in the future will be funded with
cash from our financing activities and operations and will be expensed or
capitalized, depending on the nature of the expenditure. We are not aware of any
Year 2000 related problems associated with our Internal Programs and Systems or
software services provided to customers, and are not aware of any Year 2000
related problems associated with the system or software of our business
partners. Although the Company has not experienced any material Year 2000
compliance problems, there can be no assurance, however, that the Year 2000
problem will not adversely affect the Company's business, financial condition,
results of operation or cash flow.
Recent Accounting Pronouncements
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. We
did not engage in any derivative instruments or hedging activities during the
quarter and the statement did not affect us.
On March 31, 2000 the Financial Accounting Standards Board issued FASB
interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation - an interpretation of APB Opinion No. 25 (FIN 44). FIN 44
generally applies prospectively to new awards, exchanges of awards in a business
combination, modifications to outstanding awards, and changes in grantee status
that occur on or after July 1, 2000, except for the provision related to
repricings and the definition of an employee which apply to awards issued after
December 15, 1998. To the extent that events covered by FIN 44 occur after the
applicable date but prior to July 1, 2000, the effects of applying FIN 44 shall
be recognized on a prospective basis. Accordingly, no adjustments shall be made
upon initial application of FIN 44 to financial statements for periods prior to
July 1, 2000. The Company is currently evaluating the impact, if any of FIN 44.
Qualitative and Quantitive Disclosure About Market Risk
On March 31, 2000, we had $0.2 million in short term investments, which
were held primarily in the form of short term, investment grade corporate
securities. As a result, our interest income may be 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 investments until
their maturity dates, we believe that we are not subject to any material risks
as a result of this exposure.
22
<PAGE>
ADDITIONAL INFORMATION
Part II - OTHER INFORMATION
Item 1 Legal Proceedings.
In the normal course of business, the Company is at times subject to
pending and threatened legal actions and proceedings. After reviewing pending
and threatened actions and proceedings with counsel, management believes that
the outcome of such actions or proceedings is not expected to have a material
adverse effect on the financial position or results of operations of the
Company.
Item 2 Change in Securities and Use of Proceeds.
Use of Proceeds
Pursuant to a Form S-1 Registration Statement (SEC File No. 333-93185)
declared effective by the SEC on April 6, 2000 the Company on April 12, 2000,
completed the sale of 7,000,000 shares of its common stock in connection with an
IPO at a price of $10 per share. The managing underwriters in the offering were
FleetBoston Robertson Stephens Inc., J.P. Morgan & Co. and Bear Stearns & Co.
Inc..
The following table details the underwriting discounts and commissions and
estimated expenses incurred by the Company in connection with the completion of
the IPO:
(in thousands)
--------------
Gross Proceeds $70,000
Underwriting discounts and commissions (4,585)
Estimated Expenses:
Nasdaq listing fee (actual) (95)
Blue Sky Fees (actual) (10)
SEC Filing Fees (actual) (35)
Miscellaneous other filing fees (estimate) (10)
Accounting fees (estimate) (500)
Legal fees (estimate) (1,500)
Printing fees (actual) (1,100)
Miscellaneous estimate (15)
----------
Total underwriting discounts and
Commissions and estimated expenses (7,850)
----------
Net Proceeds $62,150
Changes in Securities
Concurrent with the closing of the IPO, the Company sold $14,000,000 of
its common stock to Dell USA L.P. in a private placement at a price of $9.30 per
share. Concurrently with the closing of the IPO all outstanding shares of the
Company's Series A and Series B Preferred Stock automatically converted into
25,441,091 shares of common stock.
On January 10, 2000 the Company issued 243,474 shares of common stock
valued at $2.0 million, or $8.21 per share, to the stockholders of Ithority
Corporation pursuant to the acquisition of Ithority Corporation. In addition, an
additional 182,599 shares were placed in escrow and will be released one year
from the date of closing and are subject to certain representations and
warranties provided by the selling shareholders.
On February 24, 2000 the Company issued 2,634,000 shares of common stock
valued at $24.0 million, or $9.11 per share, to the stockholders of PeopleMover,
Inc. pursuant to the acquisition of PeopleMover, Inc. In addition the Company
exchanged options to purchase approximately 1,189,000 shares of its common stock
for outstanding stock options to purchase PeopleMover common stock
In January 2000 the Company issued to Greenhill & Co. ("Greenhill") ,
warrants to purchase 450,000 shares of the Company's common stock at an exercise
price of $8.21 per share in exchange for merger and acquisitions advisory
services. On April 10, 2000 the Company issued 372,636 shares of common stock to
Greenhill in connection with their combined cash and cashless exercise of other
warrants held by Greenhill to purchase 450,000 shares of common stock.
In February 2000 the Company issued to Kirshenbaum Bond & Partners ("KBP")
warrants to purchase 9,120 shares of the Company's common stock at an exercise
price of $0.01 per share in exchange for advertsing and marketing services.
On February 7, 2000, the Company issued to Lucent warrants to purchase
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. The Company also issued a second
warrant to Lucent which is 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 is 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%.
During the quarter ended March 31, 2000 and prior to the closing of the
Company's initial public offering on April 12, 2000, the Company granted options
to purchase 5,533,110 shares of its common stock to employees, officers,
directors and non-employee of the Company. These options were granted both
pursuant to and outside of the Company's 1998 Stock Option Plan and the 2000
Stock Option Plan.
During the quarter ended March 31, 2000 and prior to the closing of the
Company's initial public offering on April 12, 2000, the Company issued 779,582
shares of its common stock upon the exercise of options.
In January 2000 the Company issued to certain shareholders of its Series A
Preferred Stock, 840,000 shares of its common stock upon the exercise of
warrants.
The issuance of options and the sale of the common stock upon excerise of
employee stock options was deemed to be exempt from registration under the
Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act of
1933 ("the Act") or Rule 701 promulgated under Section 3 (b) of the Act. The
issuance of common stock upon automatic conversion of the Company's previously
outstanding Series A and Series B Preferred stock upon consummation of the IPO
was exempt registration under the Act by virtue of Section 3 (a)(9) of the Act.
The issuance of common stock in the PeopleMover and Ithority acquisitions, the
issuance of warrants to Greenhill, KBP and Lucent and the issuance of common
stock upon the exercise of warrants was exempt from registration under the Act
in reliance upon Section 4(2) or Regulation D promulgated thereunder.
Item 3 Defaults Upon Senior Securities.
None.
23
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
The stockholders of the Company approved by written consent dated March
16, 2000 the following corporate actions:
1. Approval of the Certificate of Amendment to amend our Certificate of
Incorporation, as previously amended and then in effect. Upon its
filing, the Certificate of Amendment (i) provided for an immediate
three-for-two split of the common stock, such that each two issued
and outstanding shares of common stock were reclassified into three
shares of common stock and (ii) increased the authorized number of
shares of common stock from 45,000,000 to 150,000,000.
2. Approval of the Amended and Restated Certificate of Incorporation to
be filed after the filing of the Certificate of Amendment and to be
effective immediately upon the closing of our initial public
offering. Upon its filing and subsequent effectiveness, the Amended
and Restated Certificate (i) fixed the number of authorized shares
of preferred stock issuable in one or more series at 25,000,000 in
the aggregate, (ii) authorized our board of directors to establish
the rights, preferences and restrictions of any unissued series of
preferred stock, (iii) divided our board of directors into three
classes and apportioned the current directors among the three
classes and (iv) eliminated the ability of the stockholders to act
by written consent.
3. Approval of our Amended By-Laws.
4. Approval of our 2000 Employee Stock Purchase Plan.
5. Approval of our 2000 Stock Option Plan.
6. Approval of our 2000 Non-Employee Directors' Stock Option Plan.
Stockholders owning a total of 9,241,614 shares of common stock, before
giving effect to the 3-for-2 stock split, (out of 10,298,098 then outstanding
and entitled to vote, before giving effect to the split) executed the written
consent. Stockholders owning a total of 7,996,000 shares of Series A Convertible
Preferred Stock (out of 8,284,000 shares then outstanding and entitled to vote)
executed the written consent. Stockholders owning a total of 7,819,965 shares of
Series B Convertible Preferred Stock (out of 8,676,727 shares then outstanding
and entitled to vote) executed the written consent.
Item 5 Other Information.
None.
Item 6 Exhibits and Reports on Form 8-K.
a. Exhibits
10.1 Employment Agreement dated March 13, 2000
between the registrant and Richard McCann
27 Financial Data Schedule
b. Reports on form 8-K
None.
24
<PAGE>
Pursuant to the requirements fo the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date May 22, 2000 Opus 360 Corporation
------------------------------- ------------------------------------
(Registrant)
/s/ Richard McCann
------------------------------------
(Signature)
Date ________________________________
EMPLOYMENT AGREEMENT dated as of
March 13, 2000 (the "Agreement"), between
OPUS360 CORPORATION, a Delaware corporation
(the "Company"), and RICHARD McCANN (the
"Employee").
Prior to the date hereof, the Employee has been employed by the
Company. The Company and the Employee are entering into this Agreement to set
forth the terms of the Employee's continued employment with the Company.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Employment.
The Company shall employ the Employee, and the Employee accepts
employment with the Company, upon the terms and conditions set forth in this
Agreement.
2. Term.
The Employee's employment hereunder shall be for the period
(including any extensions thereof, the "Employment Period") commencing on the
date of this Agreement (the "Effective Date") and terminating on the earlier of
(i) the 36-month anniversary of the Effective Date or (ii) the early termination
pursuant to Section 5 of the Employee's employment hereunder; provided, however,
the Employment Period shall be extended automatically on each 12-month
anniversary of the Effective Date (each, a "Scheduled Renewal Date"), beginning
with the 36-month anniversary thereof, in each case for an additional period of
12 months, unless the Company or the Employee notifies the other party at least
30 days prior to any such anniversary date of its or his election that the
Employment Period not be so extended. The final date of the actual term of the
Employee's employment with the Company hereunder is referred to as the
"Termination Date."
3. Position, Duties and Responsibilities.
(a) During the Employment Period, the Employee shall serve as Senior
Vice President and Chief Financial Officer of the Company or in such other
position as shall be determined by the Board or the Chief Executive Officer or
President of the Company from time to time.
(b) During the Employment Period, the Employee will devote his full
time and best efforts to the business and affairs of the Company and its
Subsidiaries. The Employee shall use his best efforts to perform his duties and
responsibilities in a diligent, trustworthy and efficient manner.
(c) Notwithstanding anything contained in Section 3(b) to the
contrary, during the Employment Period, the Employee shall not be prohibited
from (i) serving as an officer, director,
<PAGE>
trustee or otherwise participating in purely educational, welfare, social,
charitable, religious and civic organizations, or (ii) managing personal and
family investments or serving as an executor or trustee or in a similar
fiduciary capacity, in each case to the extent such activities (A) do not
interfere or conflict in any material respect with the performance of his duties
and responsibilities hereunder and (B) are conducted in accordance with the
limitations of Section 10. Except with the prior written approval of the Board
(excluding the Employee if he should be a member of the Board at the time of
such determination), which the Board may grant or withhold in its sole and
absolute discretion, the Employee, during the Employment Period, will not serve
on the board of directors or similar body of any business entity other than the
Company or any Subsidiary thereof (other than with respect to any directorship
held by the Employee on or prior to the Effective Date, all of which, if any,
have been disclosed in writing by the Employee to the Company).
4. Base Salary, Fringe Benefits and Option.
(a) During the Employment Period, the Employee's base salary shall
be $125,000 per annum or such higher rate as the Board or its designee may
specify from time to time (the "Base Salary"). The Employee's Base Salary will
be payable in equal installments in accordance with the general policies of the
Company regarding compensation of senior executives of the Company. During the
Employment Period, in addition to the Base Salary, the Employee may be entitled
to receive an annual bonus (the "Bonus") as determined by the Board or its
designee (in its sole discretion). In making its determination of the Bonus, the
Board or its designee may rely on the quality and level of the Employee's
performance in excess of the high level of reasonably achievable performance
which the Company requires of all of its employees at substantially the same
employment level as the Employee and the overall profitability and operating
condition of the Company, taking into account to what extent the Company has
achieved its financial and operating targets as specified by the Board in its
annual budgeting process.
(b) During the Employment Period, the Employee shall be eligible to
participate in all Company-sponsored employee benefit plans (the "Employee
Benefit Plans"), including all employee retirement income and welfare benefit,
pension, disability, group life, sickness or accident or health insurance
policies, plans, programs or arrangements, if any, that are generally available
to other employees of the Company at substantially the same employment level as
the Employee for their participation, subject to the terms and conditions of
such plans, as they may be amended from time to time (collectively, the
"Employee Benefits").
(c) During the Employment Period, the Employee shall be entitled to
two weeks of vacation during each 12-month period worked, commencing on the
Effective Date. Such vacation shall be in accordance with the terms generally
applicable to other employees of the Company at substantially the same
employment level as the Employee, as in effect from time to time. The Employee
may take his vacation at such time or times as shall not interfere with the
performance of his duties under this Agreement. The Employee shall be entitled
to paid sick leave and holidays in accordance with the sick leave and holiday
policies as may be generally applicable to senior executives of the Company, as
in effect from time to time.
(d) The Company shall reimburse the Employee for all reasonable
travel and other business expenses incurred by him in the course of performing
his duties under this Agreement in
2
<PAGE>
accordance with the Company's policies and rules in effect from time to time
relating to the reimbursement of such expenses.
(e) The Employee authorizes the Company to deduct from any amounts
payable to him hereunder such sums as may be required to be deducted or withheld
under the provisions of any federal, state or local law or regulation now in
effect or hereafter put into effect during the term of this Agreement,
including, without limitation, social security and income withholding taxes.
5. Early Termination of Employment.
(a) The early termination of the Employee's employment hereunder
shall result upon the first to occur of (i) the termination of such employment
by the Company, at any time, for Cause, without Cause or by reason of the
Disability of the Employee, (ii) the death of the Employee and (iii) the
resignation of the Employee from such employment, at any time, for Good Reason
or without Good Reason.
(b) For purposes of this Agreement, the term "Cause" means (i) the
gross negligence or willful misconduct by the Employee in the performance of his
duties, (ii) the commission by the Employee of any act of fraud, theft or
financial dishonesty with respect to the Company or any of its Subsidiaries or
if Employee is convicted of a felony, (iii) the material breach by the Employee
of this Agreement (including, but not limited to, any breach or threatened
breach by the Employee of the provisions of Sections 7, 8, 9 or 10), (iv) the
willful disregard of, or failure to follow, written instructions from, the Chief
Executive Officer or President of the Company, the Board or any of their
designees, to perform any legal act relating to the business of the Company or
its Subsidiaries which would be commensurate with the usual and customary
duties, responsibilities and authority of Senior Vice President and Chief
Financial Officer of the Company or such other position held by the Employee as
may be determined by the Board or the Chief Executive Officer or President of
the Company from time to time or otherwise consistent with such position, or (v)
the habitual failure of the Employee to perform his work in any material
respect, the inexcusable or repeated absence from work of the Employee or the
absence of the Employee for a prolonged period of time (other than as a result
of, or in connection with, a disability or a legally protected leave). Before
the Employee's employment with the Company hereunder may be terminated by the
Company for Cause, the Employee shall have 10 days after written notice of such
basis for termination to cure such basis for termination; provided, however, no
such right to cure shall exist if the basis for such termination is incurable or
if otherwise any of the acts referred to in clause (i) of the definition of
"Cause" have been committed by the Employee.
(c) Any determination as to whether the Employee is subject to a
Disability shall first be made by the Board (excluding the Employee if he should
be a member of the Board at the time of such determination) in its good faith
judgment; provided, however, if any such determination is disputed by the
Employee, the matter shall be referred to a licensed physician practicing within
the Borough of New York in the State of New York or a 50-mile radius thereof and
selected by the Board and the Employee, and the determination of Disability made
by such physician shall be final and binding on both the Employee and the
Company. For purposes of this
3
<PAGE>
Agreement, the term "Disability" means any long-term disability or incapacity
which renders, or would be reasonably expected to render, the Employee unable to
substantially perform his duties and responsibilities hereunder for a cumulative
total of 90 days during any 12-month period.
(d) For purposes of this Agreement, "Good Reason" means (i) a
material reduction in the Base Salary of the Employee as in effect on the
Effective Date, or (ii) a material breach by the Company of this Agreement,
which breach is incurable or otherwise not cured within 10 days after written
notice thereof by the Employee to the Company, in each case without the prior
written consent or waiver of the Employee.
6. Effect of Termination.
(a) Upon the termination (x) pursuant to Section 2 of the Employee's
employment with the Company hereunder based on the election of the Company or
the Employee under Section 2 not to extend the Employment Period or (y) pursuant
to Section 5 of the Employee's employment with the Company hereunder either by
the Company with Cause or by reason of the Employee's resignation without Good
Reason, neither the Employee nor the Employee's Representatives shall have any
further rights under this Agreement or any claims against the Company arising
under this Agreement, except the right to receive, upon the Termination Date:
(i) the unpaid portion of the Base Salary provided for in
Section 4(a), computed on a pro rata basis through the Termination Date;
(ii) reimbursement for any expenses for which the Employee
shall not have theretofore been reimbursed, as provided in Section 4(d);
and
(iii) the unpaid portion of any amounts earned by the Employee
prior to the Termination Date pursuant to any Employee Benefit Plan in
which the Employee participated during the Employment Period (provided,
however, that neither the Employee nor the Employee's Representatives
shall be entitled to receive any benefits under any Employee Benefit Plan
that have accrued during any period if the terms of such Employee Benefit
Plan require that the Employee be employed by the Company or any
Subsidiary thereof as of the end of such period).
(b) Upon the termination pursuant to Section 5 of the Employee's
employment with the Company hereunder either by the Company without Cause or by
reason of the Employee's resignation with Good Reason, neither the Employee nor
the Employee's Representatives shall have any further rights under this
Agreement or any claims against the Company arising under this Agreement, except
the right to receive the amounts described in clauses (i) and (ii) below when
due thereunder and the right to the continued vesting and exercisability of
certain securities as described in clause (iii) below (subject to the additional
agreements set forth therein):
(i) upon the Termination Date, the payments, if any, referred
to in Section 6(a);
(ii) the Base Salary and the Employee Benefits, payable
periodically at the same intervals as if the Employment Period had not
ended and the Base Salary and the
4
<PAGE>
Employee Benefits otherwise continued to be paid, up to (and including)
the 12-month anniversary of the Termination Date (provided, however, that
(x) neither the Employee nor the Employee's Representatives shall be
entitled to receive any Employee Benefits under any Employee Benefit Plan
at any time after the Termination Date if the terms of such Employee
Benefit Plan require that the Employee be employed by the Company or any
Subsidiary thereof as of such time, (y) the Employee's right to receive
any continuation of the Base Salary pursuant to this clause (ii) shall be
subject to the good faith efforts of the Employee to obtain replacement
employment during such 12-month period at a comparable salary, and (z) any
salary payments received by the Employee from such employment shall offset
and reduce, on a dollar-for-dollar basis, any Base Salary continued to be
paid to the Employee pursuant to this clause (ii)); and
(iii) notwithstanding anything to the contrary contained
herein or in any stock option agreement or other applicable agreement,
between the Company and the Employee, as amended, supplemented or
otherwise modified from time to time and in effect on the Effective Date,
(A) if the Termination Date occurs on or prior to the
12-month anniversary of the Effective Date, then any options for the
purchase of Common Stock issued by the Company to the Employee prior
to the Effective Date (other than the Designated Option) that are
subject to vesting and held by the Employee on the Termination Date
shall continue to vest and become exercisable as if the Employee's
employment hereunder continued until the 24-month anniversary of the
Effective Date (but, in each case, without giving effect to any
provision in any stock option agreement or other applicable
agreement between the Company and the Employee, as in effect on the
Effective Date, for the acceleration of the vesting or
exercisability of such options);
(B) if the Termination Date occurs after the 12-month
anniversary of the Effective Date but on or prior to the 36-month
anniversary of the Effective Date, then one-half (1/2) of any
options for the purchase of Common Stock issued by the Company to
the Employee prior to the Effective Date (other than the Designated
Option) that are subject to vesting and held by the Employee on the
Termination Date that would have become vested and exercisable if
the Employee's employment with the Company hereunder had continued
until the 36-month anniversary of the Effective Date shall continue
to vest and become exercisable as if the Employee's employment
hereunder continued until the 36-month anniversary of the Effective
Date (but, in each case, without giving effect to any provision in
any stock option agreement or other applicable agreement between the
Company and the Employee, as in effect on the Effective Date, for
the acceleration of the vesting or exercisability of such options);
and
(C) if the Termination Date occurs after the 36-month
anniversary of the Effective Date, then one-half (1/2) of any
options for the purchase of Common Stock issued by the Company to
the Employee prior to the Effective Date (other than the Designated
Option) that are subject to vesting and held by the
5
<PAGE>
Employee on the Termination Date that would have become vested and
become exercisable if the Employee's employment with the Company
hereunder had continued until the next Scheduled Renewal Date shall
continue to vest and become exercisable as if the Employee's
employment hereunder continued until such Scheduled Renewal Date
(but, in each case, without giving effect to any provision in any
stock option agreement or other applicable agreement between the
Company and the Employee, as in effect on the Effective Date, for
the acceleration of the vesting or exercisability of such options).
provided, however, that, each option for the purchase of Common
Stock issued by the Company and held by the Employee on the Termination
Date (i) which is vested and exercisable as to any portion thereof as of
the Termination Date must be exercised within 90 days after such date or
otherwise such portion of the option shall expire and (ii) which becomes
vested and exercisable as to any portion thereof under subsection (A), (B)
or (C) of this clause (iii) must be exercised as to such portion within 90
days after such portion becomes vested and exercisable in accordance with
the applicable vesting schedule or otherwise such portion of the option
shall expire.
(c) Upon the termination pursuant to Section 5 of the Employee's
employment with the Company hereunder either by the Company by reason of the
Disability of the Employee or by reason of the death of the Employee, neither
the Employee nor the Employee's Representatives shall have any further rights
under this Agreement or any claims against the Company arising under this
Agreement, except the right to receive the amounts described in clauses (i) and
(ii) below when due thereunder:
(i) upon the Termination Date, the payments, if any, referred
to in Section 6(a); and
(ii) the Base Salary and the Employee Benefits, payable
periodically at the same intervals as if the Employment Period had not
ended and the Base Salary and the Employee Benefits otherwise continued to
be paid, up to (and including) the 3-month anniversary of the Termination
Date (provided, however, that neither the Employee nor the Employee's
Representatives shall be entitled to receive any Employee Benefits under
any Employee Benefit Plan at any time after the Termination Date if the
terms of such Employee Benefit Plan require that the Employee be employed
by the Company or any Subsidiary thereof as of such time);
(d) Except to the extent requested by the Board, upon the
Termination Date, the Employee shall immediately resign all positions and
directorships with the Company and each Subsidiary thereof.
7. Nondisclosure and Nonuse of Confidential Information.
The Employee shall not, whether during or at any time after the
Employment Period, disclose or use (except to the extent required by an order of
a court having competent jurisdiction or otherwise under subpoena from the
appropriate government agency) any secret or
6
<PAGE>
confidential information concerning the business, clients or affairs of the
Company or any of its Subsidiaries, or of any Person which the Company or any of
its Subsidiaries is under an obligation to keep secret or confidential (in each
case, including, but not limited to, trade secrets, customer lists, employment
records, marketing plans and related information, sales plans and related
information, pricing schedules, operating policies and manuals, business plans,
financial records or management methods, know-how or techniques) (the
"Confidential Information"), except to the extent such disclosure or use is
directly related to and required by the Employee's performance in good faith of
his duties as an employee of the Company during the Employment Period pursuant
to the terms and conditions of this Agreement. The Employee shall take all
appropriate steps to safeguard the Confidential information and protect the
Confidential Information against disclosure, misuse, loss and theft.
8. Ownership of Work Product and Business Opportunities.
The Employee acknowledges and agrees that, during the Employment
Period, (i) he may conceive of, discover, invent or create inventions,
improvements, technical information, methods and suggestions relating to the
actual or reasonably anticipated business or existing or future products or
services of the Company or any of its Subsidiaries (collectively, the
"Inventions"), and (ii) various business opportunities relating to the actual or
reasonably anticipated business of the Company or any of its Subsidiaries may be
presented to him by reason of his employment by the Company (collectively, the
"Business Opportunities"). The Employee acknowledges that all such Inventions,
together with all patent, trademark, service mark and copyright applications,
patents, trademarks, service marks and copyrights and reissues thereof that may
at any time be granted for or upon any of such Inventions, (collectively, the
"Work Product") and all such Business Opportunities shall be owned by and belong
exclusively to the Company, and he shall have no personal interest therein,
regardless of whether conceived, discovered, invented, created or presented
during usual business hours. The Employee shall (i) promptly disclose to the
Board any such Work Product and Business Opportunities, (ii) assign to the
Company, upon the request of the Company and without additional compensation
(whether during or after the Employment Period), the entire rights to such Work
Product and Business Opportunities, and (iii) perform all actions reasonably
requested by the Company (whether during or after the Employment Period) to
establish, confirm and protect such ownership in the Company (including, but not
limited to, the signing of assignments, consents, powers of attorney,
applications and other instruments and the giving of testimony in support of his
conception, discovery, invention or creation thereof). The Employee agrees he
will not assert any rights to any Work Product or Business Opportunity as having
been conceived, discovered, invented, created or obtained by him before the
Effective Date (whether during his prior period of employment with the Company
or otherwise), except for Work Product or Business Opportunities, if any,
specifically disclosed to and specifically acknowledged by the Company in
writing before his prior period of employment with the Company first began.
9. Delivery of Materials Upon Termination of Employment
The Employee shall deliver to the Company at the termination of the
Employment Period, or upon the request of the Company, at any time, all
memoranda, notes, plans, records, reports, computer tapes and software and other
documents and data (and copies thereof) relating
7
<PAGE>
to the Confidential Information, Work Product, Business Opportunities or the
business of the Company or any of its Subsidiaries, which he may then possess or
have under his control, regardless of the location or form of such material and,
if requested by the Company, shall provide the Company with written confirmation
that all such materials have been delivered to the Company.
10. Noncompetition; Nonsolicitation.
(a) The Employee acknowledges he has received Confidential
Information of the Company and its Subsidiaries (including of their respective
predecessors) from time to time prior to the Effective Date in connection with,
among other things, his employment with the Company prior to the Effective Date
and is familiar with such Confidential Information. The Employee also
acknowledges, in the course of his employment with the Company or any of its
Subsidiaries on or after the Effective Date, he shall continue to receive and
become familiar with the Confidential Information (whether now existing or
hereafter existing) of the Company and its Subsidiaries. The Employee
acknowledges that the Confidential Information referred to in this Section 10(a)
has been and shall be of special, unique and extraordinary value to the Company
and its Subsidiaries. In consideration of the compensation and other benefits to
be provided to the Employee hereunder (including, but not limited to, the
employment by the Employee with the Company hereunder, the Base Salary, the
Employee Benefits and the Severance Payments), during the Employment Period and
the Non-Compete Period, the Employee shall not, directly or indirectly, own,
manage, control, participate in, be connected with, consult with, render
services for, give or lend funds to or otherwise finance, be employed by, have a
financial or other interest in, or in any manner engage in or represent any
business which is competing with any business of the Company or any Subsidiary
thereof as such business of the Company or such Subsidiary exists, or is in the
process of being formed or acquired, at any time from the date on which the
Employee's employment with the Company first began (whether on or before the
Effective Date) up to (and including) the Termination Date, within any
Restricted Territory. Nothing herein shall prohibit the Employee from being a
passive owner of not more than 1% of the outstanding stock of any class of a
corporation which is publicly traded, so long as the Employee has no active
participation in the business of such corporation.
(b) During the Employment Period and the Non-Compete Period, the
Employee agrees that he shall not, individually, or as an agent, employee,
partner, principal, consultant, stockholder, director, officer, trustee, advisor
or in any other capacity, directly or indirectly, for himself or for any other
Person, (i) solicit or entice, or attempt to solicit or entice, any employee of,
consultant to, or independent contractor of the Company or any of its
Subsidiaries to terminate his or her employment, engagement or affiliation with
the Company or any of its Subsidiaries, or in any way interfere with the
relationship between the Company or any of its Subsidiaries, on the one hand,
and any employee of, consultant to, or independent contractor of the Company or
any of its Subsidiaries on the other hand (including making any negative
statements or comments about the Company or any of its Subsidiaries), (ii)
employ or retain any such employee, consultant, independent contractor during
his or her employment, engagement or affiliation with the Company or any of its
Subsidiaries or for a period of one year after such individual's employment,
engagement or affiliation with the Company or any of its Subsidiaries has
terminated, or (iii) solicit or entice, or attempt to solicit or entice, any
customer or licensee of
8
<PAGE>
the Company or any of its Subsidiaries (including any Person that has been
contacted by, solicited by or referred to the Company or any of its Subsidiaries
for purposes of becoming any of the foregoing) to cease doing business with, or
otherwise reduce or terminate its, his or her involvement with, the Company or
any of its Subsidiaries.
(c) The Employee understands that the restrictions set forth in this
Section 10 may limit his ability to earn a livelihood in a business similar to
the business of the Company or any of its Subsidiaries, but the Employee
nevertheless believes that he has received and shall receive sufficient
consideration and other benefits as provided hereunder and pursuant to other
agreements to which he and the Company are parties, which in any event he does
not believe (given his education, skills and ability) would prevent him from
otherwise earning a living.
11. Insurance.
The Company shall have the right to secure, in its own name or
otherwise, its own life, disability, accident or other insurance covering the
Employee, and the Employee shall have no right, title or interest in or to such
insurance. The Employee shall cooperate with the Company and provide such
information or other assistance as the Company may reasonably request in
connection with the Company obtaining and maintaining such policies, including,
but not limited to, submitting to reasonable examinations and signing such
applications and other instruments as may be required by the insurance carriers
to which application is made for any such insurance.
12. Conflicts.
The Employee represents and warrants to the Company that he is not a
party to or bound by any employment contract, consultancy agreement,
non-competition agreement or any other agreement (written or oral) or other
arrangement which contains any restrictions or limitations on the ability of the
Employee to enter into and perform this Agreement or exercise all the powers,
functions, duties and responsibilities contemplated by this Agreement, and the
execution, delivery and performance of this Agreement by the Employee will not
result in a violation of or constitute a default under any contract, agreement
or other arrangement to which the Employee is a party or by which the Employee
is bound.
13. Definitions.
"Board" means the Board of Directors of the Company.
"Business Day" means any day, other than a Saturday, Sunday or a day
on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Designated Option" means the option for the purchase of up to
10,000 shares of Common Stock issued by the Company to the Employee on February
28, 2000, pursuant to the terms and conditions of the Stock Option Agreement
dated as of February 28, 2000, between the Company and the Employee.
9
<PAGE>
"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.
"Non-Compete Period" means the period beginning on the Termination
Date and ending on the first anniversary of the Termination Date.
"Person" shall be construed as broadly as possible and shall include
an individual, a corporation, a company, an association, a joint stock company,
a partnership (including a limited liability partnership), a limited liability
company, a joint venture, a trust or an unincorporated organization and a
Governmental Entity.
"Representatives" means, with respect to the Employee, the
Employee's assigns, personal and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees, as determined from
time to time.
"Restricted Territory" means (i) any county in the State of New York
or Florida, (ii) any county in any other state in the continental United States,
(iii) Alaska and Hawaii, (iv) any other territory or possession of the United
States, (v) any province in Canada, and (vi) any country other than the United
States, Canada or any state, province, territory, possession or political
subdivision thereof.
"Subsidiary" means, as to any Person, any other Person of which more
than 50% of the shares of the voting stock or other voting interests are owned
or controlled, or the ability to select or elect 50% or more of the directors or
similar managers is held, directly or indirectly, by such first Person or one or
more of its Subsidiaries.
14. Post-Termination Assistance.
The Employee agrees that after his employment with the Company has
terminated he will provide, upon reasonable notice, such information and
assistance to the Company as may reasonably be requested by the Company in
connection with any third-party litigation to which the Company or any of its
Subsidiaries is or may become a party.
15. Indemnification.
The Company shall indemnify, defend and hold harmless the Employee
(in his status as an officer, director and employee of the Company) in respect
of acts or omissions occurring on or after the Effective Date to the fullest
extent permitted or provided under the Company's Certificate of Incorporation
and Bylaws as in effect on the Effective Date.
16. Notices.
All notices, demands or other communications to be given or delivered
under or by reason of the provisions of this Agreement shall be in writing and
shall be deemed to have been given or made when (i) delivered personally to the
recipient, (ii) transmitted by facsimile or electronic mail
10
<PAGE>
(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 Company, 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 Employee, to
Richard McCann
23 Lakeside Avenue
Darien, Connecticut 06820
Telephone:
Facsimile:
E-Mail:
17. General Provisions.
(a) Severability/Enforcement.
(i) It is the desire and intent of the parties hereto that the
provisions of this Agreement be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular
11
<PAGE>
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. Without limiting the generality of the preceding sentence,
if at the time of enforcement of Sections 7, 8, 9 or 10 of this Agreement,
a court holds that the restrictions stated therein are unreasonable under
circumstances then existing, the parties hereto agree that the maximum
period, scope or geographical area reasonable under such circumstances
shall be substituted for the stated period, scope or area.
(ii) The Company and the Employee shall each have and retain
all other rights and remedies existing in their favor at law or equity,
including, without limitation, any actions for specific performance and/or
injunctive or other equitable relief to enforce or prevent any violations
of the provisions of this Agreement. Because the Employee's services are
unique and because the Employee has access to Confidential Information and
Work Product, the parties hereto agree that money damages would be an
inadequate remedy for any breach of this Agreement. Therefore, in the
event of a breach or threatened breach by the Employee of Sections 7, 8, 9
or 10, the Company or its successors or assigns may, in addition to any
other rights and remedies existing in their favor, apply to any court of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce, or prevent any violations of, such provisions
(without posting a bond or other security) or require the Employee to
account for and pay over to the Company all compensation, profits, moneys,
accruals and increments derived or received by him as a result of any
transactions constituting a breach of such provisions.
(iii) In addition to the foregoing, and not in any way in
limitation thereof, or in limitation of any right or remedy otherwise
available to the Company, if the Company shall determine that the Employee
is in violation of any provision of Sections 7, 8, 9 or 10 of this
Agreement (such determination being made before any judgment or decision
with respect to such question shall be made by a court of competent
jurisdiction), the Company may withhold any severance payments then or
thereafter due from the Company to the Employee, until there shall be a
final judgment or decision by a court of competent jurisdiction that no
such violation shall have occurred, in which case (A) the Company shall
pay to the Employee, within five (5) Business Days after such judgment or
decision, such amounts of severance under this Agreement previously
withheld from payment by the Company, together with interest on such
amounts withheld at a floating rate per annum equal to the prime rate
announced from time to time by the Wall Street Journal as the prevailing
"prime rate" at U.S. money center banks, and (B) the Company shall
reimburse the Employee for his reasonable attorneys fees and expenses
incurred in connection with the issuance of such judgment or decision
within five (5) Business Days of the receipt by the Company of reasonable
supporting documentation therefor. If the Employee is
12
<PAGE>
determined by a judgment or decision of a court of competent jurisdiction
to have violated any provision of Sections 7, 8, 9 or 10 of this
Agreement, the Company's obligation to pay and the Employee's right to
receive any severance payments under this Agreement on or after the date
on which such violation shall have first occurred (whether already paid or
otherwise) shall terminate and be of no further force or effect, and,
within five (5) Business Days of any such judgment or decision, the
Employee shall return to the Company any such severance payments already
made by the Company.
(iv) The Employee's obligations under Sections 7, 8, 9 or 10
shall not be limited or affected by, and such provisions shall remain in
full force and effect notwithstanding, the termination of any severance
payments by the Company in accordance with Section 17(a)(iii). The
exercise of by the Company of its right to terminate such payments
pursuant to Section 17(a)(iii) shall not be deemed to be an election of
remedies by the Company and shall not in any manner modify, limit or
preclude the Company from exercising any other rights or seeking any other
remedies available to it at law or in equity.
(b) Complete Agreement. This Agreement constitutes the sole and
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes and preempts all prior or contemporaneous understandings,
agreements or representations by or between the Company and the Employee,
written or oral, which may have related to the subject matter hereof in any way.
(c) Right of Set Off. The Company is authorized, on or after the
termination of the Employment Period by the Company for Cause, to the fullest
extent permitted by law, to set off and apply any and all amounts at any time
payable by the Company to the Employee under this Agreement, against any and all
of the obligations of the Employee to the Company now or hereafter existing
under this Agreement or any other agreement or contract between the Employee on
the one hand and the Company or any of its Subsidiaries on the other hand.
(d) Successors and Assigns. This Agreement will be binding upon and
inure to the benefit of the Company, the Employee and each of their respective
successors, assigns, personal and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees, as applicable;
provided, however, that neither this Agreement nor any rights or obligations
hereunder will be assignable or otherwise subject to hypothecation by the
Employee (except by will or by operation of the laws of intestate succession).
(e) Governing Law; Choice of Jurisdiction and Venue. THE PROVISIONS
OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS ENTERED INTO AND FULLY
PERFORMED WITHIN THE STATE OF NEW YORK BY RESIDENTS OF THE STATE OF NEW YORK.
WITH RESPECT TO ANY LAWSUIT OR PROCEEDING BROUGHT WITH RESPECT TO THIS
AGREEMENT, EACH OF THE PARTIES HERETO IRREVOCABLY (I) SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK OR FEDERAL COURT OF THE
UNITED STATES OF AMERICA SITTING IN NEW YORK, (II) WAIVES ANY
13
<PAGE>
OBJECTION SUCH PARTY MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY
PROCEEDING BROUGHT IN ANY SUCH COURT, (III) WAIVES ANY CLAIM THAT SUCH
PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, AND (IV) FURTHER WAIVES
THE RIGHT TO OBJECT, WITH RESPECT TO SUCH PROCEEDINGS, THAT SUCH COURT DOES NOT
HAVE JURISDICTION OVER SUCH PARTY.
(f) Waiver of Jury Trial. Each of the parties hereto hereby
irrevocably waives all right to trial by jury in any action, proceeding or
counterclaim arising out of or relating to this Agreement.
(g) Amendment and Waiver. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Company (upon the
written approval of the Board (excluding the Employee if he should be a member
of the Board at the time of such determination)) and the Employee, and no course
of conduct or failure or delay in enforcing the provisions of this Agreement
shall affect the validity, binding effect or enforceability of this Agreement or
any provision hereof.
(h) Headings. The section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(i) Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
(j) Business Days. If any time period for giving notice or taking
action hereunder expires on a day which is not a Business Day, the time period
for giving notice or taking action shall be automatically extended to the
immediately following Business Day.
(k) Survival of Representations, Warranties and Agreements. All
representations, warranties and agreements contained herein shall survive in
perpetuity the consummation of the transactions contemplated hereby.
(l) Nouns and Pronouns. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice-versa.
(m) Construction. Where specific language (such as the word
"including") is used to clarify by example a general statement contained herein,
such specific language shall not be deemed to modify, limit or restrict in any
manner the construction of the general statement to which it relates. The
language used in this Agreement shall be deemed to be the language chosen by the
parties hereto to express their mutual intent, and no rule of strict
construction shall be applied against any party hereto. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto, and no
14
<PAGE>
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.
* * * *
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
OPUS360 CORPORATION
By: /s/ Ari B. Horowitz
----------------------------------
Name: Ari B. Horowitz
Title: Chief Executive Officer
/s/ Richard McCann
-------------------------------------
Richard McCann
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 11,610
<SECURITIES> 225
<RECEIVABLES> 3,466
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,058
<PP&E> 8,228
<DEPRECIATION> 954
<TOTAL-ASSETS> 68,327
<CURRENT-LIABILITIES> 26,408
<BONDS> 0
17
0
<COMMON> 39
<OTHER-SE> 41,536
<TOTAL-LIABILITY-AND-EQUITY> 68,327
<SALES> 0
<TOTAL-REVENUES> 977
<CGS> 0
<TOTAL-COSTS> 651
<OTHER-EXPENSES> 25,344
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (25,018)
<INCOME-TAX> 0
<INCOME-CONTINUING> (25,018)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,018)
<EPS-BASIC> (1.86)
<EPS-DILUTED> (1.86)
</TABLE>
