<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 2000
REGISTRATION NO. 333-93789
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
CAYENTA, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7379 33-0884182
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------------
5910 PACIFIC CENTER BLVD.
SAN DIEGO, CA 92121-6301
(858) 550-5500
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------------
DAVID PORRECA
PRESIDENT/CEO
CAYENTA, INC.
5910 PACIFIC CENTER BLVD.
SAN DIEGO, CA 92121-6301
(858) 550-5500
FAX:(858) 550-5361
(Name, address, including zip code, and telephone and facsimile numbers,
including area code, of agent for service)
COPIES TO:
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<S> <C> <C>
NICHOLAS J. COSTANZA BARBARA L. BORDEN, ESQ. LAURIE A. SMILEY, ESQ.
GENERAL COUNSEL MATTHEW T. BROWNE, ESQ. CHRISTOPHER J. VOSS, ESQ.
CAYENTA, INC. COOLEY GODWARD LLP MARC S. MARCHIEL, ESQ.
5910 PACIFIC CENTER BLVD. 4365 EXECUTIVE DRIVE, SUITE 1100 STOEL RIVES LLP
SAN DIEGO, CA 92121-6301 SAN DIEGO, CA 92121 600 UNIVERSITY STREET, 36TH FLOOR
(619) 552-9500 (858) 550-6000 SEATTLE, WA 98101-3197
FAX: (858) 552-9759 FAX: (858) 453-3555 (206) 624-0900
FAX: (206) 386-7500
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) of the Securities Act, please check the following box
and list the Securities Act registration serial number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY , 2000
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
6,500,000 Shares
[LOGO]
Cayenta, Inc.
Class A Common Stock
-----------
Cayenta, Inc. is offering shares of its Class A common stock. We have two
classes of authorized common stock, Class A common stock and Class B common
stock. The rights of the holders of Class A common stock and Class B common
stock are identical, except with respect to voting and conversion. Each share of
Class A common stock is entitled to one vote per share. Each share of Class B
common stock is entitled to ten votes per share and is convertible at any time
into one share of Class A common stock.
We are a majority-owned subsidiary of The Titan Corporation. Upon completion
of this offering, Titan will own all of our Class B common stock, which will
represent more than 61% of our outstanding common stock and more than 94% of our
voting power, and will continue to control us.
Prior to this offering, there has been no public market for our Class A
common stock. The initial public offering price of our Class A common stock is
expected to be between $12.00 and $14.00 per share. We have applied to list our
Class A common stock on The Nasdaq Stock Market's National Market under the
symbol "CYTA."
The underwriters have an option to purchase a maximum of 975,000 additional
shares of our Class A common stock to cover over-allotments.
Investing in our Class A common stock involves risks. See "Risk Factors" on
page 8.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Cayenta, Inc.
-------------- -------------- --------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of Class A common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston
Donaldson, Lufkin & Jenrette
A.G. Edwards & Sons, Inc.
The date of this prospectus is , 2000.
<PAGE>
[INSIDE FRONT COVER]
[Picture of concentric circles with textual overlay as follows: In the
rapidly-changing digital economy, companies are searching for and demanding
total solutions. There is a new formula for success---]
<PAGE>
[INSIDE FRONT COVER PULL-OUT]
<TABLE>
<CAPTION>
<S> <C>
[A description of the information technology
products and services that we provide that
we believe make us a total services
provider, written as an equation: EAI [Hub-and-spoke depiction of the individual
(Enterprise Application Integration) + ASP parts of our total services provider
(Application Service Provider) + NOC offering]
(Network Operations Center) + BSM (Business
Services Management) = TSP (Total Services
Provider)]
[A description, separated into individual
phases, of our approach to creating our
information technology products and [Our logo]
services]
</TABLE>
<PAGE>
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROSPECTUS SUMMARY...................... 3
RISK FACTORS............................ 8
FORWARD-LOOKING STATEMENTS.............. 18
USE OF PROCEEDS......................... 18
DIVIDEND POLICY......................... 18
CAPITALIZATION.......................... 19
DILUTION................................ 20
SELECTED HISTORICAL ACTUAL AND PRO FORMA
FINANCIAL INFORMATION................. 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND OPERATING
RESULTS............................... 23
BUSINESS................................ 32
</TABLE>
<TABLE>
MANAGEMENT.............................. 45
<CAPTION>
PAGE
--------
<S> <C>
RELATIONSHIP WITH TITAN AND CERTAIN
TRANSACTIONS.......................... 55
PRINCIPAL STOCKHOLDERS.................. 58
DESCRIPTION OF CAPITAL STOCK............ 60
SHARES ELIGIBLE FOR FUTURE SALE......... 64
UNDERWRITING............................ 66
NOTICE TO CANADIAN RESIDENTS............ 69
LEGAL MATTERS........................... 70
EXPERTS................................. 70
ADDITIONAL INFORMATION.................. 70
INDEX TO FINANCIAL STATEMENTS........... F-1
</TABLE>
--------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS MAY BE USED ONLY WHERE IT IS
LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS PROSPECTUS MAY ONLY BE
ACCURATE ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD CONSIDER BEFORE
BUYING SHARES IN THIS OFFERING. YOU SHOULD READ THE ENTIRE PROSPECTUS, AND
ESPECIALLY THE "RISK FACTORS" SECTION, CAREFULLY. EXCEPT IN THE FINANCIAL
STATEMENTS INCLUDED IN THIS PROSPECTUS OR AS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION
WILL NOT BE EXERCISED AND A 2.065 FOR 1 SPLIT IN OUR CLASS A AND CLASS B COMMON
STOCK THAT WILL BECOME EFFECTIVE PRIOR TO THE EFFECTIVENESS OF THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
THE COMPANY
OUR BUSINESS
Our objective is to be a total services provider of information technology
products and services for our customers' business functions. We define a total
services provider, or TSP, as an information technology services company that
can provide software applications and services to customers to solve specific
business problems. These services include providing information technology and
business consulting services as well as the implementation, operation and
support of software applications. These applications can be tailored for the
customers' business requirements and made accessible via the Internet. We
believe that, by using a total services provider, companies can outsource
business and technology requirements to a single third party provider. We expect
customers to generally pay a fixed monthly fee for some or all of these services
to avoid making significant capital investments in software and hardware and in
developing internal information technology expertise.
Historically, we have derived our revenues from information technology
consulting services and sales of our proprietary software applications. Through
experience gained by providing these consulting services and software products
to our customers, we recognized a significant market opportunity for information
technology companies that had an understanding of their customers' businesses
and could provide customized software applications and consulting and
integration services. In order to create this offering, we expanded our
consulting and software expertise in the following manner:
- We increased the accessibility over the Internet of our existing portfolio
of proprietary software applications.
- We entered into agreements with Exodus Communications, Intel and Qwest
that allow us to install computers at data centers operated by these
companies that we use to host and manage software applications for our
customers.
- We constructed a network operating center in San Diego to complement our
existing network operating center in Reston, Virginia. These two network
operating centers have advanced telecommunications, server and security
infrastructure that, along with our staff, enable us to monitor and
support all the software applications installed at the data centers
mentioned above. We can also use our network operating centers to provide
additional data center capabilities.
- We formed a Business Services Management group to provide ongoing business
consulting services for customers utilizing our software applications.
The combination of the data centers and the network operating centers
enables us to provide our software applications on a hosted monthly subscription
basis to our customers. Customers will access our software applications using
secure Internet connections and rely on us to provide ongoing, real-time
maintenance and support.
For the past year, we have been providing TSP services through Soliance, a
joint venture in which we hold a 10% equity interest, on a monthly contract
basis. Beginning in the first quarter of 2000, we started making our TSP
services directly available from us to new and existing customers and to date
3
<PAGE>
have entered into four TSP contracts from which we anticipate generating
revenues beginning in the second quarter of 2000. We have not generated any TSP
revenues to date under these contracts. As part of a typical TSP offering, we
provide the following services to our customers:
- determining which proprietary or commercially available software
applications are best suited to meet our customers' business needs and
licensing that software to the customer;
- integrating these software applications with the customers' existing
information technology infrastructure and providing information technology
support services;
- hosting these software applications in a reliable and secure data center;
and
- providing business services where we tailor our software applications to
support our customers' business processes, for example billing, so that
our software better addresses those customers' specific business needs.
The combination of these four components--information technology consulting,
identifying, licensing and integrating software applications, installing,
hosting and supporting these software applications at data centers, and
providing customized business services--create what we term a TSP offering.
We currently offer proprietary software applications and related customized
business services that consist of the following:
- E-commerce: We integrate a customers' web site with the customer's
existing software applications and systems to support order processing,
catalog management, customer service, inventory management, order
fulfillment, billing and collections and account settlement. We have
historically provided this software to business-to-consumer companies and
have recently begun to offer it to business-to-business companies.
- Revenue Cycle Management: We offer software applications that our
customers use to track, collect and settle billing and payment
transactions with their customers and trading partners. These software
applications help our customers address their needs relating to customer
enrollment, credit worthiness, purchasing, contract management, bill
generation, bill presentment, collections and settlement.
- Equipment Maintenance and Monitoring: Our customers use our equipment
maintenance and monitoring software to manage their equipment maintenance
processes including scheduling, materials and parts management and work
order processing.
We believe that our ability to offer our own software applications in
addition to identifying and delivering software applications that are
commercially available from third parties allows us to provide our customers
with additional value.
We believe that a significant market opportunity exists for information
technolology providers such as ourselves that understand their customers'
businesses and provide customized software applications and consulting and
integration services. Currently, companies called application service providers
are already offering their customers access to third party software applications
via data centers as well as ongoing maintenance and support. International Data
Corporation expects the application service provider market to grow from $300
million in 1999 to $7.7 billion in 2004, a compound annual growth rate of over
90%. We believe that the size of the application service provider market
demonstrates the market opportunity that exists for our TSP offering, which
provides consulting and application integration services in addition to those
services offered by application service providers.
We target industries with complex and substantial information technology
requirements. We also target emerging companies seeking to do business on the
Internet, known as e-commerce. We have
4
<PAGE>
expertise in multiple industries, including utilities, telecommunications, and
retail. We intend to further penetrate these industries by establishing
strategic alliances and joint ventures.
In addition to our network operating centers in San Diego, California and
Reston, Virginia, we have facilities located in Burnaby, British Columbia,
Orlando, Florida, Reston, Virginia, Salt Lake City, Utah, San Diego, California,
Washington, D.C., and Woodland Hills, California. Customers from whom we derived
1.0% or more of revenues during 1999 on a pro forma basis include 800.com,
Dean & DeLuca, the District of Columbia, the Federal Aviation Administration,
Icon Health and Fitness, Oreck, Sempra Energy, Waste Management, the City of
Henderson, Nevada and Energy America. We provided TSP services to only one of
these customers, Energy America. We currently have approximately 333
professionals developing and implementing our services.
For the year ended December 31, 1999, we had net losses of $16.5 million on
a pro forma basis. We had net losses of $5.4 million during the first quarter of
2000. We expect to incur losses for the foreseeable future. In addition, three
of our customers, Sempra Energy, the District of Columbia government and the
FAA, accounted for approximately 85.8% of our revenues on an actual basis and
55.2% of our revenues on a pro forma basis during 1999. These customers
accounted for 25.2% of our revenues during the first quarter of 2000. Another
customer, Waste Management, accounted for 12.2% of our revenues, during the
first quarter of 2000. Furthermore, the industry in which we compete, the
information technology services industry, is highly competitive.
OUR STRATEGY
- Build our TSP customer base
- Continue to enhance our TSP offering
- Target specific industries
- Promote the Cayenta brand
- Attract and train qualified personnel
- Continue to develop core competencies
RELATIONSHIP WITH TITAN
We were formed as a wholly-owned subsidiary of The Titan Corporation in 1997
when Titan separated its business that focused on integrating commercial
software applications with customers' systems from its other information
technology services. Upon completion of this offering, Titan will own all of our
Class B common stock, which will represent more than 61% of our outstanding
common stock and more than 94% of our voting power, and will be able to control
the election of our directors and all other matters requiring stockholder
approval. Titan is a publicly traded company, and its filings with the
Securities and Exchange Commission, or SEC, are available to the public over the
Internet at the SEC's web site at http://www.sec.gov, at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the SEC located at 7 World Trade Center, Suite 1300, New
York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Titan's SEC recording number is 1-6035. Our relationship with
Titan is described more fully in the "Relationship with Titan and Certain
Transactions" section of this prospectus.
Our principal executive offices are located at 5910 Pacific Center
Boulevard, San Diego, CA 92121-6301, and our telephone number is
(858) 550-5500.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A common stock offered.............. 6,500,000 shares
Common stock to be outstanding after the
offering
Class A common stock.................... 13,028,410 shares
Class B common stock.................... 20,650,000 shares
Total................................. 33,678,410 shares
Use of proceeds........................... For operating activities, including expansion of our sales
and marketing programs and continued development of our
proprietary software applications, and for capital
expenditures and general corporate purposes.
Proposed Nasdaq National Market Symbol.... CYTA
</TABLE>
SHARES OUTSTANDING AFTER THE OFFERING
The number of shares of common stock to be outstanding after the offering is
based upon the number of shares of Class A common stock and Class B common stock
outstanding as of May 4, 2000, giving effect to the conversion of all of our
outstanding shares of preferred stock into 4,842,425 shares of Class A common
stock upon the closing of this offering, and does not include the following:
- 7,124,250 shares of Class A common stock reserved for issuance under our
1997 and Nonstatutory Stock Option Plans, of which 5,813,904 shares were
covered by outstanding options as of May 4, 2000 at a weighted average
exercise price of $2.58 per share; and
- 1,023,827 shares of Class A common stock subject to warrants outstanding
as of May 4, 2000, at a weighted average exercise price of $6.35 per
share.
6
<PAGE>
SUMMARY HISTORICAL ACTUAL AND PRO FORMA FINANCIAL INFORMATION
The following financial information should be read together with the
"Selected Historical Actual and Pro Forma Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Operating
Results" included elsewhere in this prospectus. The unaudited pro forma
statement of operations information for the year ended December 31, 1999 assumes
that we completed our acquisitions of Mainsaver, Assist Cornerstone and SFG
Technologies as of January 1, 1999. The unaudited pro forma statement of
operations information is based on our historical actual operating results and
those of Mainsaver, Assist Cornerstone and SFG Technologies for the period
presented and gives effect to the amortization of goodwill related to the
acquisitions, the interest expense relating to the acquisitions, and the
resulting provision for income taxes. Our historical actual statement of
operations information for the year ended December 31, 1999 and balance sheet
information as of December 31, 1999 are derived from our audited financial
statements, which are included elsewhere in this prospectus. Our historical
statement of operations information for the three months ended March 31, 2000
and balance sheet information as of March 31, 2000 are derived from our
unaudited financial statements, which are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
------------------------- THREE MONTHS ENDED
PRO FORMA MARCH 31, 2000
ACTUAL (UNAUDITED)(1) (UNAUDITED)
-------- -------------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS INFORMATION:
Revenues.................................................. $40,262 $65,578 $15,687
Gross profit.............................................. 11,907 27,775 8,768
Income (loss) from operations............................. 4,664 (8,534) (3,806)
Net income (loss)......................................... 532 (16,459) (5,362)
Diluted earnings (loss) per share(2)...................... $ 0.04 $ (1.56) $ (0.51)
Weighted average common shares and common share
equivalents used in computing diluted earnings per
share(2)................................................ 13,182 10,521 10,568
OTHER INFORMATION:
EBITDA(4)................................................. 9,849 7,199 3,127
EBITDA margin(5).......................................... 24.5% 11.0% 19.9%
Depreciation and amortization............................. 5,185 15,733 6,933
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000
-------------------------
AS ADJUSTED(3)
ACTUAL (UNAUDITED)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET INFORMATION:
Cash........................................................ $ 10,741 $ 87,641
Working capital............................................. 7,592 84,492
Total assets................................................ 111,766 188,666
Total long-term obligations................................. 73,596 73,596
Total stockholders' equity.................................. 12,339 89,239
</TABLE>
- --------------------------
(1) The pro forma column gives effect to the acquisitions of Mainsaver, Assist
Cornerstone and SFG Technologies as if they had occurred as of January 1,
1999.
(2) For the number of shares used in the per share calculations, see the
historical pro forma Cayenta financial statements and Note 2 to the
historical actual Cayenta financial statements.
(3) The as adjusted column gives effect to the conversion of all of our
outstanding shares of preferred stock into shares of Class A common stock
upon the closing of this offering and reflects our receipt of the net
proceeds from the offering (at an assumed initial public offering price of
$13.00 per share), after deducting underwriting discounts and commissions
and estimated offering expenses.
(4) EBITDA represents net income plus income taxes, interest expense,
depreciation and amortization and non-recurring charges. We consider EBITDA
to be a widely accepted financial indicator of a company's ability to
service debt, fund capital expenditures and expand its business; however,
EBITDA is not calculated in the same way by all companies and is neither a
measurement required, nor represents cash flow from operations as defined,
by generally accepted accounting principles. You should not consider EBITDA
to be an altenative to net income, an indicator of operating performance or
an altenative to cash flow as a measure of liquidity.
(5) Represents EBITDA divided by net sales.
7
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER CAREFULLY
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS
PROSPECTUS, INCLUDING THE FINANCIAL STATEMENTS AND RELATED NOTES, BEFORE
DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS
OR UNCERTAINTIES ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION AND
OPERATING RESULTS WOULD LIKELY SUFFER. IN THAT EVENT, THE MARKET PRICE OF OUR
COMMON STOCK COULD DECLINE, AND YOU COULD LOSE ALL OR PART OF THE MONEY YOU PAID
TO BUY OUR COMMON STOCK.
RISKS RELATED TO OUR BUSINESS
OUR TSP OFFERING IS RELATIVELY NEW AND UNTESTED, AND WE WILL BE UNABLE TO GROW
OUR BUSINESS AS WE EXPECT IF OUR TSP OFFERING DOES NOT MEET WITH MARKET
ACCEPTANCE OR IF WE DO NOT EXECUTE OUR BUSINESS STRATEGY.
We have not previously generated revenues from our TSP offering. We may be
unable to sell our TSP offering to existing customers of our software
applications and consulting services or to new customers. We cannot be certain
that a market for our TSP offerings will develop. Our business strategy requires
that we integrate the software we recently acquired in the Mainsaver, Assist
Cornerstone and SFG Technologies acquisitions into our TSP offering, adopt a
sales, pricing, and support strategy and build our employee and facility
resources. If our TSP offering does not meet with market acceptance or if we
fail to execute our business strategy, we may incur substantial additional costs
or delays in the further development and launch of our TSP offering or be
prevented from capitalizing on the market opportunity that we believe exists.
BECAUSE OUR TSP OFFERING IS NEW, OUR ACTUAL AND PRO FORMA HISTORICAL REVENUES
WERE NOT DERIVED FROM IT, WHICH MAKES AN EVALUATION OF OUR BUSINESS DIFFICULT.
To date, none of our actual or pro forma historical revenues were derived
from our TSP offering. Accordingly, we expect that our actual and pro forma
historical financial results will be of limited value in projecting our future
financial results.
WE HAVE INCURRED AND EXPECT TO CONTINUE TO INCUR LOSSES FOR THE FORESEEABLE
FUTURE.
For the year ended December 31, 1999, we had net losses of $16.5 million on
a pro forma basis. We had net losses of $5.4 million during the first quarter of
2000. We expect to incur losses for the foreseeable future. Our future
profitability will depend on our ability to generate and sustain substantial
revenues from our TSP offering while maintaining reasonable expense levels. If
we are able to become profitable in the future, we may not be able to sustain or
increase profitability on a quarterly or annual basis.
WE EXPECT TO INVEST SIGNIFICANT AMOUNTS TO FURTHER DEVELOP AND IMPLEMENT OUR TSP
OFFERING AND WE MAY NEVER RECOVER THE COSTS ASSOCIATED WITH THOSE INVESTMENTS.
In addition to amounts we have already invested, we intend to invest
approximately $40 million to $50 million over the next twelve months in further
developing and implementing our TSP offering by:
- establishing and staffing regional facilities where we will develop our
information technology products and services in collaboration with our
customers;
- establishing and staffing other network operating centers from which we
will monitor, manage and support software applications that we have
deployed for our customers;
- entering into arrangements with third party suppliers of elements of our
TSP offering;
8
<PAGE>
- developing process and software applications and industry-specific
templates; and
- expanding our sales and marketing activities.
We also expect to invest additional amounts in periods following the next twelve
months to further develop our TSP offering. The investments described above may
not result in increased revenues and the revenues from these efforts may not be
enough to compensate for their cost.
WE MAY NOT BE ABLE TO DELIVER KEY ELEMENTS OF OUR TSP OFFERING IF OUR MANAGEMENT
FAILS TO INTEGRATE ANY OF OUR THREE RECENT ACQUISITIONS.
If we are unable to integrate any of the software we recently acquired in
the Mainsaver, Assist Cornerstone and SFG Technologies acquisitions into our TSP
offering, including by providing that software over the Internet, our ability to
provide our TSP offering may be impaired. Further, we could incur unexpected
liabilities or expenses in connection with these acquisitions that exceed or are
not covered by our indemnification arrangements with the sellers of these
businesses and that could increase our anticipated integration costs for the
acquired software.
OUR GROWTH MAY SLOW OR STOP IF WE FAIL TO EFFECTIVELY MANAGE OUR RAPID
EXPANSION.
Since our acquisition of Transnational Partners II on January 1, 1999, we
have acquired three companies, which represented approximately 38.6% of our pro
forma revenues during 1999. These companies also represented approximately 48.4%
of our revenues during the first quarter of 2000. We also added 381 employees
since our acquisition of Transnational Partners II. If we cannot manage our
expanding operations to minimize strains on our management, our technical,
operating and financial systems, and our sales, marketing and administrative
resources, our operations could be disrupted, we may be unable to grow or we may
grow at a slower pace than we anticipate. We expect that significant expansion
of our operations will continue as we further develop and market our TSP
offering and add additional customers and facilities.
WE MAY BE UNABLE TO DELIVER OUR TSP OFFERING IN A TIMELY MANNER IF THIRD PARTIES
DO NOT PROVIDE US WITH KEY COMPONENTS OF OUR INFRASTRUCTURE AND FOR OUR SOFTWARE
APPLICATIONS.
To provide our TSP offering, we depend on third parties to supply computer
and telecommunications equipment and services, including at data centers where
we install computers that we use to host and manage software applications for
our customers. We also depend on third parties to supply software applications
that we use to provide our TSP offering. Our failure to maintain a continuous
supply of any of these elements would temporarily prevent us from delivering our
TSP offering. A disruption in our ability to provide our TSP offering could keep
us from maintaining required standards of service and cause us to incur
contractual penalties.
OUR ABILITY TO SELL OUR TSP OFFERING WILL SUFFER IF GROWTH IN E-BUSINESS
DECLINES.
Market acceptance of our TSP offering, and our ability to increase our
related revenues, will depend on continuing acceptance of use of the Internet
and related technologies for e-business. This acceptance may be limited without
the further development of the Internet's infrastructure and related
technologies. This continued development includes maintenance of reliable
networks with the necessary speed, data capacity and security to provide viable
marketplaces for e-business, as well as timely development of complementary
products for providing reliable, easy-to-use access and services. Other factors
that may affect the growth of the Internet and related technologies as media for
e-business include:
- increases in access costs;
- government regulation;
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<PAGE>
- uncertainty regarding intellectual property ownership;
- reluctance to adopt new business methods; and
- costs associated with the obsolescence of existing infrastructure.
We cannot be certain that the Internet and related technologies will provide
viable marketplaces for e-business in the long term.
OUR OPERATING MARGINS MAY DECLINE IF WE FAIL TO ACCURATELY ESTIMATE THE
RESOURCES NECESSARY TO MEET OUR OBLIGATIONS UNDER FIXED-TIME, FIXED-PRICE
CONTRACTS.
We have historically derived a majority of our revenues from fixed-time,
fixed-price contracts. For example, during 1999, we derived 70% of our actual
consulting revenues from fixed-time, fixed-price contracts. We derived 35.6% of
our consulting revenues from fixed-time, fixed-price contracts during the first
quarter of 2000. If we fail to accurately estimate the resources required for us
to fulfill our obligations under fixed-time, fixed-price contracts or fail to
satisfy those obligations, then our costs under those contracts will be greater
than expected and our related profit, if any, will be less. We have occasionally
had to commit unanticipated additional resources to complete customer projects,
and we may have to take similar action in the future.
WE MAY BE UNABLE TO INCREASE REVENUES AS PLANNED IF OUR EFFORTS TO DEVELOP AND
MAINTAIN POSITIVE BRAND AWARENESS ARE NOT SUCCESSFUL.
To promote awareness of our brand, we intend to spend significant amounts,
including some of the $20 million of the proceeds of this offering that we are
allocating to our sales and marketing programs, on an aggressive
brand-enhancement campaign. We expect to initiate this brand-enhancement
campaign during the second quarter of 2000. Our spending on this
brand-enhancement campaign may cause our operating margins to decline if
revenues derived from this campaign are not sufficient to offset its associated
costs. The value of our brand may be damaged if information technology products
and services that we develop for customers become associated with those
customers' business difficulties.
WE RELY ON A SMALL NUMBER OF CUSTOMERS FOR MOST OF OUR REVENUES, AND OUR
REVENUES WILL DECLINE SIGNIFICANTLY IF WE CANNOT KEEP OR REPLACE THESE
CUSTOMERS.
We have historically derived a high percentage of our revenues from a small
number of large customers. Revenues from the District of Columbia accounted for
approximately 38.1% of our actual revenues and approximately 23.4% of our pro
forma revenues during 1999, and approximately 3.5% of our revenues during the
first quarter of 2000. We provide information technology products and services
to the District of Columbia on a purchase order basis. Revenues from Sempra
Energy accounted for approximately 26.8% of our actual revenues and
approximately 18.9% of our pro forma revenues during 1999, and approximately
15.1% of our revenues during the first quarter of 2000. These revenues were
derived from our provision of information technology products and services to
Sempra Energy under two contracts that expire on December 31, 2000. Revenues
from the FAA accounted for approximately 21.0% of our actual revenues and
approximately 12.9% of our pro forma revenues during 1999, and approximately
6.6% of our revenues during the first quarter of 2000. Our contract with the FAA
has expired although we continue to provide services to the FAA under the terms
of the expired contract. Revenues from Waste Management accounted for
approximately 12.2% of our revenues during the first quarter of 2000. Our
contract with Waste Management has expired although we continue to provide
services to Waste Management under the terms of the expired contract.
Because we target large companies with complex and substantial information
technology needs, we expect to enter into TSP contracts and other consulting
contracts requiring us to devote substantial professional resources. Our size
will limit the number of these contracts we can perform at any one
10
<PAGE>
time. Accordingly, we expect that until we grow substantially in size, we will
depend on a small number of customers for revenues within each quarter. If any
of our large customers, such as Sempra Energy or Waste Management, terminates
its contract or relationship with us, we will lose a substantial portion of our
revenues.
OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO
FORECAST, WHICH MAY CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE.
Our quarterly revenues and operating results have fluctuated significantly
in the past, and we expect these fluctuations to continue. Factors that may
cause our quarterly revenues and operating results to fluctuate, and all of
which are to some extent outside our control, include:
- the amount and timing of demand for our TSP offering;
- the degree of utilization of our consultants;
- the length of our sales cycle for our information technology products and
services;
- our ability to manage costs, including sales and marketing, infrastructure
development, general and administrative and personnel costs;
- the timing and cost of anticipated openings of new facilities; and
- unanticipated costs associated with the integration of recently acquired
businesses.
It is likely that in some future quarter or quarters our operating results will
be below the expectations of investors. If so, the market price of our common
stock may decline significantly.
OUR GROWTH COULD BE LIMITED IF WE ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED
PERSONNEL.
Our growth requires us to substantially increase sales of our TSP offering,
and to generate these increased sales we must attract and retain highly skilled
sales and marketing personnel. To develop and implement the increasing number of
TSP offerings that we anticipate developing and installing in collaboration with
our customers, we must attract and retain technical and consulting personnel
with the requisite technical skills to perform those functions. Accordingly, our
growth could be constrained if we cannot attract and retain sufficient numbers
of highly skilled technical, consulting, sales and marketing personnel to
execute our business strategy. Our growth could also be constrained and our
operations disrupted if we do not attract and retain a sufficient number of
highly skilled management personnel to manage our anticipated expansion of our
business.
OUR FAILURE TO DELIVER ERROR-FREE INFORMATION TECHNOLOGY PRODUCTS AND SERVICES
COULD RESULT IN SIGNIFICANT FINANCIAL LIABILITY AND NEGATIVE PUBLICITY.
Because many of our information technology products and services relate to
systems that are critical to our customers' businesses, their failure could have
a severe financial and operating impact on our customers, and cause a severe
financial and reputational impact on us. For example, an e-business retailer for
whom we developed and installed our complete e-business system would depend on
that product to manage and monitor many of its internal accounting and
fulfillment processes and its interactions with its customers. Similarly, a
utility for whom we developed and installed our software application that
supports the transactions that compose that utility's revenue cycle would depend
on that product to help manage and monitor those transactions. If our products
were to fail for any reason, those customers could react by withholding payments
due to us or by pursuing litigation against us that may not be covered by our
insurance policies or limited by the contractual terms of the engagement. Our
customers could also react by demanding refunds or additional information
technology products or services from us at no charge that compensate for the
failure. In addition, a failure of our information technology products or
services for a specific customer, particularly in one of
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<PAGE>
our target industries, could make other companies reluctant to engage us to
undertake projects for them.
OUR INFORMATION TECHNOLOGY PRODUCTS WILL BE LESS COMPETITIVE IF THEY ARE NOT
COMPATIBLE WITH THIRD-PARTY SOFTWARE APPLICATIONS.
We believe that our ability to compete successfully depends on the continued
compatibility of our information technology products with software applications
provided by third-party vendors. Our failure to maintain compatibility with
these software applications could limit the capacity of our information
technology products to integrate different systems and make our products less
attractive to potential users. If we were to lack sufficient qualified technical
personnel or financial resources to commit to maintaining such compatibility,
our information technology products could become incompatible with changing or
newly-introduced software standards. We cannot be sure that we will be able to
conform to new or changed software standards, or that information technology
products or services developed by others will not make our own software and
services noncompetitive or obsolete.
IF WE ARE UNABLE TO REUSE OUR PROCESS AND SOFTWARE APPLICATIONS, OUR
INDUSTRY-SPECIFIC TEMPLATES, AND OUR SOFTWARE ENGINEERING PRACTICES, WE MAY BE
UNABLE TO DELIVER OUR INFORMATION TECHNOLOGY PRODUCTS AND SERVICES RAPIDLY AND
COST-EFFECTIVELY.
We generally develop our information technology products and services based
on reusable processes, software, industry-specific templates, and software
engineering practices. If we generally are unable to negotiate customer
contracts that permit us to reuse our processes, software, templates and
software engineering practices, we may be unable to provide our information
technology products and services to our customers at a cost and within time
frames that they consider acceptable. We may work with customers who prohibit us
from such reuse or who may severely limit reuse. In addition, we may provide
information technology products and services to the utility industry only
through Soliance, a joint venture in which we own a 10% equity interest and in
which one of our partners is Sempra Energy Information Solutions, a subsidiary
of Sempra Energy. Revenues from Sempra Energy accounted for approximately 26.8%
of our actual revenues and approximately 18.9% of our pro forma revenues during
1999, and approximately 15.1% of our revenues during the first quarter of 2000.
If we were to sell our membership interest in the Soliance joint venture, the
terms of the agreement establishing that joint venture prohibit us from selling
our information technology products and services to the utility industry for 15
months from the date of our sale.
OUR MARKETS ARE HIGHLY COMPETITIVE AND OUR COMPETITORS' STRENGTHS MAY PREVENT US
FROM EXECUTING OUR BUSINESS STRATEGY.
Our current competitors include:
- application service providers, such as Breakaway Solutions and
USinternetworking;
- information technology service providers, such as Andersen Consulting,
Answerthink, Cambridge Technology, EDS, KPMG, Sapient and Tanning
Technology; and
- Internet professional service providers, such as Proxicom, Scient and US
Interactive.
Many of our competitors are substantially larger than we are and have
substantially greater financial, infrastructure and personnel resources than we
have. Furthermore, many of our competitors have well established, large and
experienced marketing and sales capabilities and greater name recognition than
we have. As a result, our competitors may be in a stronger position to respond
quickly to new or emerging technologies and changes in customer requirements.
They also may develop and promote their services more effectively than we do.
Moreover barriers to entry, particularly in the areas
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<PAGE>
of information technology consulting and integrating software applications, are
low. We therefore expect additional competitors to enter these markets.
OUR OPERATIONS WILL SUFFER IF WE ARE UNABLE TO INTEGRATE AND RETAIN OUR SENIOR
MANAGERS.
Our success depends on the continued contributions of the principal members
of our senior management team, including David P. Porreca and Gregory R. Smith,
all of whom joined us in 1999. Some of these individuals have not worked
together previously and are currently becoming integrated as a management team.
As a result, our senior managers may not work together effectively. In addition,
due to the competitive nature of our industry, we may be unable to retain all of
our senior managers. Of our senior management team, only Messrs. Porreca,
Gregory R. Smith, Atkinson and Lake have employment agreements with us. If our
senior managers do not work together effectively, or terminate their
relationships with us, our business operations could be significantly disrupted.
GOVERNMENT AUDITS OF OUR GOVERNMENT CONTRACTS COULD CAUSE A MATERIAL NEGATIVE
ADJUSTMENT TO OUR REVENUES.
All companies that do work under government contracts are subject to audit.
Our work for our government customers may be audited by those customers or by
their controlling entities. These audits may occur several years after
completion of the audited work, and could result in modifications to our
revenues from that work. Revenues from government business accounted for
approximately 61.3% of our actual revenues and approximately 43.1% of our pro
forma revenues during 1999, and approximately 14.4% of our revenues during the
first quarter of 2000. While we are not aware of any contemplated audits of our
work for any of our government customers, it could be audited in the future and
any such audit could result in a negative material adjustment to our revenues.
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS AGAINST US, EVEN WITHOUT MERIT, COULD
BE EXPENSIVE TO DEFEND AND MAY DIVERT MANAGEMENT'S ATTENTION.
We cannot be certain that the information technology products that we
deliver or the software or processes used in those products do not or will not
infringe valid patents, copyrights or other intellectual property rights held by
third parties. If there is infringement, we could be liable for substantial
damages. Any infringement claim, even one without merit, can be time consuming
and expensive to defend. Infringement claims may divert management's attention
and resources and could cause delays in implementing our information technology
products and services. If we are found to infringe a third party's intellectual
property rights, we may need to enter into royalty or licensing agreements.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS,
OUR BUSINESS COULD BE ADVERSELY AFFECTED.
Our intellectual property includes our trade secrets, copyrights, trademarks
and other proprietary information. We believe that our intellectual property is
important to our success and our competitive position, and we try to protect it.
However, our efforts may be inadequate. In addition, we may be unable to detect
unauthorized use of our intellectual property and take appropriate steps to
enforce our rights. Also, protection of intellectual property in many foreign
countries is weaker and less reliable than in the United States. Accordingly, if
our business expands further into foreign countries, risks associated with
protecting our intellectual property will increase.
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<PAGE>
BECAUSE WE OPERATE IN CANADA, WE FACE ADDITIONAL RISKS RELATED TO FOREIGN
POLITICAL AND ECONOMIC CONDITIONS.
As a result of our acquisition of SFG Technologies, a portion of our
operations is now conducted in Canada, and we are subject to risks that are
inherent in operating in a foreign jurisdiction. Revenues from our Canadian
operations accounted for approximately 10.0% of our pro forma revenues during
1999 and approximately 13.2% of our revenues during the first quarter of 2000.
The risks inherent in operating in a foreign jurisdiction that are most
applicable to our Canadian operations involve:
- unexpected changes in regulatory requirements;
- challenges in staffing and managing foreign operations;
- differing technology standards;
- fluctuations in currency exchange rates; and
- potentially adverse tax consequences.
The effect of any of the risks referred to above could adversely affect our
operations.
RISKS RELATED TO OUR RELATIONSHIP WITH TITAN
FOLLOWING THIS OFFERING, TITAN'S CONTROL OF OUR COMPANY COULD MAKE IT DIFFICULT
FOR ANOTHER COMPANY TO ACQUIRE US, WHICH COULD DEPRESS OUR STOCK PRICE.
Following this offering, Titan will own all of our outstanding shares of
Class B common stock, which has ten votes per share, representing more than 94%
of our voting power. As a result, Titan will have the ability to control the
outcome of all matters requiring stockholder approval, including the election
and removal of our board of directors, approval of any merger, consolidation or
sale of all or substantially all of our assets. Titan also will have the ability
to control our management and affairs. This control could discourage others from
initiating any potential merger, takeover or other change of control transaction
that may otherwise be beneficial to our business or our stockholders. As a
result, this control could reduce the price that investors are willing to pay in
the future for shares of our Class A common stock.
OUR BUSINESS MAY BE DISADVANTAGED OR HARMED IF TITAN'S INTERESTS RECEIVE
PRIORITY OVER OUR INTERESTS.
Conflicts of interest may arise between Titan and us in a number of areas
relating to our past and ongoing relationships. Titan is a diversified
technology company whose offerings include information technology products and
services that it markets to defense, intelligence and other government agencies.
Titan also recently entered into an agreement to acquire AverStar, Inc., a
provider of information technology consulting services to business and
government customers. It is possible that we will compete directly with Titan,
particularly the business unit within AverStar that provides information
technology products and services to the financial services industry, in the
future. Other potential factors that may create a conflict of interest between
Titan and us include the following:
- the terms of the intercompany agreements that we have entered into with
Titan in connection with this offering, which include a corporate services
agreement, a facilities sharing agreement and a tax allocation agreement;
- sales or distributions by Titan of all or any portion of its ownership
interest in us;
- Titan's ability to control our management and affairs; and
- two of our directors and three of our executive officers are also
directors or executive officers of Titan.
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<PAGE>
We cannot guarantee that all conflicts will be resolved in a manner that is
favorable to us or that such conflicts will not result in harmful consequences
to our business or prospects.
SOME OF OUR DIRECTORS AND EXECUTIVE OFFICERS ARE ALSO DIRECTORS OR EXECUTIVE
OFFICERS OF TITAN, WHICH COULD CAUSE TITAN'S INTERESTS TO RECEIVE PRIORITY OVER
OUR INTERESTS.
Gene W. Ray and Robert E. La Blanc, each of whom is one of our directors,
Nicholas J. Costanza and Eric M. DeMarco, each of whom is one of our executive
officers, and David P. Porreca, who is our President, Chief Executive Officer
and a director, are also directors or executive officers of Titan. Because our
financial results will be included in Titan's consolidated financial statements,
these directors and executive officers may consider not only the short-term and
long-term impact of financial and operating decisions on us, but also the impact
of these decisions on Titan's consolidated financial results and its
stockholders. In some instances, the impact of these decisions could be
disadvantageous to us while advantageous to Titan. We cannot guarantee that all
conflicts will be resolved in a manner that is favorable to us or that such
conflicts will not result in harmful consequences to our business or prospects.
WE MAY BE UNABLE TO RAISE CAPITAL OR ISSUE COMMON STOCK IN CONNECTION WITH
ACQUISITIONS IN THE FUTURE BECAUSE OF OUR RELATIONSHIP WITH TITAN.
Because Titan may seek to maintain its beneficial ownership percentage of
our common stock for tax planning purposes or otherwise and may not desire to
acquire additional shares of common stock in connection with future financing
transactions, we may be constrained in our ability to raise equity capital in
the future or to issue common stock or other equity securities in connection
with future acquisitions.
OUR BUSINESS MAY SUFFER BECAUSE WE ENTERED INTO AFFILIATE AGREEMENTS WITH TITAN
THAT ARE NOT BASED ON ARM'S LENGTH NEGOTIATIONS.
We have entered into various intercompany agreements with Titan including a
corporate services agreement, facilities sharing agreement and tax allocation
agreement. Because we are currently a majority-owned subsidiary of Titan, none
of these agreements resulted from arm's length negotiations. These agreements
may include terms and conditions that may be more or less favorable to us than
terms contained in similar agreements negotiated with third parties.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE COULD BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
INVESTORS PURCHASING SHARES IN THIS OFFERING.
The trading price of our Class A common stock could be volatile. Prices for
our Class A common stock will be based in part on our quarterly revenues and
operating results, which we expect to fluctuate for the reasons discussed above
in this "Risk Factors" section. In addition, as a provider of information
technology products and services, our stock price could be impacted by general
volatility in the stock prices for technology companies that has from time to
time been experienced in the markets. Investors may be unable to sell their
Class A common stock at or above our initial public offering price. We also
cannot be sure that an active public market for our Class A common stock will
develop or continue after this offering.
MANAGEMENT HAS BROAD DISCRETION AS TO THE USE OF THE PROCEEDS OF THIS OFFERING
AND MAY NOT USE THE PROCEEDS IN WAYS WHICH ENHANCE OUR MARKET VALUE OR RESULTS
OF OPERATIONS.
Our management will retain broad discretion to allocate the proceeds of this
offering. Management's failure to apply these funds effectively could have an
adverse effect on our ability to implement our strategy.
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<PAGE>
SHARES BECOMING AVAILABLE FOR SALE COULD ADVERSELY AFFECT OUR STOCK PRICE.
Sales of a substantial number of shares of our common stock in the public
market after this offering could depress the market price of our Class A common
stock and could impair our ability to raise capital through the sale of
additional equity securities. After this offering, we will have outstanding
13,028,410 shares of our Class A common stock. All the shares sold in this
offering will be freely tradable. Of the remaining 6,528,410 shares of Class A
common stock outstanding after this offering, 4,945,675 of such shares will be
eligible for sale in the public market under Rules 144 and 701 of the Securities
Act beginning 181 days after the date of this prospectus upon the expiration of
lock-up agreements between the holders of those shares and the underwriters.
After this offering, we will also have outstanding 20,650,000 shares of our
Class B common stock, all of which is held by Titan and is convertible at
Titan's option into shares of our Class A common stock on a one-to-one basis. If
Titan were to convert its Class B shares into Class A shares, all of the
Class A shares it would receive upon such conversion would also be eligible for
sale in the public market under Rule 144 of the Securities Act beginning
181 days after the date of this prospectus upon the expiration of a lock-up
agreement between Titan and the underwriters. Credit Suisse First Boston
Corporation may waive the lock-up restrictions referred to above based on market
conditions or to avoid an excessive number of restricted shares being eligible
for sale on the same day or because of other factors, in each case in its sole
discretion at any time without notice. After completion of this offering and
giving effect to the exercise of warrants outstanding to purchase
1,023,827 shares of Class A common stock, the holders of 2,606,562 shares of our
Class A common stock will be entitled to cause us to register their shares on
Form S-3 under the Securities Act when we are eligible to do so, so long as the
value of the registered shares is $4.0 million or more. These holders, along
with the holders of all of our outstanding preferred stock that will convert
into 4,842,425 shares of our Class A common stock upon the closing of this
offering, also have "piggyback" registration rights if we register any of our
Class A common stock under the Securities Act following this offering. Except
for shares purchased by our affiliates, registration of these shares under the
Securities Act would result in these shares becoming eligible for sale in the
public market immediately upon the effectiveness of the registration. After this
offering, we also intend to register up to 7,124,250 additional shares of our
Class A common stock for sale upon the exercise of outstanding stock options
issued pursuant to, or reserved for future issuance under, our 1997 and
Nonstatutory Stock Option Plans.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
Purchasers of Class A common stock in this offering will pay a price per
share which is substantially higher than the per share value of our assets after
subtracting our liabilities. In addition, assuming a price per share of $13.00,
purchasers of Class A common stock in this offering will have contributed
approximately 83.9% of the aggregate price paid by all purchasers of our stock
but will own only approximately 16.1% of our common stock outstanding after this
offering.
WE MAY NEED ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE TO US, AND WHICH, IF
RAISED, MAY HURT OUR EXISTING STOCKHOLDERS.
We may need to raise additional funds through public or private equity or
debt financings in order to:
- support additional capital expenditures;
- take advantage of acquisition or expansion opportunities;
- develop new information technology products or services; or
- address additional working capital needs.
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If we raise additional funds through the issuance of equity or debt securities
that have rights senior to those of our existing stockholders, our stockholders
may experience additional dilution or may lose other rights. We cannot be
certain that additional financing will be available to us on favorable terms
when required, or at all. If we cannot raise funds on acceptable terms, if and
when needed, we may be forced to curtail some or all of the above activities and
may not be able to grow our business or respond to competitive pressures or
unanticipated developments.
WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION AND
COULD ADVERSELY AFFECT THE PRICE OF OUR CLASS A COMMON STOCK.
Provisions of our amended certificate of incorporation and bylaws and
provisions of Delaware law could delay, defer or prevent an acquisition or
change of control involving us or otherwise adversely affect the price of our
Class A common stock. For example, our board of directors is staggered in three
classes, so that only one-third of the directors can be replaced at any annual
meeting. Additionally, our bylaws eliminate the ability of stockholders to call
a special meeting. Our amended certificate of incorporation also permits our
board of directors to issue shares of preferred stock without stockholder
approval. In addition to delaying or preventing an acquisition, the issuance of
a substantial number of preferred shares could adversely affect the price of the
Class A common stock.
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology including "could," "may," "will," "should," "expect," "intend,"
"plan," "anticipate," "believe," "estimate," "predict," "potential," "continue"
or "opportunity," the negative of these terms or other comparable terminology.
These statements are only predictions. Actual events or results may differ
materially. In evaluating these statements, you should specifically consider
various factors, including the risks described above and in other parts of this
prospectus. These factors may cause our actual results to differ materially from
any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot and do not guarantee future results, levels
of activity, performance or achievements.
USE OF PROCEEDS
Assuming an initial public offering price of $13.00 per share, we estimate
that the net proceeds to us from this offering will be approximately
$76.9 million, after deducting the underwriting discounts and commissions and
estimated offering expenses. We estimate that the net proceeds to us from this
offering will be $88.7 million if the underwriters' over-allotment option is
exercised in full.
We intend to use the net proceeds from this offering as follows:
- approximately $20 million to expand our sales and marketing programs,
including brand identity enhancement;
- approximately $5 million to continue the development of our proprietary
software applications;
- approximately $20 million for capital expenditures, which we anticipate
will include capital expenditures for hardware and infrastructure related
to our TSP offering;
- approximately $4.3 million in aggregate that we will pay in May 2001 and
June 2001 to the former owners of Mainsaver and Assist Cornerstone,
subject to the satisfaction of indemnification obligations owed to us by
them under our agreements to acquire these companies; and
- and the balance for general corporate purposes, including to fund
administrative costs and operating costs of our network operating centers.
Our management will retain broad discretion in the allocation of the net
proceeds of this offering. The amounts we actually spend will depend on a number
of factors, including the amount of our future revenues and other factors
described elsewhere in this prospectus. We may also use a portion of the net
proceeds to invest in additional businesses, products and technologies, or to
establish joint ventures that we believe will complement our current or future
business. However, we have no specific plans, agreements or commitments to do so
and are not currently engaged in any negotiations for any acquisition or joint
venture. Pending these uses, we will invest the net proceeds of this offering in
short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of our board of directors and will be
dependent upon our financial condition, results of operations, capital
requirements, general business conditions and other factors that the board of
directors may deem relevant.
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CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
- on an actual basis after giving effect to an amendment to our certificate
of incorporation to increase our authorized Class A common stock to
250,000,000 shares and to increase our authorized Class B common stock to
103,250,000 shares; and
- on an as adjusted basis, giving effect to the conversion of all of our
outstanding shares of preferred stock into 4,842,425 shares of Class A
common stock upon the closing of this offering, and to our issuance of the
Class A common stock offered hereby at an assumed price of $13.00 per
share and the application of the net proceeds therefrom.
This information should be read in conjunction with our financial statements
and related notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, less current portion........................ $73,596 $ 73,596
------- --------
Stockholders' equity (1):
Preferred stock, $.001 par value; 17,345,000 authorized;
Series A convertible preferred stock, $.001 par value;
4,842,425 shares authorized and 4,842,425 shares
issued and outstanding, actual; 0 shares authorized,
issued or outstanding, as adjusted.................... 5 --
Class A common stock, $.001 par value;
250,000,000 shares authorized and 1,685,985 shares
issued and outstanding, actual; 250,000,000 shares
authorized and 13,028,410 shares issued and
outstanding, as adjusted.............................. 2 13
Class B common stock, $.001 par value; 103,250,000
shares authorized and 20,650,000 shares issued and
outstanding, actual and as adjusted................... 21 21
Additional paid-in capital.................................. 16,170 93,099
Deferred compensation....................................... (2,104) (2,104)
Foreign currency translation................................ (30) (30)
Retained earnings........................................... (1,725) (1,725)
------- --------
Total stockholders' equity........................ 12,339 89,274
------- --------
Total capitalization.......................... $85,935 $162,870
======= ========
</TABLE>
- ------------------------
(1) Share numbers in the table do not include the following shares:
- 7,124,250 shares of Class A common stock reserved for issuance under our
1997 and Nonstatutory Stock Option Plans, of which 5,813,904 shares were
covered by outstanding options at a weighted average exercise price of
$2.58 per share at May 4, 2000; and
- 1,023,827 shares of our Class A common stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $6.35 per
share.
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DILUTION
As of March 31, 2000, our as adjusted net tangible book value deficit, after
giving effect to the conversion of our preferred stock then outstanding, was
approximately $50.5 million, or $3.84 per share of common stock. Our as adjusted
net tangible book value deficit is equal to, after giving effect to the
adjustment described in the previous sentence, our total tangible assets minus
our total liabilities, divided by the number of shares of common stock
outstanding. After giving effect to the sale of our Class A common stock offered
by this prospectus at an assumed initial public offering price of $13.00 per
share, and after deducting underwriting discounts and commissions and our
estimated offering expenses, our as adjusted net tangible book value as of
March 31, 2000 would have been approximately $26.4 million, or $1.34 per share.
This represents an immediate increase in as adjusted net tangible book value of
$5.18 per share to existing stockholders and an immediate dilution of
$11.66 per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<CAPTION>
PER SHARE
-------------------------------
<S> <C> <C>
Assumed initial public offering price...................... $ 13.00
As adjusted net tangible book value deficit before the
offering............................................... $ (3.84)
Increase attributable to new investors................... 5.18
--------------
As adjusted net tangible book value after this offering.... 1.34
--------------
Dilution to new investors.................................. $ 11.66
==============
</TABLE>
The following table summarizes, on an as adjusted basis as of March 31,
2000, the differences between existing stockholders and the new investors with
respect to the number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid before deducting
underwriting discounts and commissions and our estimated offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- -------- ------------ -------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)......... 27,178,410 80.7% $ 16,185,000 16.1% $ 0.60
New investors..................... 6,500,000 19.3 $ 84,500,000 83.9% $ 13.00
----------- ----- ------------ -----
Total........................... 33,678,410 100.0% $100,685,000 100.0%
=========== ===== ============ =====
</TABLE>
- ------------------------
(1) Gives effect to the conversion of all of our outstanding preferred stock
into 4,842,425 shares of Class A common stock upon the closing of this
offering, and assumes no exercise of stock options outstanding as of
March 31, 2000. As of March 31, 2000, there were options outstanding to
purchase a total of 5,195,024 shares of our Class A common stock, with a
weighted average exercise price of $1.69 per share. We also currently have
warrants outstanding to purchase a total of 1,023,827 shares of our Class A
common stock at a weighted average exercise price of $6.35 per share. If any
of these options or warrants are exercised, there will be further dilution
to new investors.
20
<PAGE>
SELECTED HISTORICAL ACTUAL AND PRO FORMA FINANCIAL INFORMATION
The following selected financial information should be read in conjunction
with the Cayenta, Transnational Partners II, Mainsaver, Assist Cornerstone and
SFG Technologies financial statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Operating
Results" included elsewhere in this prospectus. The pro forma statement of
operations information for the year ended December 31, 1999 should be read in
conjunction with the unaudited pro forma financial statements included elsewhere
in this prospectus. That information assumes that we completed the acquisitions
of Mainsaver, Assist Cornerstone and SFG Technologies as of January 1, 1999. The
unaudited pro forma statement of operations information is based on our
historical operating results and those of Mainsaver, Assist Cornerstone and SFG
Technologies for the period presented and gives effect to the amortization of
goodwill related to the acquisitions, the interest expense relating to the
acquisitions, and the resulting provision for income taxes. Our statement of
income information for the years ended December 31, 1996, 1997, 1998 and 1999
are derived from our audited financial statements, which are included elsewhere
in this prospectus for the years ended December 31, 1997, 1998 and 1999. Our
balance sheet information as of December 31, 1996, 1997, 1998 and 1999 are
derived from our audited financial statements, which are included elsewhere in
this prospectus for the years ended as of December 31, 1998 and 1999. Our
statement of income information for the three months ended March 31, 2000 and
the balance sheet information as of March 31, 2000 are derived from our
unaudited financial statements included elsewhere in this prospectus. Our
statement of income information for the year ended December 31, 1995 and the
balance sheet information as of December 31, 1995 are derived from our unaudited
financial statements. The unaudited financial statements have been prepared on
substantially the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of the financial position and results of
operations for the periods.
Prior to our acquisitions of Mainsaver, Assist Cornerstone and SFG
Technologies, we were a profitable company. For example, we had net income of
$1.3 million for the year ended December 31, 1998 and net income of $2.6 million
for the nine months ended September 30, 1999. With our acquisitions of
Mainsaver, Assist Cornerstone and SFG Technologies during late 1999, each of
which has historically been unprofitable, we began to incur losses and expect
our losses to continue for the foreseeable future. We expect that the sources of
our future losses will be different from the sources of Mainsaver's, Assist
Cornerstone's and SFG Technologies' historical losses, which we are attempting
to eliminate by consolidating many of the selling, administrative and research
and development activities of those individual businesses. We expect that our
future losses will result primarily from our efforts to further develop our TSP
offering. As part of our efforts to further develop our TSP offering, we expect
our selling, general and administrative expenses to increase significantly as we
expand our recruiting and sales and marketing efforts, increase our direct sales
staff and build our administrative infrastructure. We also expect our research
and development expenses to increase as we integrate the software we acquired in
the Mainsaver, Assist Cornerstone and SFG Technologies acquisitions into our TSP
offering. We also expect that our future losses will result from the increased
interest expense associated with the borrowings that funded our recent
acquisitions and the related amortization of goodwill associated with those
acquisitions. For the year ended December 31, 1999, on a pro forma basis, our
goodwill amortization expense was $14.0 million, and our goodwill amortization
expense was $3.5 million for the first quarter of 2000. We anticipate that our
future revenue sources will also be different from Mainsaver's, Assist
Cornerstone's and SFG Technologies' historical revenue sources. Mainsaver,
Assist Cornerstone and SFG Technologies all historically derived a substantial
portion of their revenues from licensing software and sales of hardware. While
we will continue to license our software and the software developed by
Mainsaver, Assist Cornerstone and SFG Technologies separately, we expect that an
increasing percentage of our future revenues will be generated by periodic
recurring fees from sales of our TSP offering under long-term contracts, and a
decreasing percentage of
21
<PAGE>
our future revenues will be generated by licensing of software and hardware
sales. Given these expected changes in the sources of our future losses and
revenues from what we have historically experienced, we believe that our
historical and pro forma historical financial information is not, and should not
be relied upon as, a meaningful indicator of our future financial performance.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1995
(UNAUDITED) 1996 1997
------------------------- ------------------------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS INFORMATION:
Revenues......................... $ 5,145 $ 8,633 $10,191
Cost of revenues................. 3,806 6,068 6,514
------------------------- ------------------------- -------
Gross profit................... 1,339 2,565 3,677
Operating expenses:
Selling, general and
administrative............... 700 1,831 1,705
Research and development....... -- -- --
------------------------- ------------------------- -------
Income (loss) from operations.... 639 734 1,972
Interest expense................. 72 116 139
------------------------- ------------------------- -------
Income (loss) before tax......... 567 618 1,833
Income tax provision............. 198 247 734
------------------------- ------------------------- -------
Net income (loss)................ $ 369 $ 371 $ 1,099
========================= ========================= =======
Basic earnings (loss) per
share.......................... $ 0.04 $ 0.04 $ 0.11
========================= ========================= =======
Diluted earnings (loss) per
share.......................... $ 0.04 $ 0.04 $ 0.11
========================= ========================= =======
Weighted average common shares
used in computing basic
earnings (loss) per share(2)... 10,000 10,000 10,000
========================= ========================= =======
Weighted average common shares
and common share equivalents
used in computing diluted
earnings (loss) per share
(2)............................ 10,000 10,000 10,030
========================= ========================= =======
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------- THREE MONTHS
1999 ENDED
1998 1999 (UNAUDITED) MARCH 31,
-------- -------- ----------- (UNAUDITED)
PRO -------------------
ACTUAL FORMA(1) 1999 2000
-------- ----------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS INFORMATION:
Revenues......................... $12,095 $40,262 $ 65,578 $ 6,666 $15,687
Cost of revenues................. 7,413 28,355 37,803 5,250 6,919
------- ------- -------- ------- -------
Gross profit................... 4,682 11,907 27,775 1,416 8,768
Operating expenses:
Selling, general and
administrative............... 2,259 7,227 32,432 969 11,404
Research and development....... -- 16 3,877 -- 1,170
------- ------- -------- ------- -------
Income (loss) from operations.... 2,423 4,664 (8,534) 447 (3,806)
Interest expense................. 204 1,740 7,155 226 1,556
------- ------- -------- ------- -------
Income (loss) before tax......... 2,219 2,924 (15,689) 221 (5,362)
Income tax provision............. 908 2,392 770 -- --
------- ------- -------- ------- -------
Net income (loss)................ $ 1,311 $ 532 $(16,459) 221 $(5,362)
======= ======= ======== ======= =======
Basic earnings (loss) per
share.......................... $ 0.13 $ 0.05 $ (1.56) $ 0.02 $ (0.51)
======= ======= ======== ======= =======
Diluted earnings (loss) per
share.......................... $ 0.13 $ 0.04 $ (1.56) $ 0.02 $ (0.51)
======= ======= ======== ======= =======
Weighted average common shares
used in computing basic
earnings (loss) per share(2)... 10,000 10,047 10,521(3) 10,000 10,568
======= ======= ======== ======= =======
Weighted average common shares
and common share equivalents
used in computing diluted
earnings (loss) per share
(2)............................ 10,148 13,182 10,521(3) 10,735 10,568
======= ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------- MARCH 31,
1995 2000
(UNAUDITED) 1996 1997 1998 1999 (UNAUDITED)
----------- -------- -------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Cash............................................... $ -- $ -- $ -- $ -- $ 6,938 $ 10,741
Working capital (deficit).......................... 1,196 3,164 3,086 8,036 (8,239) 7,592
Total assets....................................... 1,296 3,280 4,641 11,923 98,070 111,766
Total long-term obligations........................ 198 216 -- -- 57,451 73,596
Total stockholders' equity......................... 1,098 3,064 3,980 8,906 9,190 12,339
</TABLE>
- ------------------------------
(1) The pro forma column gives effect to the acquisitions of Mainsaver, Assist
Cornerstone and SFG Technologies as if they had occurred as of January 1,
1999.
(2) For the number of shares used in the per share calculations, see the
historical pro forma Cayenta financial statements and Note 2 to the
historical actual Cayenta financial statements.
(3) Assumes the issuance of our shares of Class A common stock to complete the
acquisition of Assist Cornerstone as if such issuance had occurred at
January 1, 1999.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND OPERATING RESULTS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE "SELECTED
HISTORICAL ACTUAL AND PRO FORMA FINANCIAL INFORMATION" AND THE AUDITED AND
UNAUDITED ACTUAL AND PRO FORMA HISTORICAL FINANCIAL STATEMENTS INCLUDED
ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION AND ANALYSIS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. EXAMPLES OF
FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS REGARDING OUR FUTURE FINANCIAL
RESULTS AND OPERATING RESULTS, OUR BUSINESS STRATEGY, OUR PROJECTED COSTS, OUR
FUTURE INFORMATION TECHNOLOGY PRODUCTS AND SERVICES (INCLUDING OUR TSP
OFFERING), OUR PLANS TO INTEGRATE RECENTLY ACQUIRED BUSINESSES, OUR COMPETITIVE
POSITION AND THE PLANS AND OBJECTIVES OF OUR MANAGEMENT FOR FUTURE OPERATIONS.
OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF RISKS AND UNCERTAINTIES AND OTHER
IMPORTANT FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" INCLUDED
ELSEWHERE IN THIS PROSPECTUS.
INTRODUCTION
Our objective is to be a total services provider of information technology
products and services for our customers' business functions. Our TSP offering
combines standard and proprietary software applications that we tailor for our
customers' business processes with operational, hosting, management and support
services that we provide for those software applications. Our information
technology products and services address the following business processes of our
customers: e-business, finance, accounting, customer billing and collection,
contract management, supply chain management and equipment monitoring and
maintenance. We believe our TSP offering provides our customers with a number of
benefits over internally developed and operated systems, including lower and
more predictable capital and operating costs, quicker deployment and greater
adaptability, scalability and reliability.
We have historically derived our revenues from our consulting services and
from sales of our proprietary software applications. Our revenues from our
consulting services represented 94.6% of our actual revenues during 1999 and our
revenues from sales of our software applications represented 5.4% of our actual
revenues during 1999. During the first quarter of 2000, our revenues from our
consulting services represented 73.5% of our revenues and our revenues from
sales of our software applications represented 26.5% of our revenues. Our
consulting services include evaluations of our customers' information technology
strategies and existing system designs, redesign of those existing systems, and
systems integration. Our proprietary software applications include applications
for e-business, finance, accounting, customer billing and collection, contract
management, supply chain management and equipment monitoring and maintenance. We
provide our services primarily on a fixed-time, fixed-price basis and, to a
lesser extent, on a time and materials basis. Under our fixed-time, fixed-price
contracts, we recognize revenues on a percentage of completion basis. Our
fixed-time, fixed-price contracts usually require an advance payment from our
customer with additional payments due on achievement of specific milestones or
on a predetermined schedule. Revenues earned but not yet billed are recorded as
unbilled receivables. Under our time and materials contracts, we are paid at an
agreed upon hourly rate for the actual time spent on a customer's projects, and
revenues are recorded at the time services are performed. For the twelve months
ended December 31, 1999, revenues from fixed-time, fixed-price contracts
represented 70.0% of our actual consulting revenues and revenues from time and
materials contracts represented 30.0% of our actual consulting revenues. During
the first quarter of 2000, revenues from fixed-time, fixed-price contracts
represented 35.6% of our consulting revenues and revenues from time and
materials contracts represented 64.4% of our consulting revenues. Each of
Mainsaver, Assist Cornerstone and SFG Technologies recognizes revenues from the
sale of its proprietary software when the software is delivered and accepted, in
accordance with the American Institute of Certified Public Accountants'
Statement of Position 97-2, "Software Revenue Recognition". The related software
support and maintenance is billed at the beginning of the maintenance period,
23
<PAGE>
recognized ratably over the term of the applicable contract, and recorded as
deferred revenues until recognized.
For the year ended December 31, 1999, revenues from the District of Columbia
accounted for approximately 38.1% of our actual revenues and approximately 23.4%
of our pro forma revenues, revenues from Sempra Energy accounted for
approximately 26.8% of our actual revenues and approximately 18.9% of our pro
forma revenues, and revenues from the FAA accounted for approximately 21.0% of
our actual revenues and approximately 12.9% of our pro forma revenues. During
the first quarter of 2000, revenues from the District of Columbia accounted for
approximately 3.5% of our revenues, revenues from Sempra Energy accounted for
approximately 15.1% of our revenues, and revenues from the FAA accounted for
approximately 6.6% of our revenues. Revenues from our work for Waste Management
also accounted for approximately 12.2% of our revenues during the first quarter
of 2000. We expect to continue to derive a significant portion of our revenues
from a limited number of customers during 2000 as we focus our sales and
marketing efforts on our TSP offering, particularly to companies with complex
and substantial information technology requirements. As we expand the portion of
our business that is based on our TSP offering, we intend to enter into
multi-year contracts, and anticipate that any such contracts we enter into with
companies that have complex and substantial information technology requirements
will begin to represent an increasing portion of the Company's revenues during
2000. To the extent that we enter into contracts of this type, we expect that
our revenues from consulting services on a standalone basis and separate sales
of software applications will begin to decrease as a percentage of total
revenues. We also have several existing contracts that we believe will provide
significant revenues during 2000. We expect revenues from our TSP offering to
consist of periodic recurring fees from ongoing services that will be recognized
ratably over the applicable contract's term. In addition, we expect to continue
receiving consulting fees that will be recognized in accordance with our revenue
recognition policies discussed in the preceding paragraph.
Our cost of revenues consists primarily of the salaries, benefits and
non-billable direct expenses of our consulting personnel and fees paid to
independent consultants. The number of consultants we assign to a project varies
according to the size, complexity, duration and demands of the project. Our cost
of revenues has included costs under one significant subcontract for our work
for the District of Columbia. We expect subcontract costs to decline in the
future.
Our selling, general and administrative expenses consist primarily of
non-project personnel costs, occupancy costs, staff recruiting costs, travel
expenses, depreciation expenses, and sales, marketing and promotional costs.
Administrative expenses also include an expense allocation from Titan for its
performance on our behalf of routine corporate services, including financial,
insurance, accounting, employee benefits, payroll, tax and legal services. We
have entered into a corporate services agreement with Titan under which Titan
will provide these services until March 29, 2001 unless the agreement is renewed
in accordance with its terms. We expect our selling, general and administrative
expenses to increase significantly as we expand our recruiting and sales and
marketing efforts, further develop our TSP offering, increase our direct sales
staff and build our administrative infrastructure.
Historically, we have not incurred significant research and development
expenses because most of our software applications were created as part of our
consulting business or were developed by Mainsaver, Assist Cornerstone or SFG
Technologies before we acquired them. We expect our research and development
expenses to increase as we integrate recently acquired software into, and
further develop, our TSP offering.
Historically, our interest expense has related to borrowings from Titan to
fund our acquisitions and working capital requirements. As of May 4, 2000, we
owed approximately $70.0 million to Titan on which we will make quarterly
interest payments at the greater of the rate of 10% per annum or Titan's
effective weighted average interest rate under its senior credit facility,
subject to applicable limits on
24
<PAGE>
interest rates established by law. Titan's effective weighted average interest
rate is calculated at any given period of time by multiplying the daily balance
of Titan's total bank debt outstanding times the applicable interest rate for
that day, which yields an interest expense for that day. The sum of the daily
interest expense amounts is divided by the sum of the daily balances of the
total bank debt outstanding to yield a daily effective weighted average interest
rate which is then multiplied by 365 to yield an annual effective weighted
average interest rate. Titan's effective weighted average interest rate under
its senior credit facility as of May 4, 2000 was greater than 10.0%.
ACQUISITIONS AND STRATEGIC INVESTMENTS
We completed four acquisitions in 1999. Each of the acquired businesses
develops software that businesses use to streamline and control various business
processes. We intend to integrate the software developed by these companies into
our TSP offering.
TRANSNATIONAL PARTNERS II. In January 1999, we acquired substantially all
of the assets of Transnational Partners II, a consulting company that focused on
system integration and architecture. We acquired these assets for an initial
installment of $7.0 million in cash and 4,842,425 shares of our convertible
preferred stock. We also paid off an additional $2.8 million note that we issued
as part of our acquisition of Transnational Partners II, plus 7% interest
thereon, in February 2000.
MAINSAVER. In November 1999, we acquired J.B. Systems, a company doing
business under the name Mainsaver that sells software that its customers use to
manage their equipment maintenance processes. We acquired Mainsaver for
$11.7 million in cash, of which $8.2 million was paid at the closing, $500,000
was retained by Cayenta to satisfy a working capital shortfall in February 2000
and $3.0 million is due in May 2001, after satisfaction of possible working
capital adjustments or indemnification obligations. In addition, we paid
approximately $3.4 million to reduce outstanding indebtedness of Mainsaver.
ASSIST CORNERSTONE. In December 1999, we acquired Assist Cornerstone, a
company that sell e-commerce software. We acquired Assist Cornerstone for
1,066,485 shares of our Class A common stock and approximately $12.9 million in
cash, of which $9.9 million was paid at the closing, $1.7 million was paid in
March 2000 and $1.3 million is due in June 2001, after satisfaction of possible
working capital adjustments or indemnification obligations. In addition, we paid
approximately $3.2 million to retire outstanding indebtedness of Assist
Cornerstone and redeem all of its outstanding redeemable preferred stock.
SFG TECHNOLOGIES. In December 1999, we acquired SFG Technologies, a company
that sells software to utilities that utilities use to manage and monitor their
revenue cycles. We acquired SFG Technologies for $11.6 million in cash, of which
$9.5 million was paid at the closing, $600,000 was paid in March 2000 and
$1.5 million is due in June 2001, after satisfaction of possible working capital
adjustments or indemnification obligations. In addition, we paid approximately
$3.1 million to retire outstanding indebtedness of SFG Technologies and redeem
all of its outstanding redeemable preferred stock.
Each of these acquisitions was accounted for using the purchase method,
resulting in approximately $69.6 million of goodwill. The goodwill from the
Transnational Partners II, Mainsaver, Assist Cornerstone and SFG Technologies
acquisitions is being amortized over a five year period from the date of each of
the respective acquisitions.
As a result of these acquisitions, our revenues from sales of our software
applications have increased relative to our revenues from our consulting
services. Our revenues from our consulting services represented 94.6% of our
actual revenues during 1999 and our revenues from sales of our software
applications represented 5.4% of our actual revenues during 1999. During the
first quarter of 2000, our revenues from our consulting services represented
73.5% of our revenues and our revenues
25
<PAGE>
from sales of our software applications represented 26.5% of our revenues. As we
expand the portion of our business that is based on our TSP offering, we intend
to enter into multi-year contracts under which we will receive periodic
recurring fees from ongoing services that will be recognized as revenues ratably
over the applicable contract's term. To the extent that we enter into contracts
of this type, we expect that our revenues from consulting services on a
standalone basis and separate sales of software applications will begin to
decrease as a percentage of total revenues.
SOLIANCE. In addition, in September 1999, together with Sempra Energy
Information Solutions, a subsidiary of Sempra Energy, and modis, a company that
focuses on implementing software applications for its customers, we established
Soliance, which markets and delivers information technology products and
services, including TSP offerings, to customers in the utility industry. We
invested $5.0 million in cash for a 10% equity interest in the joint venture. We
could also be required to make up to $2.5 million in additional capital
contributions based upon the unanimous vote of ourselves, Sempra Energy
Information Solutions and modis if Soliance requires additional capital.
PRO FORMA RESULTS
Prior to our acquisitions of Mainsaver, Assist Cornerstone and SFG
Technologies, we were a profitable company. For example, we had net income of
$1.3 million for the year ended December 31, 1998 and net income of $2.6 million
for the nine months ended September 30, 1999. With our acquisitions of
Mainsaver, Assist Cornerstone and SFG Technologies during late 1999, each of
which has historically been unprofitable, we began to incur losses and expect
our losses to continue for the foreseeable future. We expect that the sources of
our future losses will be different from the sources of Mainsaver's, Assist
Cornerstone's and SFG Technologies' historical losses, which we are attempting
to eliminate by consolidating many of the selling, administrative and research
and development activities of those individual businesses. We expect that our
future losses will result primarily from our efforts to further develop our TSP
offering. As part of our efforts to further develop our TSP offering, we expect
our selling, general and administrative expenses to increase significantly as we
expand our recruiting and sales and marketing efforts, increase our direct sales
staff and build our administrative infrastructure. We also expect our research
and development expenses to increase as we integrate the software we acquired in
the Mainsaver, Assist Cornerstone and SFG Technologies acquisitions into our TSP
offering. We also expect that our future losses will result from the increased
interest expense associated with the borrowings that funded our recent
acquisitions, and the related amortization of goodwill associated with those
acquisitions. For the year ended December 31, 1999, on a pro forma basis, our
goodwill amortization expense was $14.0 million, and our goodwill amortization
expense was $3.5 million for the first quarter of 2000. We anticipate that our
future revenue sources will also be different from Mainsaver's, Assist
Cornerstone's and SFG Technologies' historical revenue sources. Mainsaver,
Assist Cornerstone and SFG Technologies all historically derived a substantial
portion of their revenues from licensing software and sales of hardware. While
we will continue to license our software and the software developed by
Mainsaver, Assist Cornerstone and SFG Technologies separately, we expect that an
increasing percentage of our future revenues will be generated by periodic
recurring fees from sales of our TSP offering under long-term contracts, and a
decreasing percentage of our future revenues will be generated by licensing of
software and hardware sales. Given these expected changes in the sources of our
future losses and revenues from what we have historically experienced, we
believe that our historical and pro forma historical financial information is
not, and should not be relied upon as, a meaningful indicator of our future
financial performance.
26
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------------
1999 2000
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME INFORMATION:
Revenues.................................................... 100.0% 100.0%
Cost of revenues............................................ 78.8 44.1
----- ------
Gross profit.............................................. 21.2 55.9
Selling, general and administrative expenses................ 14.5 72.7
Research and development expense............................ 0 7.5
----- ------
Income from operations...................................... 6.7% (24.3)%
</TABLE>
REVENUES. Revenues increased 135.3% to $15.7 million for the three months
ended March 31, 2000 from $6.7 million for the three months ended March 31,
1999. This increase in revenues was primarily a result of $7.6 million in
revenues contributed from the three companies acquired in the fourth quarter of
1999 and a new contract with Waste Management that accounted for $1.9 million,
which together more than offset a decrease in business from our government
customers as a percentage of total revenues.
COST OF REVENUES. Cost of revenues increased 31.8% to $6.9 million for the
three months ended March 31, 2000 from $5.3 million for the three months ended
March 31, 1999, primarily as a result of an increase in our work under our
consulting contracts and software license agreements and growth in our number of
billable personnel.
GROSS PROFIT MARGIN. Our gross profit margin increased to 55.9% for the
three months ended March 31, 2000 from 21.2% for the three months ended
March 31, 1999. This increase was primarily due to the increase in revenues from
the three companies acquired in the fourth quarter of 1999 and a decrease in
subcontractor costs resulting from the reduction in government-related business
described above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 1,076.9% to $11.4 million for the three months
ended March 31, 2000 from $969,000 for the three months ended March 31, 1999.
Selling, general and administrative expenses for the three months ended
March 31, 2000 consisted of $2.4 million in administrative costs from, and
$3.5 million of goodwill amortization relating to, the three companies acquired
in the fourth quarter of 1999, sales and marketing expense of approximately
$2.5 million, costs associated with the establishment of our network operating
center in San Diego of approximately $1.0 million, depreciation expense of
approximately $450,000, administrative expenses allocated to us from Titan of
approximately $400,000, rent of approximately $200,000, and approximately
$1.0 million in salaries and other expenses associated with non-billable members
of our consulting staff.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense for the
three months ended March 31, 2000 was $1.2 million, and consisted of expenses
related to the continued development of the software we acquired as part of the
acquisitions we completed during the fourth quarter of 1999.
INTEREST EXPENSE. Interest expense increased to $1.6 million for the three
months ended March 31, 2000 from $226,000 for the three months ended March 31,
1999. This increase in interest expense
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primarily related to borrowings from Titan to fund our three acquisitions in the
fourth quarter of 1999 and our working capital requirements.
INCOME TAX PROVISION. Because we were in a loss position for the three
months ended March 31, 2000, no provision for income taxes was recorded.
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------
1998 1999
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME INFORMATION:
Revenues.................................................... 100.0% 100.0%
Cost of revenues............................................ 61.3 70.4
----- -----
Gross profit.............................................. 38.7 29.6
Selling, general and administrative expenses................ 18.7 17.9
----- -----
Income from operations...................................... 20.0% 11.7%
</TABLE>
REVENUES. Revenues increased 232.9% to $40.3 million for the year ended
December 31, 1999 from $12.1 million for the year ended December 31, 1998. This
increase in revenues was primarily a result of a significant new contract with
the District of Columbia that accounted for $15.3 million in revenues in the
period, $12.5 million in revenues contributed by the Transnational Partners II
business that was acquired in January 1999, and $2.5 million in revenues
contributed as a result of the acquisition of three companies in the fourth
quarter of 1999.
COST OF REVENUES. Cost of revenues increased 282.5% to $28.4 million for
the year ended December 31, 1999 from $7.4 million for the year ended
December 31, 1998, primarily as a result of an increase in our work under our
consulting contracts and growth in our number of billable personnel, including
independent consultants, as a result of our acquisition of Transnational
Partners II. Our subcontract costs in our consulting business increased from
$3.2 million for the year ended December 31, 1998 to $13.9 million for the year
ended December 31, 1999 primarily because of our use of a subcontractor for a
majority of the work under our contract with the District of Columbia.
GROSS PROFIT MARGIN. Our gross profit margin decreased to 29.6% for the
year ended December 31, 1999 from 38.7% for the year ended December 31, 1998.
This decrease was primarily due to the increase in subcontract costs described
above. We anticipate that our gross profit margin will increase because we
expect to reduce our subcontract costs, increase our billable rates, and
generate higher margin sales from our TSP offering.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 219.9% to $7.2 million for the year ended
December 31, 1999 from $2.3 million for the year ended December 31, 1998. This
increase primarily related to increased personnel costs and lease expense as a
result of our acquisition of four companies in 1999. Selling, general and
administrative expenses as a percentage of revenues decreased to 17.9% for the
year ended December 31, 1999 from 18.7% for the year ended December 31, 1998.
This percentage decrease resulted from a higher proportion of our administrative
costs being billable to customers under some of our contracts. We expect
selling, general and administrative expenses to increase significantly as we
expand our recruiting efforts, further develop and launch our TSP offering,
increase our direct sales staff, and build our administrative infrastructure.
STOCK-BASED COMPENSATION. During 1999, we granted 4,344,141 options for
shares of our Class A common stock with an average exercise price of $1.69 per
share. These option grants resulted in deferred compensation to us calculated as
the difference between the fair market value of the shares of
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common stock underlying the option at the date of grant and the option exercise
price. The deferred compensation is amortized over the vesting period of the
underlying option which is four years. Accordingly, we recorded non-cash
compensation expense of $226,000 and deferred $1.6 million for the year ended
December 31, 1999. We expect that there will be an additional charge related to
deferred compensation at the time the initial public offering closes, and that
this charge will be material.
INTEREST EXPENSE. Interest expense increased to $1.7 million for the year
ended December 31, 1999 from $204,000 for the year ended December 31, 1998. This
increase in interest expense primarily related to borrowings from Titan to fund
our four acquisitions in 1999 and our working capital requirements.
INCOME TAX PROVISION. For 1999, we will be included in Titan's consolidated
federal income tax return. The provision for income taxes for the year ended
December 31, 1999 was $2.4 million compared to $908,000 for the year ended
December 31, 1998. Following completion of this offering, we expect to file
separate federal income tax returns beginning with our return for the year 2000.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF INCOME INFORMATION:
Revenues.................................................... 100.0% 100.0%
Cost of revenues............................................ 63.9 61.3
------- -------
Gross profit.............................................. 36.1 38.7
Selling, general and administrative expenses................ 16.7 18.7
------- -------
Income from operations...................................... 19.4% 20.0%
</TABLE>
REVENUES. Revenues increased 18.7% to $12.1 million for the year ended
December 31, 1998 from $10.2 million for the year ended December 31, 1997. The
increase in revenues was primarily a result of an increase in work for our
principal customer. In 1998 and 1997, substantially all of our revenues were
derived from the FAA.
COST OF REVENUES. Cost of revenues increased 13.8% to $7.4 million for the
year ended December 31, 1998 from $6.5 million for the year ended December 31,
1997. The increase in cost of revenues was primarily as a result of an increase
in our work under our consulting contract and related growth in our number of
billable personnel, including independent consultants.
GROSS PROFIT MARGIN. Our gross profit margin increased to 38.7% for the
year ended December 31, 1998 from 36.1% for the year ended December 31, 1997.
This improvement primarily related to increased productivity under our
fixed-time, fixed-price contracts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 32.5% to $2.3 million for the year ended
December 31, 1998 from $1.7 million for the year ended December 31, 1997. As a
percentage of revenues, selling, general and administrative expenses increased
to 18.7% for the year ended December 31, 1998 from 16.7% for the year ended
December 31, 1997. This increase was due to an increase in our marketing efforts
which did not generate revenues in the same period.
INTEREST EXPENSE. Interest expense increased to $204,000 for the year ended
December 31, 1998 from $139,000 for the year ended December 31, 1997. The
increase in interest expense related to borrowings from Titan to fund our
working capital requirements.
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INCOME TAX PROVISION. In each of 1998 and 1997, we were included in Titan's
consolidated federal income tax return. The provision for income taxes for the
year ended December 31, 1998 was $908,000, compared to $734,000 for the year
ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
We have used cash principally to acquire businesses and to fund working
capital. Our cash requirements have been met primarily through loans from Titan
and cash flows from operations. As of May 4, 2000, we owed approximately
$70.0 million to Titan under a subordinated, unsecured promissory note. We can
have a maximum of $70.0 million of indebtedness outstanding under this
promissory note at any one time. The promissory note is due in December 2004 and
bears interest, payable quarterly, at the greater of the rate of 10% per annum
or Titan's effective weighted average interest rate under its senior credit
facility, subject to applicable limits on interest rates established by law.
Titan's effective weighted average interest rate is calculated at any given
period of time by multiplying the daily balance of Titan's total bank debt
outstanding times the applicable interest rate for that day, which yields an
interest expense for that day. The sum of the daily interest expense amounts is
divided by the sum of the daily balances of the total bank debt outstanding to
yield a daily effective weighted average interest rate which is then multiplied
by 365 to yield an annual effective weighted average interest rate. Titan's
effective weighted average interest rate under its senior credit facility as of
May 4, 2000 was greater than 10.0%. We can prepay amounts outstanding under the
promissory note at any time without penalty. We may, with Titan's approval,
prepay amounts outstanding under the promissory note with the net proceeds of
any asset sales we make that are not in the ordinary course of business or if we
obtain a credit facility from a third party lender and the facility permits the
use of proceeds to repay existing indebtedness. We cannot use any of the
proceeds of this offering to pay amounts outstanding under the promissory note
or under any indebtedness we incur to refinance the promissory note.
In December 1999, Titan contributed its software integration division to us.
As part of this transaction, Titan contributed $7.0 million in cash and
eliminated $10.0 million of the division's debt to Titan for $17.0 million of
the division's accounts receivable.
Our operating activities used cash of $6.2 million for the three months
ended March 31, 2000, primarily due to increases in our accounts receivables and
prepaid expenses and a decrease in other accrued liabilities.
Our investing activities used cash of $11.9 million for the three months
ended March 31, 2000. This amount is comprised of $7.6 million to purchase
assets for our San Diego facility where our principal executive offices and one
of our network operating centers is located and $4.3 million in payments of
indebtedness that we incurred as part of acquiring Transnational Partners II and
Assist Cornerstone.
Our financing activities provided cash of $22.0 million for the three months
ended March 31, 2000. This amount is comprised of $17.8 million borrowed by us
from Titan to fund our operating and investing activities discussed above and
the net proceeds of $6.4 million from our sale of Class A common stock to Penton
Media, Inc., partially offset by cash used to satisfy debt and lease
obligations.
At March 31, 2000, we had $10.7 million of cash, working capital of $7.6
million and debt outstanding of $73.6 million. In February 2000, we entered into
a long term lease agreement on our corporate headquarters and network operating
center facility that requires future minimum lease payments totaling $6.6
million over the next seven years.
We expect to incur additional costs and expenditures as we further develop
our TSP offering. We also have additional commitments of up to approximately
$4.3 million that we will pay to the former owners of Mainsaver and Assist
Cornerstone, subject to the satisfaction of indemnification obligations
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owed to us by them under our agreements to acquire those companies. Of this
$4.3 million, $3.0 million is payable in May 2001 and $1.3 million is payable in
June 2001. We anticipate using a portion of the proceeds of this offering to pay
these amounts.
We expect capital expenditures to increase with the growth of our employee
and customer base. Capital expenditures for the next twelve months are currently
estimated to be $20.0 million. While we currently have no material commitments
for capital expenditures, we anticipate making capital expenditures for hardware
and infrastructure related to our TSP offering. We expect our sales and
marketing expenditures for the next twelve months to be approximately
$20.0 million, a portion of which we expect to use for a brand enhancement
campaign. We also expect to spend approximately $5.0 million to continue
developing our proprietary software applications. We anticipate using a portion
of the proceeds of this offering to pay these amounts.
We expect to experience significant growth in our operating expenses for the
foreseeable future. Accordingly, we currently anticipate that our operating
expenses, primarily general, administrative and network operating center
expenditures, and payroll and related costs will constitute a material use of
future cash resources. Without the expected proceeds from this offering, we
would seek to finance operations by requesting an increase in the amount
available to us under our subordinated promissory note with Titan. In addition,
subject to the approval of our board of directors, we would seek investments
from companies in industries that are attractive for our TSP offering. We
recently concluded our first such financing, receiving approximately
$6.4 million of net proceeds in connection with the sale of Class A common
shares to Penton Media, Inc., a business-to-business media company. If we did
not complete this offering and were unable to secure any such financing, we
would be unable to sustain our current level of growth and operations.
In periods after the next twelve months, we expect that we will continue to
evaluate our need for funds based on our assessment of access to public or
private capital markets and the timing of our need for funds. Other than any
cash flow from operations, we have not identified any specific sources of
liquidity or capital resources that we will use during periods that are after
the next twelve months. We may seek to raise additional funds through private or
public debt or equity financings. Titan may be opposed to us raising additional
capital when we believe it is desired or required. Additional capital may not be
available or, if available, may not be on terms we deem reasonable. Any future
financings may be dilutive in ownership, preferences, rights or privileges to
our stockholders.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We currently are exposed to market risks related to changes in interest
rates. Some of the proceeds of this offering may be invested in short-term,
interest-bearing, investment grade securities. The value of these securities
will be subject to interest rate risk and could fall in value if interest rates
rise. Additionally, our future borrowings will have a variable component that
will fluctuate as interest rates change. If market interest rates were to
increase immediately and uniformly by 10%, there would not be a material impact
on our results of operations or on our balance sheet.
We began receiving a portion of our revenues, and paying a portion of our
expenses, in Canadian dollars after our aquisition of SFG Technologies. Revenues
from our other international operations are denominated in U.S. dollars. At this
time, we do not believe that our international operations subject us to material
risks from fluctuations in currency exchange rates.
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BUSINESS
OVERVIEW
Our objective is to be a total services provider of information technology
products and services for our customers' business functions. We define a TSP as
an information technology services company that can provide software
applications and services to customers to solve specific business problems.
These services include providing information technology and business consulting
services as well as the implementation, operation and support of software
applications. These applications can be tailored for the customers' business
requirements and made accessible via the Internet. Historically, we have derived
our revenues from information technology consulting services and sales of our
proprietary software applications. In order to begin offering TSP services, we
expanded our consulting and software expertise by:
- increasing the accessibility over the Internet of our existing portfolio
of proprietary software applications;
- entering into agreements with Exodus Communications, Intel and Qwest that
allow us to install computers at data centers operated by these companies
that we use to host and manage software applications for our customers;
- constructing a network operating center in San Diego to complement our
existing network operating center in Reston, Virginia, each of which
enables us to monitor and support all the software applications deployed
at the data centers mentioned above; and
- forming a Business Services Management group to provide ongoing business
consulting services for customers utilizing our software applications.
The combination of these four components--information technology consulting,
identifying, licensing and integrating software applications, installing,
hosting and supporting these software applications at data centers, and
providing customized business services--create what we term a TSP offering. We
believe that our ability to offer our own software applications in addition to
identifying and delivering software applications that are commercially available
from third parties allows us to provide our customers with additional value. We
currently offer proprietary software applications and related customized
business services for e-commerce, revenue cycle management and equipment
maintenance and monitoring.
In addition to our network operating centers in San Diego, California and
Reston, Virginia, we have facilities located in Burnaby, British Columbia,
Orlando, Florida, Reston, Virginia, Salt Lake City, Utah, San Diego, California,
Washington, D.C., and Woodland Hills, California. Customers from whom we derived
1.0% or more of our revenues during 1999 on a pro forma basis include 800.com,
Dean & DeLuca, the District of Columbia, the Federal Aviation Administration,
Icon Health and Fitness, Oreck, Sempra Energy, Waste Management, the City of
Henderson, Nevada and Energy America. We provided TSP services to only one of
these customers, Energy America. We currently have approximately 333
professionals developing and implementing our services.
INDUSTRY BACKGROUND
The rapid growth of the Internet and increased frequency of e-business
transactions is creating significant new opportunities and challenges for
businesses. Businesses are using the Internet and other electronic means to
improve communications internally and with their trading partners, to enhance
operational efficiencies and to strengthen customer relationships. The impact of
the Internet encompasses both business-to-business and business-to-consumer
transactions.
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Businesses face significant technical challenges in their efforts to
capitalize on the opportunities presented by the Internet and the new electronic
commerce, including:
- developing comprehensive end-to-end e-business solutions that link web
sites with accounting and fulfillment systems and accommodate and account
for complex billing, settlement and supply-chain transactions;
- tailoring standard software applications to their business processes while
ensuring that these applications are compatible with those of their
trading partners;
- solving integration and compatibility issues caused by the patchwork of
proprietary and third party systems that businesses often implemented
without a focused information technology strategy;
- integrating data from disparate systems to increase its value; and
- adopting and integrating new and rapidly changing technologies while
preserving investments in existing systems.
Companies must meet these challenges while overcoming a number of obstacles,
including:
- capital constraints and total cost of ownership;
- technological obsolescence of many current systems;
- ensuring that e-business applications are available at all times;
- meeting increased online customer service demands; and
- attracting and retaining qualified information technology professionals.
Many businesses currently have to manage multiple software applications,
systems integrators and service vendors to address their challenges in doing
business over the Internet. Many information technology companies specialize in
only a single aspect of services delivery, such as web design, software
application development, systems integration or hosting of commercially
available software applications. For example, application service providers
generally only host and manage commercially available software applications at a
centrally managed facility. We believe that the complexity of combining all of
these elements from different providers makes it difficult for businesses to
implement e-business packages of information technology products and services in
a cost-effective and timely manner.
We believe that a significant market opportunity exists for information
technology providers such as ourselves that understand their customers'
businesses and provide customized software applications and consulting and
integration services. International Data Corporation expects the application
service provider market to grow from $300 million in 1999 to $7.7 billion in
2004, a compound annual growth rate of over 90%. We believe that the size of the
application service provider market demonstrates the market opportunity that
exists for our TSP offering, which provides consulting and application
integration services in addition to those services offered by application
service providers.
THE CAYENTA SOLUTION
We offer tailored information technology products and services for customers
seeking timely delivery of cost-effective and comprehensive solutions for their
business requirements. We believe that the following features of our information
technology products and services differentiate us from our competitors:
WE OFFER A COMPLETE TSP OFFERING. We operate, host, manage and support
standard and proprietary software applications tailored for our customers'
business processes, including e-business, finance, accounting, customer billing
and collection, contract management, supply chain management and equipment
maintenance and monitoring. We expand upon the delivery and hosting of
commercially
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available third party software applications that companies called application
service providers generally provide for their customers away from their
customers' sites at centrally managed facilities. We tailor and enhance these
software applications to our customers' requirements, and make our customers'
internal and hosted software applications compatible with their internal systems
and with the systems of their trading partners. We also offer our customers
management services for their systems, including monitoring and control of
software applications, interfaces, servers, networks and customer work stations.
Our TSP offering is based on software engineering practices that we have
developed over time, our expertise in integrating and implementing systems and
software applications, and our experience with particular industries. We believe
our TSP offering provides our customers with a number of benefits over
internally developed and hosted systems, including lower and more predictable
capital and operating costs, quicker deployment and greater adaptability,
scalability and reliability. We also offer most elements of our TSP offering
separately. For example, our customers can lease or license specific software
applications without purchasing our complete TSP offering.
WE OFFER A COMPLETE E-BUSINESS PACKAGE OF INFORMATION TECHNOLOGY PRODUCTS
AND SERVICES. We integrate a customer's existing web site and business support
systems with our proprietary software applications for order processing, catalog
management, customer service, inventory management, order fulfillment, billing,
collections, and account settlement. We also maintain relationships with third
party vendors that provide many of the supporting services used in e-business,
including banking, shipping, credit verification and telecommunications. We
believe that this e-business package provides our customers with a single point
of contact for managing and monitoring all of their e-business transactions.
WE OFFER SOFTWARE APPLICATIONS THAT MANAGE CUSTOMERS' REVENUE CYCLES. We
offer software applications that our customers use to track, collect and settle
billing and payment transactions with their customers and trading partners.
These software applications help our customers' address their needs relating to
customer enrollment, credit worthiness, purchasing, contract management, bill
generation, bill presentment, collections and settlement. We have tailored these
software applications for utilities and basic service providers, such as waste
disposal companies, as well as customers doing business over the Internet. Our
software also provides audit and compliance functions that our customers use to
manage the complex contract terms that are prevalent in e-business and their
receivables and fulfillment process. By using our software for their revenue
cycles, we believe that our customers are better able to analyze and improve
their cost structure.
WE INCREASE THE OPERABILITY AND ADAPTABILITY OF OUR CUSTOMERS' SYSTEMS. We
design server operating systems and software applications that permit our
customers to integrate different systems within their organizations and between
their organizations and those of their trading partners. Our information
technology products and services also accommodate customer technology
preferences for server operating systems, and facilitate accessibility of
software applications over the Internet. These features of our information
technology products and services are based in part on our software, which
supports multiple open source software standards. We use open source systems
such as Linux because these systems have underlying computer code that is
accessible to software developers and contributes to the development of systems
that can communicate and operate with other systems. By providing our customers'
systems with greater operability, we believe that our information technology
products and services reduce their manual and redundant business processes and
related costs, and enable them to use their systems to help create new business
relationships with other companies. By being adaptable, we believe that our
information technology products and services permit our customers to add or
change software applications rapidly as their businesses evolve.
WE TAILOR OUR INFORMATION TECHNOLOGY PRODUCTS AND SERVICES FOR OUR
CUSTOMERS' BUSINESS PROCESSES. We allow our customers to add additional
functions to standard software applications that are specific to their business
needs. We add these functions by using separate, tailored software applications
that extend the capabilities of standard software applications. For example,
based on our expertise in
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specific industries, such as utilities and retailing, we have created software
applications that are tailored for those industries. When we use those software
applications for particular customers in those industries, we then further
modify them so as to better address those customers' specific business needs.
Our industry expertise helps us define and deliver tailored information
technology products and services for our customers' industries and markets. In
addition, we believe that our reusable software applications and processes
enable us to deliver our information technology products and services more
quickly and reliably and thereby benefit our customers.
CAYENTA STRATEGY
Our objective is to become the leading TSP. In order to achieve this
objective, we intend to pursue the following strategies:
BUILD OUR TSP CUSTOMER BASE. We intend to market our TSP offering to
existing customers of our software applications or consulting services as they
replace or upgrade systems or increase their e-business activities. We will also
market our TSP offering to new customers by developing an industry-focused
direct sales force specializing in TSP sales. We will provide special incentives
to our sales force to increase sales of our TSP offering to existing customers
of our software applications or consulting services. We also intend to create
new sales channels for our TSP offering by developing relationships with hosting
companies and third party software providers. We believe our TSP offering will
allow us to establish stronger relationships with customers, provide a recurring
revenue stream, and enable us to sell additional services.
CONTINUE TO ENHANCE OUR TSP OFFERING. We intend to expand our TSP offering
by establishing additional network operating centers where we will monitor,
manage and support information technology products and services that we have
deployed for our customers, including elements of our TSP offering provided by
third parties. We also intend to establish additional facilities near our
customers where our customers will collaborate with us in developing the
information technology products and services that we will provide to them. We
further intend to enhance our TSP offering by adding functions that address
other business processes, such as customer relationship management. We plan to
add these new functions by establishing strategic alliances, enhancing our
current software applications, and entering into supply and service agreements
with companies that are in industries we are targeting or that provide
technology that we consider attractive for our TSP offering.
TARGET SPECIFIC INDUSTRIES. We target industries with complex and
substantial information technology requirements. We currently have expertise in
multiple industries, including utilities, telecommunications and retail. We
intend to further penetrate these industries by establishing strategic alliances
and joint ventures with companies in those industries and by hiring senior
executives from within these industries. As part of these efforts, we intend to
develop information technology products and services tailored for particular
industries in collaboration with participants in those industries. We also
expect to enter into joint arrangements with customers to resell information
technology products and services that we have developed for those customers. For
example, through Soliance we provide TSP services to Soliance's customers in the
utility industry. We expect that these ventures will provide us with
opportunities to broaden our technical offerings and to create new sales and
marketing channels. We believe that focusing on several specific industries
provides us with a competitive advantage in developing information technology
products and services for those industries, and expands our market coverage
while decreasing our dependence on individual industries.
PROMOTE THE CAYENTA BRAND. Our goal is to create brand recognition of
Cayenta as the leading TSP. To promote our brand and attempt to differentiate
ourselves from our competitors, we intend to expand our corporate marketing and
advertising efforts, with the specific objective of targeting selected
industries.
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PURSUE RESCUE MISSIONS. We plan to provide rescue services for customers
faced with failing information technology projects and to use these rescue
projects to establish long-term customer relationships. We believe that
providing these services will result in sustained revenues and future
opportunities to sell our TSP offering.
ATTRACT AND TRAIN QUALIFIED PERSONNEL. To expand our business and satisfy
anticipated increases in customer demand for our TSP offering, we intend to
aggressively recruit new staff. We also may add new staff through strategic
acquisitions. We believe opening new facilities that allow us to support our
customers locally will relieve our staff's travel burdens and be attractive to
potential technical and consulting employees.
CONTINUE TO DEVELOP CORE COMPETENCIES. We intend to expand our expertise in
building and deploying software applications and in integrating our customers'
internal systems with one another and with those of their trading partners. We
intend to continue incorporating technologies that support our customers'
complex information technology needs into both standard and tailored software
applications that we design and implement for customers. We seek out and test
new technologies as part of our internal research activities and in conjunction
with customer projects. We augment our software offerings by utilizing open
source software that is publicly published and available for reuse from
Internet-based and other software development initiatives. We believe that our
ability to successfully implement information technology products and services
for our customers that incorporate leading technology enables us to gain insight
into the relative strengths and weaknesses of competing technologies and to sell
value-added consulting and integration services.
THE CAYENTA APPROACH
We have a specific delivery approach that we believe enables us to
predictably and efficiently deliver our information technology products and
services. Our approach facilitates early identification of customers' needs, the
scope of required solutions, and the time and resources necessary to complete
the project. We structure our projects into distinct phases and iteratively
develop our information technology products and services in collaboration with
our customers. Our approach results in the delivery of information technology
products and services that are designed to evolve and accommodate the
continually changing nature of business and technical environments. Our approach
is comprised of five separate, related phases--assessment, design, construction,
production staging and operations.
ASSESSMENT. We begin all of our projects by performing a strategic needs
assessment analysis to help ensure that the information technology products and
services we create and provide meet our customers' business needs. Based on our
strategic needs assessment analysis, we create a blueprint for a comprehensive
solution to the identified needs of our customers. The blueprint combines
software applications, system configuration information, specialized software
and hardware specifications. These blueprints serve as the guide for our future
design and development work.
DESIGN. Our designs are based on principles that we believe provide a
critical foundation for the successful design, development, implementation,
operation and evolution of our information technology products and services.
These principles include strict separation of software, utilization of open
source systems and avoidance of proprietary vendor systems. These principles
facilitate implementation of our information technology products and services
across multiple computers and networks. Our system designs include both
functional aspects that we believe contribute to the quality of the end-user's
experience and management aspects that system administrators seek to help ensure
reliability and scalability.
CONSTRUCTION. During construction, we write software and configure software
applications based on our designs. As part of the construction process, we test
the information technology products and services that we have created against
the requirements defined during our strategic needs assessment.
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We construct our software applications in part from existing, proven software
both to minimize time-consuming software development and to increase system
reliability.
PRODUCTION STAGING. The production staging phase of our approach is
designed to ensure the successful deployment into operations of our information
technology products and services. This phase includes the configuration of
system servers and networks, including Internet and intranet connections. We
also conduct parallel testing with existing systems when necessary, and conduct
final performance testing and refinement. We institute procedures needed to
support those products and services during operations and provide training for
end-users and system administrators.
OPERATIONS. We provide ongoing operational support of our information
technology products and services. We provide both systems administration
functions, like back-up and maintenance of software applications and networks,
and other value-added services for our customers. Value-added services include
management of third party suppliers, such as telecommunications, credit
checking, printing and transportation providers. We also apply our industry
expertise to perform business functions that are supported by information
technology products and services we have developed and implemented for customers
when those customers request those services. For example, utility customers who
use our software applications for monitoring and managing their revenue cycles
may ask us to help them implement a rate change.
We believe that key competitive advantages of our approach include:
USE OF STATISTICAL ANALYSIS. We have used a variety of statistical
techniques from the fields of operations research, management science and
systems engineering to help design information technology products and
services for our customers. These techniques help us to develop blueprints
for our customers' problems and select the systems and services that we
believe are the best fit for the customers' requirements.
REUSABLE PROCESS AND SOFTWARE APPLICATIONS. Our process and software
applications enable our engineers to reuse rather than reinvent process and
software applications that have proven to be effective for our customers. We
believe that this allows us to provide our information technology products
and services more efficiently to customers and to readily share staff across
projects. We also believe that our use of reusable process and software
applications improves the quality of the information technology products and
services that we deliver to our customers because those applications are
refined over time as they are included in products and services that we
deliver to multiple customers.
INDUSTRY EXPERTISE. We continue to increase our technical staff with
industry expertise in our target markets. This industry experience helps us
to develop process and software applications that we use in templates for
industry-specific information technology products and services. These
templates contain model problem-solving approaches, project plans, software
configuration settings, interfaces, and system integration components that
we can reuse for customers in those industries. We believe that using these
templates permits us to rapidly deploy proven information technology
products and services that reflect best practices in a particular industry
for our customers in that industry.
COLLABORATION WITH CUSTOMERS. We develop our information technology
products and services in collaboration with our customers at facilities that
we maintain for that purpose. These facilities provide complete access to
our reusable process and software applications and industry-specific
templates. We believe that these facilities enable us to provide high
quality customer service and that our work with our customers at these
facilities helps us to develop long-term customer relationships.
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CUSTOMER SOLUTIONS
The following case studies are representative of the different types of
information technology products and services that we provide our customers. Each
of the customers selected represented at least 1.0% of our 1999 revenues on a
pro forma basis. We provided TSP services to only one of these customers, Energy
America.
SEMPRA ENERGY CHALLENGE:
To facilitate the integration of the information technology operations of
two large utilities whose parent companies merged and develop information
technology products and services to support Sempra Energy's operations in the
deregulated industry.
OUR SOLUTION:
As an initial step, we developed software tools to support Sempra Energy's
move from a centralized, mainframe-based computing system to a distributed,
server- and desktop-based computing system. We then integrated third-party
supply chain management software with Sempra Energy's existing computing systems
in less than 200 days, developed a new billing and contract management system
that Sempra Energy uses for its operations in the deregulated utility
environment, and deployed Internet business applications for our customer. We
also created training and mentoring programs to assist Sempra Energy's
information technology staff in their transition to these new systems.
ENERGY AMERICA CHALLENGE:
To quickly deploy and integrate software applications to help manage the
revenue generation and customer support processes of a rapidly growing retailer
of gas and electricity, and to provide ongoing operational support as a TSP
through Soliance.
OUR SOLUTION:
We provided customer enrollment, contract management, and customer billing
and care software applications to Energy America that facilitate its entrance
into new markets. We also integrated Energy America's systems for accounting and
wholesale commodity purchases with the systems of its third-party banking,
utility, and printing service providers. As part of our TSP offering through
Soliance, we assist Energy America in developing new rates for its services,
resolving customer disputes, and analyzing its operations. Energy America uses
this analysis both for internal use as well as to help satisfy certain
regulatory requirements.
FEDERAL AVIATION ADMINISTRATION CHALLENGE:
To create a unified information system to monitor and analyze the status of
the U.S. air traffic control system for the FAA.
OUR SOLUTION:
We developed software applications that can be delivered over the Internet
and that link the major information systems of the FAA. Our software organizes,
consolidates and segments data from the FAA's disparate operational and
reporting systems and allows users to monitor and analyze the operating
performance of the U.S. air traffic control system. This software application is
accessible on the FAA's intranet using standard web browser technology.
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WASTE MANAGEMENT CHALLENGE:
To provide Waste Management with scalable information technology products
and services that integrate operations resulting from its merger and acquisition
activity.
OUR SOLUTION:
In one week, we created web-based tools that enable Waste Management to
monitor financial and key operational measures. We also provided a complete
information technology system blueprint to help Waste Management develop an
information technology strategy and enhance its use of information technology.
This blueprint included recommendations for software applications, system
integration and management, data warehousing, and Internet strategy. We also
recommended improvements in Waste Management's revenue generation and billing
and support systems. We continue to build and deploy Internet-based tools to
help Waste Management better manage its core waste disposal operations.
800.COM CHALLENGE:
To create a scalable e-business system for an Internet retailer of consumer
electronics and home entertainment products.
OUR SOLUTION:
We installed our e-business software applications for 800.com's order
processing and other revenue cycle transactions. We integrated our e-business
software applications with 800.com's web site and its back-end accounting and
fulfillment systems. The resulting system reduces the manual portion of
800.com's business processes, and enables it to handle over 10,000 orders per
day and provide customer care over the Internet and through its call centers.
With our system, 800.com can recognize and process an order as soon as it is
placed.
HISTORY
We trace our history to the commercial software systems division of Titan
formed in 1997 in Reston, Virginia, and to Transnational Partners II formed in
1996 in San Diego, California. Titan's software systems division was formed to
perform software integration, data warehousing and other information technology
services for non-defense governmental agencies and commercial customers. Between
1997 and March 31, 2000, the division provided a total of $24.6 million in
services to the FAA. Transnational Partners II was formed by our Chief Executive
Officer and our Chief Technology Officer to perform a multi-year contract for
Sempra Energy to redesign its technology infrastructure. We continue to provide
services to the FAA and Sempra Energy.
Through the combination of the Titan division and the Transnational
Partners II business, we gained critical size in the number of professional
personnel we needed to perform more contracts for the large customers we target.
Through our work with these large customers, we gained insight into our
customers' need for a service provider that would have a greater understanding
of the customer's information technology strategy and systems and provide more
customized and comprehensive services than specialty vendors who focus on a
single application or service. As a result, we decided to become a TSP. In order
to deliver a comprehensive package, we determined that we should acquire certain
critical software applications that we could offer as part of our TSP offering.
As a result, we identified software applications supporting e-commerce as an
essential part of the offering and acquired Assist Cornerstone. We also acquired
Mainsaver and SFG Technologies to acquire equipment maintenance and revenue
cycle software applications. These acquisitions added approximately 240
additional personnel. The software applications that we acquired are described
below.
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MAINSAVER--EQUIPMENT MAINTENANCE AND MONITORING SOFTWARE. Mainsaver's
software is used by its customers to manage their equipment maintenance
processes. This software addresses maintenance scheduling, materials and parts
management, and work order processing. We believe that the addition of
Mainsaver's software to our TSP offering will increase the attractiveness of our
TSP offering to industries whose substantial asset bases require maintenance and
repair, such as utilities, transportation, and facilities management operations.
ASSIST CORNERSTONE--E-COMMERCE SOFTWARE. Assist Cornerstone's software
provides general ledger, accounts receivable, accounts payable, financial report
preparation, order entry, purchasing, customer care, inventory management, and
sales and order analysis functions, allowing customers engaged in e-commerce to
immediately monitor transactions from order receipt to fulfillment. Assist
Cornerstone's software integrates these functions with a customer's e-commerce
web site.
SFG TECHNOLOGIES--REVENUE CYCLE SOFTWARE. SFG Technologies provides
software for utilities' revenue generating and third party settlement
transactions. This software supports delivery of multiple utility services, such
as electric, gas and water, and helps our customers to improve productivity,
expand business capacity, and enhance customer service. Prior to our acquisition
of SFG Technologies, we included its software applications as part of the
information technology products and services that we provided for Sempra Energy
and Energy America.
CUSTOMERS
The following is a list of customers from whom we derived 1.0% or more of
our revenues during 1999 on a pro forma basis:
<TABLE>
<S> <C>
800.com Icon Health and Fitness
Dean & DeLuca Oreck Corporation
District of Columbia Sempra Energy
Federal Aviation Administration Waste Management
City of Henderson, Nevada Energy America
</TABLE>
We provided TSP services to only one of these customers, Energy America.
For the year ended December 31, 1999, revenues from the District of Columbia
accounted for approximately 38.1% of our actual revenues and approximately 23.4%
of our pro forma revenues, revenues from Sempra Energy accounted for
approximately 26.8% of our actual revenues and approximately 18.9% of our pro
forma revenues, and revenues from the FAA accounted for approximately 21.0% of
our actual revenues and approximately 12.9% of our pro forma revenues. During
the first quarter of 2000, revenues from the District of Columbia accounted for
3.5% of our revenues, revenues from Sempra Energy accounted for 15.1% of our
revenues, and revenues from the FAA accounted for 6.6% of our revenues. Revenues
from our work for Waste Management also accounted for 12.2% of our revenues
during the first quarter of 2000. In addition, during 1999, government business
accounted for approximately 61.3% of our actual revenues and approximately 43.1%
of our pro forma revenues. Revenues from government business accounted for
approximately 14.4% of our revenues during the first quarter of 2000. Our
contracts with government agencies are typically only funded on an annual basis,
and those agencies may cancel our contracts at any time without penalty or
change their contract requirements or contract budgets. We continue to provide
the information technology products and services described in "--Customer
solutions" above to the FAA although our contract with it has expired.
We believe that we will continue to derive a significant portion of our
revenues from a limited number of customers during 2000. We expect to focus our
sales and marketing efforts on entering into large, multi-year contracts for our
TSP offering with companies that have complex and substantial information
technology requirements. Any such contracts we enter into will begin to
represent an
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increasing portion of our revenues during 2000. In addition, we have several
existing contracts that we also expect to provide significant revenues during
2000. If any of these customers do not need or want to engage us to develop and
implement additional information technology products and services for them or
cancel or modify their contracts with us and we are not able to sell our
information technology products and services to new customers at comparable or
greater levels, our revenue will decline significantly.
PROFESSIONAL ENVIRONMENT
Our success depends in substantial part on our ability to recruit, train and
retain qualified information technology services professionals. In order to do
so, we strive to create a professional environment in which our employees can be
creative and enhance their skills. These efforts consist of:
- offering opportunities for rotation between technical assignments to
ensure that our employees do not feel their opportunities for professional
growth are limited;
- developing "Cayenta University" which will include formal product training
for the technologies and products that we use and support; and
- allowing our professionals opportunities to use leading technologies which
provide them with continuing intellectual challenge and maintain and
enhance their skills.
In addition, we have a result-oriented culture that rewards employees for
successfully fulfilling customer expectations. These incentives include
merit-based compensation, on-the-spot bonuses for effective problem-solving
under pressure, and additional stock options.
We believe that the availability of these opportunities and incentives helps
maintain the entrepreneurial nature of our organization and provides our
employees with tangible evidence that we value their work and commitment. We
also believe that these opportunities and incentives have played and will
continue to play a significant role in our ability to attract and retain talent.
This new talent will supplement our core group of professionals who have worked
together in a variety of organizations for several years.
To attract qualified personnel, we maintain an internal recruiting
organization and use professional search firms. We also make extensive use of
Internet job search sites and grant special bonuses to our employees for
successful recruiting efforts.
MARKETING, SALES AND RELATED ALLIANCES
RECENT AGREEMENTS WITH PENTON. On March 30, 2000, we entered into a series
of agreements with Penton Media, Inc. pursuant to which Penton engaged us to
develop a business-to-business Internet marketplace serving the natural health
products industry for its division, Healthwell.com. As part of these agreements,
Penton is providing us with marketing opportunities, including advertising in
its publications, which include INTERNET WORLD, BOARDWATCH and INDUSTRY WEEK
magazines, and exhibit space at its industry tradeshows, which include the
INTERNET WORLD and ISPCON shows. These marketing opportunities will be provided
by Penton to us without charge for two years in an amount that has a value, at
prevailing rates, equal to $1.0 million per year. In connection with these
agreements, Penton purchased 516,250 shares of Class A common stock at a price
per share of $12.34. We will also be receiving consulting fees in connection
with our work for Penton under these agreements.
MARKETING. Our marketing goal is to generate significant brand awareness of
Cayenta and our TSP offering. We target industries that have complex and
substantial information technology requirements. Our internal marketing and
advertising staff is working with a professional communications firm that we
have retained to establish our brand identity.
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Our direct marketing activities include direct mail, e-mail and seminars
targeted at senior executives of large companies that are seeking to establish
an e-business presence or that require redesigned e-business systems. We also
target emerging Internet companies that seek a scalable end-to-end e-business
system. We participate in cooperative marketing and trade show programs with
providers of software, hardware and other parts of our TSP offering. In
addition, we seek opportunities for our executives and technical staff to
publish articles and speak at industry forums.
SALES. We have organized our sales teams to execute our strategy of
increasing sales of our TSP offering to existing customers of our software
applications or consulting services. We have recently created a staff of
business development professionals who are teamed with our field sales
representatives to sell our TSP offering to existing and prospective customers.
Our information technology products and services are offered broadly in
North America through a direct sales organization based in the United States,
and on a limited basis in Europe through a dedicated distributor based in the
United Kingdom. Currently, we have approximately 60 sales and business
development representatives located in cities throughout North America,
including Atlanta, Georgia, Boston, Massachusetts, Chicago, Illinois, Dallas,
Texas, Los Angeles, California, Orlando, Florida, Reston, Virginia, Salt Lake
City, Utah, Seattle, Washington and Vancouver, British Columbia. We intend to
expand our sales organization both domestically and internationally. To date,
our revenues from sales of our information technology products and services to
customers located outside the United States have not been significant.
We have developed programs to attract and retain high quality, motivated
business development, sales, pre-sales, and post-sales support personnel. The
complexity of our customers' information technology requirements neccessitates
that we hire personnel with a high degree of technical knowledge. We seek people
who have selling skills in addition to technical expertise. We also intend to
recruit executives in selected industries whose reputation and relationships
within those industries will create opportunities for sales of our TSP offering.
SERVICE AND SUPPLY AGREEMENTS. We have agreements with Exodus
Communications, Intel and Qwest that allow us to install computers at data
centers operated by these companies that we use to host and manage software
applications for our customers. We intend to market our information technology
products and services to their customers.
We also have entered into supply and service agreements with providers of
hardware, software and other parts of our TSP offering that we consider to be
among the most credible providers of those information technology products and
services available in the marketplace today, including:
- hardware: Hewlett-Packard, IBM, and Sun Microsystems;
- software: Microsoft, Oracle, SAP, Cognos, Harbinger, and QAD; and
- business providers: Doculink, Group 1 Software, Tava Technologies, Metamor
Worldwide, and modis.
These agreements allow us to resell or incorporate these companies'
technology into our information technology products and services and provide us
with insight into industry trends.
RELATED ALLIANCES. We plan to pursue strategic alliances with software,
telecommunications and hardware providers, as well as companies in selected
industries. As part of these efforts, we intend to develop joint sales and
marketing arrangements that will enable us to offer our information technology
products and services to their customers and develop additional marketing and
sales channels.
We market our TSP offering to the utility industry through our Soliance
joint venture, which in general provides information technology products and
services to utilities. Each member of the joint venture contributes its unique
expertise to the information technology products and services that the
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joint venture provides to its customers. Sempra Energy Information Solutions
provides knowledge of the utility industry and operational support. Modis
provides its expertise in implementing software applications. We provide our
expertise in developing and implementing software applications and in
integrating Soliance's customers' internal systems with one another and those of
their trading partners. In addition, each of Sempra Energy Information
Solutions, modis and us provide Soliance's customers' with consulting services
based on our respective areas of expertise.
COMPETITION
The information technology services business is intensely competitive and
subject to rapid technological change. We expect the competition to continue and
intensify. Our competitors include:
- application service providers, such as Breakaway Solutions and
USinternetworking;
- information technology service providers, such as Andersen Consulting,
Answerthink, Cambridge Technology, EDS, KPMG, Sapient and Tanning
Technology; and
- Internet professional service providers, such as Proxicom, Scient, and US
Interactive.
In comparison with us, many of our competitors are larger, and have more
brand recognition and substantially greater financial, infrastructure, personnel
and marketing resources. In addition, there are low barriers to entry into our
business. We do not own any technologies that preclude or inhibit competitors
from entering our industry. Existing or future competitors may independently
develop and patent or copyright technologies that are superior or substantially
similar to our technologies. The costs to develop and to provide information
technology services are relatively low. Moreover, barriers to entry,
particularly in the areas of information technology consulting and integrating
software applications, are low. Therefore, we expect to continue to face
additional competition from new entrants into our industry. For example, we
expect software product companies to become a competitor in the future.
We believe that the principal competitive factors in our business are:
- client value and service;
- the reputation and experience of personnel delivering solutions and
services;
- the success and reliability of the delivered solution and service;
- technical knowledge and creative skills; and
- the ability to attract and retain professionals.
We believe that we presently compete favorably with respect to each of these
factors. The market for our information technology products and services is
evolving, however, and we cannot be certain that we will compete successfully in
the future.
INTELLECTUAL PROPERTY
We have developed proprietary process and software applications,
industry-specific templates, software engineering practices, and tools in
connection with delivering our information technology products and services. We
rely on a combination of trade secret, copyright and trademark laws to protect
our proprietary rights. In particular, we require each of our key employees to
sign an invention and non-disclosure agreement which provides that they must
maintain the confidentiality of our intellectual property, and that any
intellectual property which they develop while employed by us is our property.
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EMPLOYEES
As of April 28, 2000, we had a total of 435 employees, consisting of 22 in
our network operating center group, 91 in our software development and
documentation group, 55 in our customer service group, 165 in our consulting
group, 56 in the sales and marketing group and 46 in the administrative group.
No employees are represented by a labor union, and we consider our employee
relations to be good.
FACILITIES
We have leased a 45,000 square foot facility in San Diego that we use as our
principal executive offices and as a network operating center where we monitor,
manage and support information technology products and services that we have
developed and implemented for our customers. We currently have facilities where
we develop our information technology products and services in Burnaby, British
Columbia, Orlando, Florida, Reston, Virginia, Salt Lake City, Utah, San Diego,
California, Washington, D.C., and Woodland Hills, California. These facilities
have square footage which ranges between 3,600 and 52,496 square feet and are
under leases expiring over the next seven years. We also have an additional
lease for a facility of approximately 7,150 square feet in San Diego that
expires in March 2004. We intend to add facilities and, to a lesser extent,
network operating centers to serve the purposes described above in locations
near our customers, and will need to obtain access to appropriate facilities in
order to do so. In addition, while we consider our current and planned
facilities in San Diego and elsewhere adequate for current operations, we expect
that we will need to lease additional facilities in those locations as our
operations expand.
LEGAL PROCEEDINGS
We are not presently involved in any material legal proceedings. However, we
are subject to litigation from time to time in the ordinary course of our
business, and we may in the future become subject to litigation that may have a
material adverse affect on our business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information about our directors,
executive officers and key employees as of May 5, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- --------
<S> <C> <C>
David P. Porreca.......................... 58 President, Chief Executive Officer and Director
Robert E. La Blanc........................ 66 Director
Paul Melchiorre........................... 39 Director
John C. Arme.............................. 64 Director
Gene W. Ray............................... 62 Chairman of the Board of Directors
William G. Atkinson....................... 46 Senior Vice President, Sales and Marketing
Nicholas J. Costanza...................... Senior Vice President, General Counsel and
44 Secretary
Eric M. DeMarco........................... 36 Executive Vice President
Edward M. Lake............................ 45 Senior Vice President and Chief Financial Officer
Curtis R. Smith........................... 43 Senior Vice President, Finance and Operations
Gregory R. Smith.......................... 42 Chief Technical Officer
</TABLE>
DAVID P. PORRECA has served as our President, Chief Executive Officer and as
one of our directors since January 12, 1999. From June 1995 to December 1998 he
served as Chief Executive Officer and Senior Member of Transnational
Partners II, a company that focused on systems integration and architecture.
From August 1989 to June 1995 he served as Chief Executive Officer of Expersoft
Corporation, a software development and services company. Mr. Porreca received a
Bachelor of Science from Niagara University and a Master of Science from Alfred
University.
ROBERT E. LA BLANC has served as one of our Directors since September 1997.
He was a General Partner with Salomon Brothers, an investment banking firm, from
1969 to 1979. From 1979 to 1981 he was Vice Chairman of Continental
Telecom, Inc., after which he founded and has been the President of Robert E. La
Blanc Associates, Inc., a financial and technologies consulting firm. He
currently serves on the board of directors of The Titan Corporation, a
diversified technology company that provides information technology,
communications and electron beam food pasteurization and medical product
sterilization systems and services. Salient 3 Communications, Inc., a
telecommunications equipment and services company, Storage Technology Corp., a
provider of network computing storage, Tribune Company, a media company,
Chartered Semiconductor Manufacturing Ltd., a semiconductor manufacturer, and a
family of Prudential mutual funds. Mr. La Blanc received a Bachelor of Science
from Manhattan College and a Master in Business Administration from New York
University.
PAUL MELCHIORRE has served as one of our Directors since May 2000. Since
June 1998, Mr. Melchoirre has been the Vice President of North American
Operations for Ariba, Inc., a provider of a system which manages
business-to-business commerce on the Internet. From January 1993 to May 1998,
Mr. Melchoirre held various positions at SAP America, Inc., most recently as the
Senior Vice President for Global Accounts. From June 1986 to December 1992, he
was a Regional Vice President with MAI Basic 4. Mr. Melchoirre received a
Bachelor of Science from Villanova University and a Masters in Business
Administration from Drexel University.
JOHN C. ARME has served as one of our Directors since May 2000. From July
1957 to 1992, Mr. Arme was an accountant at Arthur Andersen & Co., having served
as a partner in the firm's audit division since 1972. Since March 1992, he has
served as a member of the board of directors of St. Ambrose University. Since
June 1985, Mr. Arme has served as a member of the board of directors of
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the Institute of Management Accountants. Mr. Arme received his Bachelor of Arts
degree from St. Ambrose University.
GENE W. RAY has served as one of our Directors and our Chairman since
September 1997. He was a co-founder of Titan Systems, Inc., the parent of which
merged into The Titan Corporation in 1985. He served as a Director, Chief
Executive Officer and President of Titan Systems from its inception in 1981
until the merger. He has been President and Chief Executive Officer of The Titan
Corporation since the merger and became Chairman of the Board in 1999. He
currently serves on the board of directors of The Titan Corporation, a
diversified technology company that provides information technology,
communications and electron beam food pasteurization and medical product
sterilization systems and services. Dr. Ray received a Bachelor of Science from
Murray State and a Master of Science and Ph.D. from the University of Tennessee.
WILLIAM G. ATKINSON has served as our Senior Vice President, Sales and
Marketing since October 1999. From March 1999 to October 1999 he served as
Senior Vice President of Worldwide Sales of Vertel Corporation, a
telecommunications software company. From October 1996 to March 1999 he served
in various positions, including Vice President Worldwide Sales, Chief Financial
Officer, Chief Executive Officer and Chairman of the Board of Directors of
Expersoft Corporation, a software development and services company. Prior to
October 1996, he held a variety of sales and management positions with Arbor
Software, a financial applications software company, and Dun & Bradstreet
Software, an enterprise resource planning application software company.
Mr. Atkinson received his Bachelor of Science from Northern Illinois University.
NICHOLAS J. COSTANZA has served as our Senior Vice President, General
Counsel and Secretary, since August 1999. Mr. Costanza has also served as Senior
Vice President, General Counsel and Secretary of The Titan Corporation since
August 1999. From mid-1998 to the end of 1998 he was Executive Vice President,
General Counsel and Secretary of Enfinity Corporation, a manufacturing company.
From 1980 to early 1998, he held various positions at Exide Electronics Group,
Inc., a manufacturing company, most recently as Vice President, Chief
Administrative Officer, General Counsel and Secretary. Mr. Costanza received a
Bachelor of Arts from Rutgers University and a Juris Doctor from Villanova
University.
ERIC M. DEMARCO has served as our Executive Vice President since September
1997. He served as our Chief Financial Officer from September 1997 to December
1999. He served as Senior Vice President and Chief Financial Officer of The
Titan Corporation from January 1997 to August 1998 and has been Executive Vice
President and Chief Financial Officer of The Titan Corporation since August
1998. From June 1986 to January 1997, he held various positions at Arthur
Andersen LLP, most recently as a Senior Manager. Mr. DeMarco received a Bachelor
of Science from the University of New Hampshire.
EDWARD M. LAKE has served as our Senior Vice President and Chief Financial
Officer since December 1999. From October 1998 to September 1999, he served as
Executive Vice President and Chief Financial Officer for Woodfin Suite Hotels, a
hotel property and management company. From December 1996 to April 1998, he
served as Vice President, Chief Financial Officer and Secretary for Optimay
Corporation, a mobile telecommunications software company. From February 1992 to
April 1996, he served as Executive Vice President, Chief Financial Officer and
Secretary for Intelligent Surgical Lasers, Inc., a medical device company. Mr.
Lake received a Bachelor of Science from San Diego State University and is a
Certified Public Accountant in the State of California.
CURTIS R. SMITH has served as our Senior Vice President, Finance and
Operations since January 1999. From July 1996 to December 1998, he served as the
Director of Shared Services and Controller for the non-defense divisions of The
Titan Corporation. From June 1995 to May 1996 he served as Chief Financial
Officer and Chief Operating Officer of Chelsea Companies, a wholesale
distribution company. Prior to June 1995, he was Vice President of Finance and
Operations for Heating and
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Cooling Supply, Inc., a supplier of climate control products. Mr. Smith received
a Bachelor of Science from San Diego State University and is a Certified Public
Accountant in the State of California.
GREGORY R. SMITH has served as our Chief Technical Officer since
January 12, 1999. From September 1996 to December 1998 he served as Senior
Member of Transnational Partners II, a company that focused on systems
integration and architecture. From July 1995 to August 1996, Mr. Smith provided
independent information technology consulting services as the founder of Select
Systems Analysis. From September 1991 to June 1995 he served as Vice President
of Product Development at Expersoft Corporation, a software development and
services company. Mr. Smith received a Bachelor of Arts from the University of
California at San Diego.
BOARD COMMITTEES
Our board of directors currently has no committees. Prior to completion of
the offering, the board of directors will seek to appoint to the board at least
one additional individual who is independent from Cayenta and Titan. Concurrent
with or shortly after this appointment, the board expects to create audit and
compensation committees, the members of which will be independent directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, we did not have a compensation committee. The board of
directors made all decisions concerning executive compensation during 1999.
COMPENSATION OF DIRECTORS
Our independent directors currently receive the following compensation for
services on the board of directors:
- an initial grant of options to acquire 25,000 shares of our Class A common
stock issued on or prior to this offering;
- an annual grant of options to acquire 5,000 shares of our Class A common
stock beginning on or about the second anniversary of this offering for
subsequent years of service as a director, with an exercise price equal to
the price of our Class A common stock on the last trading day prior to the
annual shareholders' meeting;
- an annual retainer fee of $20,000 that will be paid in shares of our
Class A common stock; and
- reimbursement for all direct costs associated with participation in the
meetings of our board of directors.
We currently have two independent directors and expect to appoint a third
independent director to the board prior to the completion of this offering. Our
other directors do not currently receive any cash compensation for services on
the board of directors or any committee thereof, but they may be reimbursed for
expenses incurred in connection with attendance at board and committee meetings.
All directors are eligible to participate in our 1997 Stock Option Plan.
EXECUTIVE COMPENSATION IN FISCAL 1999
This table does not include medical, group life insurance or other benefits
which are available generally to all of our salaried employees and certain
perquisites and other personal benefits received which do not exceed the lesser
of $50,000 or 10% of the salary and bonus of the named executive officers listed
in this table as disclosed here. This table also does not include our executive
officers who
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were also executive officers of Titan during 1999 and whose compensation was
paid by Titan for services rendered in all capacities to Titan and Cayenta.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
--------------------- ---------------------------------------
SECURITIES SECURITIES
UNDERLYING UNDERLYING
TITAN CAYENTA ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) OPTIONS(#) OPTIONS(#) COMPENSATION
- --------------------------- -------- --------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
David P. Porreca ............ 1999 $351,797 $ 300,000 45,000(3) 258,125(4) 43,084(5)
President and Chief
Executive Officer
Gregory R. Smith ............ 1999 $228,732 $ 225,000 30,000(6) 258,125(7) 33,054(8)
Chief Technical Officer
Curtis R. Smith ............. 1999 $117,630 0 2,000(9) 154,875(10) 14,969(11)
Senior Vice President,
Finance and Operations
</TABLE>
- ------------------------
(1) Amounts shown include cash compensation earned and received by executive
officers as well as amounts earned but deferred at the election of those
officers.
(2) Amounts shown include bonus cash compensation earned by executive officers
for each fiscal year whether received in the fiscal year it was earned or in
the subsequent fiscal year.
(3) 30,000 options vest as follows: 25% on February 17, 2000, 25% on
February 17, 2001, 25% on February 17, 2002 and 25% on February 17, 2003.
15,000 options vest as follows: 25% on August 12, 2000, 25% on August 12,
2001, 25% on August 12, 2002 and 25% on August 12, 2003.
(4) These options vest as follows: 25% on February 17, 2000, 25% on
February 17, 2001, 25% on February 17, 2002 and 25% on February 17, 2003.
(5) Amounts shown consist of Titan's matching contribution of $8,000 to its
401(k) Retirement Plan; Titan's matching contribution of $35,000 to its
Supplemental Retirement Plan for Key Executives; and $84 of interest earned
in Titan's Supplemental Retirement Plan for Key Executives that exceeded
120% of the applicable federal long-term rate with compounding, as
prescribed under Section 1274(d) of the Internal Revenue Code.
(6) These options vest as follows: 25% on February 17, 2000, 25% on
February 17, 2001, 25% on February 17, 2002 and 25% on February 17, 2003.
(7) These options vest as follows: 25% on February 17, 2000, 25% on
February 17, 2001, 25% on February 17, 2002 and 25% on February 17, 2003.
(8) Amounts shown consist of Titan's matching contribution of $8,000 to its
401(k) Retirement Plan; Titan's matching contribution of $25,000 to its
Supplemental Retirement Plan for Key Executives; and $54 of interest earned
in Titan's Supplemental Retirement Plan for Key Executives that exceeded
120% of the applicable federal long-term rate with compounding, as
prescribed under Section 1274(d) of the Internal Revenue Code.
(9) These options vest as follows: 25% on August 11, 2000, 25% on August 11,
2001, 25% on August 11, 2002 and 25% on August 11, 2003.
(10) These options vest as follows: 25% on August 11, 2000, 25% on August 11,
2001, 25% on August 11, 2002 and 25% on August 11, 2003.
(11) Amounts shown consist of Titan's matching contribution of $6,709 to its
401(k) Retirement Plan; and Titan's contribution of $8,260 to its Employee
Stock Ownership Plan.
48
<PAGE>
CAYENTA OPTION GRANTS IN FISCAL 1999
The following table sets forth grants of Cayenta stock options made during
1999 under Cayenta's Nonstatutory Stock Option Plan to the named executive
officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------------------------- ANNUAL RATES OF STOCK
PERCENT OF EXERCISE OR PRICE APPRECIATION FOR
NUMBER OF SECURITIES TOTAL CAYENTA OPTIONS BASE PRICE OPTION TERM(4)
UNDERLYING CAYENTA GRANTED TO EMPLOYEES (PER EXPIRATION ----------------------
NAME OPTIONS GRANTED(1) IN 1999(2) SHARE) DATE(3) 5% 10%
---- -------------------- --------------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
David P. Porreca........ 258,125 5.9% $0.18 2/17/09 $29,220 $74,049
Gregory R. Smith........ 258,125 5.9% $0.18 2/17/09 $29,220 $74,049
Curtis R. Smith......... 154,875 3.6% $0.18 8/11/09 $17,532 $44,430
</TABLE>
- ------------------------
(1) Nonstatutory stock options granted by Cayenta in 1999 were granted at fair
market value and are exercisable starting 12 months after grant date, with
25% of the options becoming exercisable at that time and with an additional
25% of the options becoming exercisable on each successive anniversary date,
with full vesting occurring on the fourth anniversary date. If Cayenta were
acquired by another company, the options would automatically vest in full
unless the acquiring company assumes the options.
(2) In 1999, employees of Cayenta and Titan received stock options covering a
total of 4,344,141 shares of Cayenta under the 1997 Stock Option Plan and
the Nonstatutory Stock Option Plan.
(3) The options described above were granted for a term of 10 years, subject to
earlier termination in certain events related to termination of employment.
(4) Present value was calculated using an assumed annual growth over the term of
the option of 5% and 10%, respectively. Use of this model should not be
viewed in any way as a forecast of the future performance of Cayenta's
stock, which will be determined by future events and unknown factors.
TITAN OPTION GRANTS IN FISCAL 1999
The following table sets forth each grant of stock options by Titan during
1999 under Titan's long-term incentive program to the named executive officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
--------------------------------------------------------------------- AT ASSUMED ANNUAL RATES
PERCENT OF OF STOCK PRICE
TOTAL TITAN OPTIONS APPRECIATION FOR
NUMBER OF SECURITIES GRANTED TO EXERCISE OR OPTION TERM(4)
UNDERLYING TITAN EMPLOYEES BASE PRICE EXPIRATION --------------------------
NAME OPTION GRANTED(1) IN FISCAL 1999(2) (PER SHARE) DATE(3) 5% 10%
---- -------------------- ------------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David P. Porreca....... 30,000 2.6% $5.69 2/17/09 $107,314 $271,956
15,000 1.3% $9.75 8/11/09 $ 91,975 $233,084
Gregory R. Smith....... 30,000 2.6% $5.69 2/17/09 $107,314 $271,956
Curtis R. Smith........ 2,000 0.2% $9.75 8/12/09 $ 12,263 $ 31,078
</TABLE>
- ------------------------
(1) Incentive stock options granted by Titan in 1999 were granted at fair market
value and are exercisable starting 12 months after grant date, with 25% of
the options becoming exercisable at that time and with an additional 25% of
the options becoming exercisable on each successive anniversary date, with
full vesting occurring on the fourth anniversary date. If Titan were
acquired by another company, the options would automatically vest in full
unless the acquiring company assumes the options.
(2) In 1999, employees of Titan and its subsidiaries received stock options for
Titan common stock covering a total of 1,140,000 shares.
(3) The options described above were granted for a term of 10 years, subject to
earlier termination in certain events related to termination of employment.
(4) Present value was calculated using an assumed annual compounded growth over
the term of the option of 5% and 10%, respectively. Use of this model should
not be viewed in any way as a forecast of the future performance of Titan's
stock, which will be determined by future events and unknown factors.
49
<PAGE>
AGGREGATED CAYENTA OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR-END OPTION
VALUES
The table below sets forth information regarding the number and value of
unexercised Cayenta options held by the named executive officers as of
December 31, 1999, as well as the number and value of Cayenta shares acquired by
the named executive officers pursuant to stock options exercised during 1999:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David P. Porreca............ -- -- -- 258,125 -- $777,500
Gregory R. Smith............ -- -- -- 258,125 -- $777,500
Curtis R. Smith............. -- -- 5,162 170,363 $15,550 $513,150
</TABLE>
No stock appreciation rights were owned or exercised by any of the named
executive officers during 1999.
Dollar values in the table above are calculated by taking the fair market
value per share of Cayenta's common stock as of December 31, 1999, subtracting
the per share exercise price of the option and multiplying the result by the
number of shares. Options were granted at an exercise price equal to the fair
market value of our common stock, as determined by our board of directors on the
date of grant.
AGGREGATED TITAN OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth, with respect to the named executive
officers, information regarding the number and value of securities underlying
unexercised options for Titan's common stock held by them as of December 31,
1999, as well as the number and value of Titan shares acquired by the named
executive officers pursuant to stock options exercised during 1999.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David P. Porreca........... -- -- -- 45,000 -- $1,812,195
Gregory R. Smith........... -- -- -- 30,000 -- $1,248,750
Curtis R. Smith............ -- -- -- 2,000 -- $ 75,126
</TABLE>
Dollar values in the table above are calculated by taking the fair market
value of Titan's common stock as of December 31, 1999, subtracting the per share
exercise price of the option and multiplying the result by the number of shares.
Options were granted at an exercise price equal to the fair market value of
Titan's common stock, as determined by Titan's board of directors on the date of
grant.
EMPLOYMENT AGREEMENTS
On January 12, 1999, we entered into an Employment Agreement with David P.
Porreca, our Chief Executive Officer. This agreement has a three year term
commencing on January 1, 1999. It provides for an annual base salary of $350,000
per year and for an annual performance bonus of up to $300,000. In addition,
Mr. Porreca is also eligible to receive options to purchase 258,125 shares of
our Class A common stock at an exercise price of $.18 per share, options to
purchase 30,000 shares of Titan common stock at an exercise price of $5.69 per
share, and options to purchase 15,000 shares of Titan common stock at an
exercise price of $9.75 per share. Both the Cayenta stock options and the Titan
50
<PAGE>
stock options vest at a rate of 25% per year for four years, with the first 25%
vesting on the first anniversary of the beginning of the vesting period and an
additional 25% vesting on each subsequent anniversary of that date. Further,
Mr. Porreca is entitled to receive all other employment benefits generally
available to our other executive and managerial employees. This agreement
further provides that Mr. Porreca can terminate his employment with us only upon
six months written notice. We may terminate Mr. Porreca's employment for cause
at any time. Mr. Porreca's employment agreement does not terminate in the event
of a dissolution, merger or transfer of all or substantially all of our assets.
On January 12, 1999, we entered into an Employment Agreement with Gregory R.
Smith, our Chief Technology Officer. This agreement has a three year term
commencing on January 1, 1999. It provides for an annual base salary of $225,000
per year and for an annual bonus of up to $225,000. Mr. Smith is also entitled
to receive options to purchase 258,125 shares of our Class A common stock at an
exercise price of $.18 per share and options to purchase 30,000 shares of Titan
common stock at an exercise price of $5.69 per share. Both the Cayenta stock
options and the Titan stock options vest at a rate of 25% per year for four
years, with the first 25% vesting on the first anniversary of the beginning of
the vesting period and an additional 25% vesting on each subsequent anniversary
of that date. Further, Mr. Smith is entitled to all other employee benefits
generally available to our other executive and managerial employees. Mr. Smith
can terminate his employment with us only upon six months written notice. We can
terminate Mr. Smith's employment for cause at any time. Mr. Smith's employment
agreement does not terminate in the event of a dissolution, merger or transfer
of all or substantially all of our assets.
On October 31, 1999, we entered into a letter agreement with William G.
Atkinson, our Senior Vice President, Sales and Marketing regarding the terms of
his employment. This agreement provides for an annual base salary of $220,000
and provides that Mr. Atkinson is entitled to participate in our standard
benefit programs generally available to all of our executive and managerial
employees. In addition, Mr. Atkinson is entitled to options to purchase
154,875 shares of our Class A common stock at an exercise price of $3.19 per
share and options to purchase 5,000 shares of Titan common stock at an exercise
price of $22.38 per share. Both the Cayenta stock options and the Titan stock
options vest at a rate of 25% per year for four years, with the first 25%
vesting on the first anniversary of the beginning of the vesting period and an
additional 25% vesting on each subsequent anniversary of that date. In addition,
Mr. Atkinson shall receive 10,325 shares of our Class A common stock for each
major customer that Mr. Atkinson develops which leads to $10 million or more in
revenues. Mr. Atkinson will also receive options to purchase 2,065 shares of our
Class A common stock for each $5 million in annual revenues that the customer
generates per annum thereafter.
On December 18, 1999, we entered into a letter agreement with Edward M.
Lake, our Senior Vice President and Chief Financial Officer regarding the terms
of his employment. This agreement provides for an annual base salary of $250,000
and provides that Mr. Lake is entitled to participate in our standard benefit
programs generally available to all of our executive and managerial employees.
In addition, Mr. Lake is entitled to options to purchase 206,500 shares of our
Class A common stock at an exercise price of $3.19 per share. These options vest
at a rate of 25% per year for four years, with the first 25% vesting on the
first anniversary of the beginning of the vesting period and an additional 25%
vesting on each subsequent anniversary of that date. If we terminate Mr. Lake's
employment within the first two years, Mr. Lake shall receive one year of base
salary at the then current rate plus medical benefits for one year.
1997 STOCK OPTION PLAN
Our 1997 Stock Option Plan was adopted by the board of directors on
September 16, 1997 and approved by the sole shareholder on September 16, 1997.
The 1997 plan will terminate on September 15, 2007 unless our board of directors
terminates it sooner.
51
<PAGE>
The 1997 plan provides for the grant of stock options, including:
- incentive stock options, as defined in Section 422 of the Internal Revenue
Code of 1986, as amended, that may be granted solely to employees,
including officers; and
- nonstatutory stock options that may be granted to employees, including
officers, non-employee directors and consultants.
STOCK OPTIONS. Stock options are granted pursuant to stock option
agreements. The exercise price for an incentive stock option cannot be less than
100% of the fair market value of the common stock on the date of grant. The
exercise price for a nonstatutory stock option cannot be less than 85% of the
fair market value of the common stock on the date of grant. Options granted
under the 1997 plan vest at the rate specified in the option agreement.
In general, the term of stock options granted under the 1997 plan may not
exceed 10 years. Unless the terms of an optionee's stock option agreement
provide for earlier termination, in the event an optionee's service relationship
with us, or any affiliate of ours, ceases due to disability or death, the
optionee or his beneficiary may exercise any vested options up to twelve months
after the date such service relationship ends. If an optionee's relationship
with us, or any affiliate of ours, ceases for any reason other than disability
or death, the optionee may exercise any vested options up to 90 days from
cessation of service, unless the terms of the stock option agreement provide for
earlier termination.
Acceptable consideration for the purchase of common stock issued under the
1997 plan is determined by our board of directors and may include cash, common
stock previously owned by the optionee, a deferred payment arrangement and other
legal consideration approved by our board of directors.
Generally, an optionee may not transfer a stock option other than by will or
the laws of descent or distribution unless the optionee holds a nonstatutory
stock option that provides otherwise. However, an optionee may designate a
beneficiary who may exercise the option following the optionee's death.
TAX LIMITATIONS ON STOCK OPTION GRANTS. Under current tax laws, incentive
stock options may be granted only to our employees. The aggregate fair market
value, determined at the time of grant, of shares of our common stock underlying
incentive stock options that are exercisable for the first time by an optionee
during any calendar year under all of our stock plans may not exceed $100,000.
No incentive stock option may be granted to any person who, at the time of the
grant, owns or is deemed to own stock possessing more than 10% of the total
combined voting power of Cayenta or any affiliate unless the following
conditions are satisfied:
- the option exercise price must be at least 110% of the fair market value
of the stock subject to the option on the date of grant; and
- the term of any incentive stock option award must not exceed five years
from the date of grant.
Further, prior to our stock being publicly traded, no nonstatutory stock
options may be granted to such persons unless the above conditions are met.
SECTION 162(m). Section 162(m) of the Code generally denies a corporate tax
deduction to publicly held corporations for some compensation paid to specified
employees in a taxable year to the extent that the compensation exceeds
$1,000,000 and is not paid based on performance. When we become subject to
Section 162(m), no person may be granted options under the 1997 plan covering
more than 1,032,500 shares of common stock in any calendar year. In the event
that our board of directors exercises its authority to reprice outstanding
options or to offer optionees the opportunity to replace outstanding options
with new options for the same or a different number of shares, then both the
original and new options will count toward the Section 162(m) limitation.
52
<PAGE>
CHANGES IN CONTROL. Under specified changes in control, all outstanding
options under the 1997 plan either will be assumed, continued or substituted for
by any surviving entity. If the surviving entity does not assume, continue or
substitute for these awards, the vesting provisions of these stock awards will
be accelerated and these stock awards will be terminated upon the change in
control if not previously exercised.
AUTHORIZED SHARES. An aggregate of 5,827,430 shares of Class A common stock
currently are authorized for issuance under the 1997 plan. As of May 4, 2000,
options to purchase a total of 4,517,084 shares of our Class A common stock were
held by all participants under the 1997 plan, and 1,310,346 shares of our
Class A common stock remain available for grant. Shares subject to stock options
that have expired or otherwise terminated without having been exercised in full
again become available for the grant of awards under the 1997 plan.
PLAN ADMINISTRATION. Our board of directors administers the 1997 plan. Our
board of directors may delegate authority to administer the 1997 plan to a
committee. Subject to the terms of the plan, our board of directors or its
authorized committee determines recipients, the numbers and types of stock
awards to be granted, and the terms and conditions of the stock awards including
the period of their exercisability and vesting. Subject to the plan limitations,
our board of directors or its authorized committee also determines the exercise
price of options granted.
Our board of directors or its designated committee may, in its sole
discretion, include additional provisions in any option or award granted or made
under the 1997 plan that are not inconsistent with the 1997 plan or applicable
law. Our board of directors or its designated committee may also, in its sole
discretion, accelerate or extend the date or dates on which all or any
particular option or options granted under the 1997 plan may be exercised. In
the event of a decline in the value of our common stock, our board of directors
or its designated committee has the authority to offer optionees the opportunity
to replace outstanding higher priced options with new lower priced options.
NONSTATUTORY STOCK OPTION PLAN
Our Nonstatutory Stock Option Plan will terminate on September 15, 2007. An
aggregate of 1,296,820 shares of Class A common stock currently are authorized
for issuance under the Nonstatutory Stock Option Plan. As of May 4, 2000,
options to purchase a total of 1,296,820 shares of our Class A common stock were
held by all participants under the Nonstatutory Stock Option Plan, and no shares
of our Class A common stock remained available for grant.
Our Nonstatutory Stock Option Plan provides for grants of nonstatutory stock
options to our officers and directors and the officers and directors of Titan.
Our Nonstatutory Stock Option Plan provides that we have a right to repurchase
shares received on the exercise of an option at the book value of those shares
if the purchaser terminates service prior to the completion of our initial
public offering and the listing of our stock on either The New York Stock
Exchange or The Nasdaq Stock Market.
In 1999 several optionees agreed to exchange their options pursuant to our
1997 Stock Option Plan for options under our Nonstatutory Stock Option Plan.
Other than the provision described above, all substantive provisions of the
options, like the exercise price, the vesting period and the vesting
commencement date, remained the same as the exchanged options granted under our
1997 Stock Option Plan.
53
<PAGE>
TAX QUALIFIED PLANS
We are a participating employer in The Titan Corporation Consolidated
Retirement Plan. The Consolidated Plan is composed of two portions: (1) the
401(k) portion of the Consolidated Plan and (2) the Employee Stock Ownership
Plan portion of the Consolidated Plan as set forth below:
- 401(k) PLAN. The 401(k) portion of the Consolidated Plan is intended to be
a tax-qualified defined contribution plan under Subsections 401(a) and
401(k) of the Code. All employees who are at least 21 years old are
eligible to participate and may enter the 401(k) plan as of any
January 1, April 1, July 1 or October 1. Each participant may contribute
up to 15% of his or her pre-tax compensation to the savings plan, subject
to statutorily prescribed annual limits. We match employee contributions
dollar-for-dollar, up to a maximum of 5% of each participant's
compensation. Each participant's contributions, the matching
contributions, and the corresponding investment earnings, are generally
not taxable to the participants until withdrawn. Employee contributions
and our matching contributions are held in trust and invested by the
savings plan trustee as required by law. Individual participants may
direct the trustee to invest their accounts in authorized investment
alternatives.
- EMPLOYEE STOCK OWNERSHIP PLAN. The Employee Stock Ownership Plan portion
of the Consolidated Plan is intended to be a tax-qualified defined
contribution plan under Subsection 401(a) and an employee stock ownership
plan under 4975(e)(7) of the Code. This portion of the plan is designed to
invest primarily in employer securities. All employees who are at least
21 years old and employed on December 31 of any plan year in which we make
a discretionary contribution are eligible to receive a portion of such
contribution. Our contributions are discretionary. Our contributions, and
the corresponding investment earnings, are generally not taxable to the
participants until withdrawn. Contributions are held in trust as required
by law. Certain individual participants who are at least 55 years old and
have participated in the Employee Stock Ownership Plan portion of the
Consolidated Plan for at least 10 years may direct the trustee to invest
up to 50% of their accounts in authorized investment alternatives.
54
<PAGE>
RELATIONSHIP WITH TITAN AND CERTAIN TRANSACTIONS
Titan has adopted a strategy of selling a minority interest in subsidiary
companies to outside investors as a means of financing the growth of its
commercial businesses.
GENERAL
As long as Titan beneficially owns a majority of our voting power, Titan
will have the ability to elect all of the members of the board of directors and
ultimately control our management. Titan may control or influence all decisions
relating to our acquisitions, dispositions, credit facilities and borrowing
levels, the sale of our equity or debt securities, and the declaration and
payment of any dividends on our common stock. In addition, Titan will be able to
determine the outcome of any matter submitted to a vote of our stockholders for
approval and to cause or prevent us from engaging in a transaction that involves
a change in control. Dr. Gene Ray, the chairman of our board of directors, was
during our fiscal year ended December 31, 1999 and is currently the chairman of
the board of directors, president and chief executive officer of Titan. Robert
La Blanc, another one of our directors, was during our fiscal year ended
December 31, 1999 and is currently a director of Titan. Furthermore, Messrs.
Porreca, Costanza and DeMarco, each of whom is one of our executive officers,
are also executive officers of Titan.
Titan could decide to sell or otherwise dispose of all or a portion of our
common stock that it holds, whether those shares be Class B or Class A common
stock.
Titan has advised us that its current intent is to continue to hold all of
its outstanding shares of Class B common stock. Titan has also generally agreed,
in connection with this offering, not to sell or otherwise dispose of any shares
of our common stock or any security convertible into or exchangeable or
exercisable for our common stock for a period of 180 days after the date of this
prospectus, without the prior written consent of Credit Suisse First Boston.
After such 180-day period, Titan may sell or otherwise dispose of its Class B
common stock.
Titan must beneficially own at least 80% of the total voting power of our
capital stock and 80% of any class of nonvoting capital stock to be able to
effect a tax-free distribution of its Cayenta stock to its stockholders in the
future. We currently do not have any class of nonvoting capital stock. Neither
Titan nor Cayenta currently contemplates that Titan will distribute its majority
interest to the Titan stockholders. We expect that Titan will continue to own at
least 80% of the total voting power of our capital stock after completion of
this offering. Titan may limit our future sale of equity securities to preserve
its ownership percentage and control of us.
Our bylaws provide that we shall indemnify our directors and officers to the
fullest extent permitted by Delaware law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. We also intend to
enter into indemnification agreements with our officers and directors. These
agreements may require us to pay or reimburse directors or officers for claims
brought against them and to advance expenses incurred by them in defending
claims. We also will maintain directors' and officers' insurance if available on
reasonable terms.
CONTRACTUAL ARRANGEMENTS
Our relationship with Titan is also governed by a Corporate Services
Agreement, a Tax Allocation Agreement and a Facilities Agreement. We have not
negotiated these agreements at arm's length. As a result, the prices we pay to
Titan for these services may be higher or lower than the costs we would incur
from purchasing these services from third parties or hiring additional staff to
perform these services.
55
<PAGE>
The following are summaries of these agreements, which have been filed as
exhibits to the registration statement relating to this prospectus.
CORPORATE SERVICES AGREEMENT
Titan provides to us routine and ordinary corporate services, including
financial, insurance, accounting, employee benefits, payroll, tax and legal
services. Titan also provides us corporate planning, government relations and
corporate quality assurance services. We share certain Titan systems, including
its accounting system and human resource system. Because Titan engages in
government contracts work, Titan allocates costs to its subsidiaries based upon
government cost accounting requirements. We pay Titan for human resources
services based upon our percentage of the total number of Titan group employees.
We pay for other corporate services based upon the average of three
percentages: (1) the percentage of our payroll to the total payroll of the Titan
group, (2) the percentage of our operating revenues to the total operating
revenues of the Titan group and (3) the percentage of our average net book value
which is the sum of our tangible capital assets plus inventories to the total
average net book value of the tangible capital assets plus inventory of the
Titan group as of the end of the last fiscal year and as of the final day of
each calendar quarter in the current fiscal year. Titan may adjust its fees
based upon its assessment of our relative use of these services.
The initial term of the Corporate Services Agreement expires on March 29,
2001. This agreement renews automatically unless we elect not to renew by giving
Titan notice. If the agreement is terminated, we cannot guarantee that we will
be able to replace these services in a timely manner or at comparable cost.
TAX ALLOCATION AGREEMENT
As long as Titan maintains beneficial ownership of at least 80% of the total
voting power of our capital stock and 80% of the total value of our outstanding
common stock, we will be included in Titan's consolidated federal income tax
returns. Following completion of this offering, we expect to file separate
federal income tax returns.
We and Titan have entered into a Tax Allocation Agreement. Under the Tax
Allocation Agreement, we have agreed to pay to the applicable tax authorities an
amount generally equal to the tax liability that we would have incurred if we
had prepared and filed a separate return. Titan has broad discretion in
determining the amount of separate taxable income and tax liability that we
would realize on such a separate return. In computing this separate tax
liability, our tax attributes, including net operating loss and tax credit
carryovers, will be deemed to be the amount that we would have had if we had
always owned the businesses transferred to us by Titan.
As a member of the Titan group for purposes of filing consolidated federal
income tax returns, we will be liable for the federal income tax of the Titan
group if Titan or any member of the group fails to pay its taxes. Titan will
indemnify us against any taxes for which Titan is liable and any costs and
expenses arising out of Titan's failure to pay its share of taxes.
FACILITIES AGREEMENT
We have subleased approximately 26,000 square feet in Reston, Virginia from
Titan. Under the Facilities Agreement, Titan provides us rent, maintenance,
property taxes, utilities, landlord pass-through expenses, property insurance,
reception desk services, telephone services and centralized mail and postage and
other services. We pay Titan an annual fee determined by our percentage of
Titan's annual costs for this facility. Our percentage is based upon the
percentage of the total square feet in the facility that we occupy.
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ALLOCATED COSTS
Tax administrative, corporate services and facilities costs were $284,000
for the year ended December 31, 1997, $230,000 for the year ended December 31,
1998 and $438,000 for the year ended December 31, 1999. Because the Corporate
Services Agreement, Tax Allocation Agreement and Facilities Agreement were not
in place for any of the years then ended, these costs were allocated to us by
Titan. Had the Corporate Services Agreement, Tax Allocation Agreement and
Facilities Agreement been in place for any of the years then ended, the costs
allocated to us by Titan for those years would have been determined pursuant to
the provisions of those agreements. Our tax administrative, corporate services
and facilities costs were $402,000 for the first quarter of 2000. Each of the
Corporate Services Agreement, Tax Allocation Agreement and Facilities Agreement
became effective on March 29, 2000, so our tax administrative, corporate
services and facilities costs for the first quarter of 2000 were allocated to us
by Titan until such date, and thereafter were determined pursuant to the
provisions of those agreements.
SUBORDINATED PROMISSORY NOTE
As of May 4, 2000, we owed approximately $70.0 million to Titan under a
subordinated, unsecured promissory note. We can have a maximum of $70.0 million
of indebtedness outstanding under this promissory note at any one time. The
promissory note is due in December 2004 and bears interest, payable quarterly,
at the greater of the rate of 10% per annum or Titan's effective weighted
average interest rate under its senior credit facility, subject to applicable
limits on interest rates established by law. Titan's effective weighted average
interest rate is calculated at any given period of time by multiplying the daily
balance of Titan's total bank debt outstanding times the applicable interest
rate for that day, which yields an interest expense for that day. The sum of the
daily interest expense amounts is divided by the sum of the daily balances of
the total bank debt outstanding to yield a daily effective weighted average
interest rate which is then multiplied by 365 to yield an annual effective
weighted average interest rate. Titan's effective weighted average interest rate
under its senior credit facility as of May 4, 2000 was greater than 10.0%. We
can prepay amounts outstanding under the promissory note at any time without
penalty. We may, with Titan's approval, prepay amounts outstanding under the
promissory note with the net proceeds of any asset sales we make that are not in
the ordinary course of business or if we obtain a credit facility from a third
party lender and the facility permits the use of proceeds to repay existing
indebtedness. We cannot use any of the proceeds of this offering to pay amounts
outstanding under the promissory note or under any indebtedness we incur to
refinance the promissory note.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table contains information about the beneficial ownership of
our Class A common stock before and after our initial public offering for:
- each person who beneficially owns more than five percent of the Class A
common stock;
- each of our directors;
- each of our named executive officers; and
- all directors and executive officers as a group.
Unless otherwise indicated, the address for each person or entity named
below is c/o Cayenta, Inc., 5910 Pacific Center Blvd., San Diego, CA 92121-6301.
In calculating beneficial ownership percentages, we assumed all 20,650,000
shares of Class B common stock outstanding as of May 4, 2000 were converted into
20,650,000 shares of Class A common stock, so that 22,335,985 shares of Class A
common stock were outstanding as of such date, after accounting for the
4,842,425 shares of Class A common stock that are issuable upon the conversion
of all of our outstanding preferred stock upon the closing of this offering.
Accordingly, we based our beneficial ownership percentage calculations on
27,178,410 shares of Class A common stock outstanding as of May 4, 2000.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by footnote, and subject
to community property laws where applicable, the persons named in the table
below have sole voting and investment power with respect to all shares of
Class A common stock shown as beneficially owned by them.
The table assumes no exercise of the underwriters' over-allotment option. If
the underwriters' over-allotment option is exercised in full, we will sell up to
an aggregate of 975,000 additional shares of our common stock, and up to
34,653,410 shares of common stock will be outstanding after the completion of
this offering.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF CLASS A
COMMON STOCK PERCENTAGE OWNED
BENEFICIALLY OWNED -------------------
TITAN, DIRECTORS AND ------------------ PRIOR TO AFTER
NAMED EXECUTIVE OFFICERS NUMBER OFFERING OFFERING
- ------------------------ ------------------ -------- --------
<S> <C> <C> <C>
The Titan Corporation....................................... 20,650,000(1) 76.0% 61.3%
3033 Science Park Road
San Diego, CA 92121
Transnational Partners II, LLC.............................. 4,842,425(2) 17.8% 14.4%
David P. Porreca............................................ 2,737,549(3) 10.0% 7.9%
Gene W. Ray................................................. 103,250 * *
Curtis R. Smith............................................. 5,162(4) * *
Gregory R. Smith............................................ 1,846,543(5) 6.7% 5.3%
Robert E. La Blanc.......................................... 5,162(6) * *
Paul Melchiorre............................................. 0 * *
John C. Arme................................................ 0 * *
All directors and officers as a group (11 persons).......... 4,738,966(7) 17.3% 13.6%
</TABLE>
- --------------------------
* Represents beneficial ownership of less than 1%.
(1) Represents shares of Class A common stock issuable upon conversion of
20,650,000 shares of Class B common stock currently held by Titan. Titan has
pledged its shares of our Class B common stock as security for its
obligations under its credit facility. If an unremedied default occurs under
that credit facility, the bank group
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could cause all the shares of our Class B common stock held by Titan to be
registered in the name of its agent, which would result in a change of
control of us.
(2) Consists of 4,842,425 shares of Class A common stock issuable upon
conversion of 4,842,425 shares of preferred stock currently held by
Transnational Partners II. Mr. Porreca and Mr. Smith own 55.2% and 36.8%,
respectively, of Transnational Partners II.
(3) Includes 64,531 shares issuable upon exercise of options exercisable within
60 days of May 4, 2000 and 2,673,018 shares of Class A common stock issuable
upon conversion of 2,673,018 shares of preferred stock held by Transnational
Partners II that Mr. Porreca may be deemed to have beneficial ownership of
based on his 55.2% interest in Transnational Partners II. These options are
exercisable at a price per share of $0.18, and vest 25% after one year and
25% each year for three years thereafter on the applicable anniversary date
of the beginning of their vesting period.
(4) Includes 5,162 shares issuable upon exercise of options exercisable within
60 days of May 4, 2000. These options are exercisable at a price per share
of $0.18, and vest 25% after one year and 25% each year for three years
thereafter on the applicable anniversary date of the beginning of their
vesting period.
(5) Includes 64,531 shares issuable upon exercise of options exercisable within
60 days of May 4, 2000 and 1,782,012 shares of Class A common stock issuable
upon conversion of 1,782,012 shares of preferred stock held by Transnational
Partners II that Mr. Smith may be deemed to have beneficial ownership of
based on his 36.8% interest in Transnational Partners II. These options are
exercisable at a price per share of $0.18, and vest 25% after one year and
25% each year for three years thereafter on the applicable anniversary date
of the beginning of their vesting period.
(6) Includes 5,162 shares issuable upon exercise of options exercisable within
60 days of May 4, 2000. These options are exercisable at a price per share
of $0.18, and vest 25% after one year and 25% each year for three years
thereafter on the applicable anniversary date of the beginning of their
vesting period.
(7) Includes 180,686 shares issuable upon exercise of options exercisable within
60 days of May 4, 2000 and 4,455,030 shares of Class A common stock issuable
upon conversion of 4,455,030 shares of preferred stock held by Transnational
Partners II that Mr. Porreca and Mr. Smith may be deemed to have beneficial
ownership of based on their respective 55.2% and 36.8% interests in
Transnational Partners II. These options are exercisable at a price per
share of $0.18, and vest 25% after one year and 25% each year for three
years thereafter on the applicable anniversary date of the beginning of
their vesting period.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 250,000,000 shares of Class A
common stock, $0.001 par value per share, 103,250,000 shares of Class B common
stock, $0.001 par value per share, and 17,345,000 shares of preferred stock,
$0.001 par value per share, 4,842,425 of which shares are designated Series A
preferred stock. These figures for our authorized Class A and Class B common
stock reflect the increases in our authorized common stock described in the
"Capitalization" section of this prospectus. As of the date hereof,
1,685,985 shares of our Class A common stock, 20,650,000 shares of our Class B
common stock and 4,842,425 shares of our Series A preferred stock are issued and
outstanding. All of our Class B common stock is held by Titan. Upon completion
of this offering, all of our outstanding Series A preferred stock will convert
into 4,842,425 shares of Class A common stock. We also have 1,023,827 shares of
Class A common stock subject to warrants outstanding. Of the 250,000,000 shares
of Class A common stock authorized, 6,500,000 are being offered in this
offering, 103,250,000 shares will be reserved for issuance upon conversion of
Class B common stock into Class A common stock and 7,124,250 shares have been
reserved for issuance pursuant to certain employee benefits plans. An additional
975,000 shares of Class A common stock will be offered in this offering if the
underwriters' over-allotment is exercised in full.
COMMON STOCK
VOTING RIGHTS. The holders of Class A common stock and Class B common stock
generally have identical rights except that holders of Class A common stock are
entitled to one vote per share while holders of Class B common stock are
entitled to ten votes per share on all matters to be voted on by stockholders.
Holders of shares of Class A common stock and Class B common stock are not
entitled to cumulate their votes in the election of directors. Generally, all
matters to be voted on by stockholders must be approved by a majority of the
votes entitled to be cast by all shares of Class A common stock and Class B
common stock present in person or represented by proxy, voting together as a
single class, subject to any voting rights granted to holders of any preferred
stock. Except as otherwise provided by law, and subject to any voting rights
granted to holders of any outstanding preferred stock, amendments to our
certificate of incorporation generally must be approved by a majority of the
combined voting power of all Class A common stock and Class B common stock
voting together as a single class. However, amendments to our certificate of
incorporation that would alter or change the powers, preferences or special
rights of the Class A common stock or the Class B common stock so as to affect
them adversely also must be approved by a majority of the votes entitled to be
cast by the holders of the shares affected by the amendment, voting as a
separate class. Notwithstanding the foregoing, any amendment to our certificate
of incorporation to increase the authorized shares of any class or authorize the
creation, authorization or issuance of any securities convertible into, or
warrants or options to acquire, shares of any class or classes of stock shall be
approved by the affirmative vote of the holders of a majority of the Class A
common stock and Class B common stock, voting together as a single class.
Effective as of the first time at which Titan shall cease to be the
beneficial owner of an aggregate of at least a majority of the voting power of
the voting stock of Cayenta then outstanding, amendments to certain provisions
of the certificate of incorporation will require the approval of 80% of the
combined voting power of all Class A common stock and Class B common stock,
voting together as a single class.
DIVIDENDS. Holders of Class A common stock and Class B common stock will
share in an equal amount per share in any dividend declared by the board of
directors, subject to any preferential rights of any outstanding preferred
stock. Dividends consisting of shares of Class A common stock and Class B common
stock may be paid only as follows: (1) shares of Class A common stock may be
paid only to holders of Class A common stock and shares of Class B common stock
may be paid only to
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holders of Class B common stock and (2) shares shall be paid proportionally with
respect to each outstanding share of Class A common stock and Class B common
stock.
CONVERSION. Each share of Class B common stock is convertible at the
holder's option into one share of Class A common stock. Additionally, each share
of Class B common stock shall automatically convert into one share of Class A
common stock if at any time prior to a tax-free spin-off the number of
outstanding shares of Class B common stock owned by Titan, any of its
subsidiaries, any single unrelated person who receives shares of Class B common
stock representing more than 50% of our outstanding common stock from Titan or
any of its subsidiaries in a single transaction, or any subsidiary of that
unrelated person represents less than 50% of the total voting power of Cayenta.
We refer to any such unrelated person herein as a "Class B transferee".
Except as provided below, any shares of Class B common stock transferred to
a person other than Titan or any of its subsidiaries or any Class B transferee
shall automatically convert to shares of Class A common stock upon such
disposition. Shares of Class B common stock representing more than 50% of the
outstanding common stock of Cayenta transferred by Titan or any of its
subsidiaries in a single transaction to a Class B transferee or any subsidiary
of the Class B transferee shall not automatically convert to shares of Class A
common stock upon such disposition. Any shares of Class B common stock retained
by Titan or its subsidiaries following any such transfer of shares of Class B
common stock to the Class B transferee shall automatically convert into shares
of Class A common stock upon such transfer.
If Cayenta later determines that it is in its best interest to have Titan
spin-off its Class B common stock to the stockholders of Titan and Titan elects
to effect the spin-off, then the Class B common stock shall no longer be
convertible into shares of Class A common stock at the option of the holder
thereof. The shares of Class B common stock shall automatically convert into
shares of Class A common stock on the fifth anniversary of the tax-free
spin-off, unless prior to such transaction, Titan, or the Class B transferee, as
the case may be, delivers to Cayenta an opinion of counsel reasonably
satisfactory to Cayenta to the effect that (1) such conversion could adversely
affect the ability of Titan, or the Class B transferee, as the case may be, to
obtain a favorable ruling from the Internal Revenue Service that the transfer
would be a tax-free spin-off or (2) the Internal Revenue Service has adopted a
general non-ruling policy on tax-free spin-offs and that such conversion could
adversely affect the status of the transaction as a tax-free spin-off, in which
case no such conversion shall take place.
OTHER RIGHTS. On liquidation, dissolution or winding up of Cayenta, after
payment in full of the amounts required to be paid to holders of preferred
stock, if any, all holders of common stock, regardless of class, are entitled to
share ratably in any assets available for distribution to holders of shares of
common stock. No shares of either class of common stock are subject to
redemption or have preemptive rights to purchase additional shares of common
stock. Upon consummation of the offering, all the outstanding shares of Class A
common stock and Class B common stock will be legally issued, fully paid and
nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of preferred stock
will be converted into 4,842,425 shares of Class A common stock. Under our
certificate of incorporation, the board has the authority, without further
action by stockholders, to designate shares of preferred stock in one or more
series and to fix the rights, preferences, privileges, qualifications and
restrictions granted to or imposed upon the preferred stock, including dividend
rights, conversion rights, voting rights, rights and terms of redemption,
liquidation preference and sinking fund terms, any or all of which may be
greater than the rights of the common stock. The issuance of preferred stock
could adversely affect the voting power of holders of common stock and reduce
the likelihood that common stockholders will receive dividend payments and
payments upon liquidation. The issuance could have the effect of decreasing the
market price of the common stock. The issuance of preferred stock also could
have the effect of delaying,
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<PAGE>
deterring or preventing a change in control of Cayenta. We have no present plans
to issue any additional shares of preferred stock.
REGISTRATION RIGHTS
TRANSNATIONAL PARTNERS II REGISTRATION RIGHTS. In connection with that
certain Asset Purchase Agreement dated as of January 1, 1999, between us and
Transnational Partners II, we granted registration rights to these investors
covering the 4,842,425 shares of our Class A common stock that their preferred
stock will convert into upon the closing of the offering. These investors have
"piggyback" registration rights. If we propose to register any of our securities
under the Securities Act, the investors may require us to use our best efforts
to include all or a portion of their registrable securities in such
registration. The managing underwriter, if any, of any such offering will have
the right to limit or exclude registrable securities from such registration. In
connection with this offering, Transnational Partners II waived their right to
our obligations under the above mentioned registration rights to cause their
shares of our Class A common stock to be included in this offering and to comply
with the specific notice requirements of the registration rights with respect to
this offering.
ASSIST CORNERSTONE REGISTRATION RIGHTS. In connection with the Assist
Cornerstone transaction and pursuant to the Investor Rights Agreement between
us, Titan and the shareholders of Assist Cornerstone, holders of an aggregate of
1,066,485 shares of our Class A common stock have registration rights and can
require us to file no more than one registration statement on Form S-3. We are
not required to affect any registrations on Form S-3 unless the aggregate price
to the public is $4.0 million or more. These investors also have "piggyback"
registration rights. Other than pursuant to this initial public offering, if we
propose to register any of our securities under the Securities Act, the
investors may require us to use our best efforts to include all or a portion of
their registrable securities in such registration. The managing underwriter, if
any, of any such offering will have the right to limit or exclude registrable
securities from such registration. All of these registration rights will
terminate on the earlier of December 13, 2004 or the date on which an investor
may sell all of its or his shares under Rule 144(k) of the Securities Act or
during any 90-day period under Rule 144 of the Securities Act.
BATCHELDER & PARTNERS REGISTRATION RIGHTS. In connection with the
engagement of Batchelder & Partners, Inc. for certain advisory and consulting
services, we granted Batchelder warrants to purchase up to 1,023,827 shares of
our Class A common stock. The shares of Class A common stock issuable upon
exercise of these warrants have certain registration rights. These registration
rights can require us to file no more than one registration statement on
Form S-3. We are not required to affect any registrations on Form S-3 unless the
aggregate price to the public is $4.0 million or more. These investors also have
"piggyback" registration rights. Other than pursuant to this initial public
offering, if we propose to register any of our securities under the Securities
Act, the investors may require us to use our best efforts to include all or a
portion of their registrable securities in such registration. The managing
underwriter, if any, of any such offering will have the right to limit or
exclude registrable securities from such registration. All of these registration
rights will terminate on the earlier of December 13, 2004 or the date on which
an investor may sell all of its or his shares under Rule 144(k) of the
Securities Act or during any 90-day period under Rule 144 of the Securities Act.
PENTON REGISTRATION RIGHTS. As part of our entering into a series of
agreements with Penton Media, Inc., we entered into an Investor Rights
Agreement, under which holders of an aggregate of 516,250 shares of our Class A
common stock have registration rights and can require us to file no more than
one registration statement on Form S-3. We are not required to affect any
registrations on Form S-3 unless the aggregate price to the public is
$4.0 million or more. These investors also have "piggyback" registration rights.
Other than pursuant to this initial public offering, if we propose to register
any of our securities under the Securities Act, the investors may require us to
use our best efforts to include all or a portion of their registrable securities
in such registration. The managing
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<PAGE>
underwriter, if any, of any such offering will have the right to limit or
exclude registrable securities from such registration. All of these registration
rights will terminate on the earlier of March 30, 2005 or the date on which an
investor may sell all of its or his shares under Rule 144(k) of the Securities
Act or during any 90-day period under Rule 144 of the Securities Act.
All registration expenses incurred in connection with the above
registrations would be borne by us, including, without limitation, all fees and
disbursements of counsel for the selling investors. Each selling investor would
pay all underwriting discounts and selling commissions applicable to the sale of
his or its registrable securities, as well as any fees and disbursements of
counsel.
ANTI-TAKEOVER PROVISIONS
DELAWARE LAW. We are governed by the provisions of Section 203 of the
Delaware General Corporation Law. In general, Section 203 prohibits a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sale or other transactions resulting in a
financial benefit to the stockholder. An "interested stockholder" is a person
who, together with affiliates and associates, owns or, within three years, did
own, 15% or more of the corporation's voting stock. The statute could have the
effect of delaying, deferring or preventing a change in our control.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS. Our certificate of
incorporation and bylaws, provide that the board of directors will be divided
into three classes of directors, with each class serving a staggered three-year
term. The classification system of electing directors may tend to discourage a
third party from making a tender offer or otherwise attempting to obtain control
of us and may maintain the composition of the board of directors, as the
classification of the board of directors generally increases the difficulty of
replacing a majority of directors. Our certificate provides that any action
required or permitted to be taken by our stockholders must be effected at a duly
called annual or special meeting of stockholders and may not be effected by any
consent in writing. In addition, our bylaws provide that special meetings of our
stockholders may be called only by the Chairman of the board of directors, our
Chief Executive Officer, or by the board of directors pursuant to a resolution
adopted by a majority of the total number of authorized directors. Our
certificate also specifies that the authorized number of directors may be
changed only by resolution of the board of directors and does not include a
provision for cumulative voting for directors. Under cumulative voting, a
minority stockholder holding a sufficient percentage of a class of shares may be
able to ensure the election of one or more directors. These and other provisions
contained in our amended certificate and bylaws could delay or discourage
certain types of transactions involving an actual or potential change in control
of us or our management, including transactions in which stockholders might
otherwise receive a premium for their shares over then current prices. Such
provisions could also limit the ability of stockholders to remove current
management or approve transactions that stockholders may deem to be in their
best interests and could adversely affect the price of our common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our Class A common stock is American
Stock Transfer & Trust Co.
THE NASDAQ STOCK MARKET'S NATIONAL MARKET
We have applied to list our Class A common stock on The Nasdaq National
Market under the trading symbol "CYTA."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our Class A common
stock, and we cannot assure you that a significant public market for our
Class A common stock will develop or be sustained after this offering. As
described below, no shares currently outstanding will be available for sale
immediately after this offering due to certain contractual and securities law
restrictions on resale. If a substantial number of shares of our Class A common
stock are sold in the public market after the restrictions lapse or are waived,
the increase in the number of shares of our Class A common stock in the public
market could decrease the price of our Class A common stock and adversely affect
our ability to raise equity capital in the future.
Upon completion of this offering, we will have 13,028,410 outstanding shares
of our Class A common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
the shares offered for sale through the underwriters will be freely tradable
without restriction under the Securities Act unless purchased by our affiliates
or covered by a separate lock-up agreement with the underwriters.
The remaining 6,528,410 shares of our Class A common stock held by existing
stockholders are restricted securities. We also have outstanding
20,650,000 shares of our Class B common stock, all of which is held by Titan and
is convertible at Titan's option into shares of our Class A common stock on a
one-to-one basis. If Titan were to convert its Class B shares into Class A
shares, all of the Class A shares it would receive upon such conversion would
also be restricted securities. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
described below under Rules 144, 144(k) or 701 promulgated under the Securities
Act.
As a result of the lock-up agreements and the provisions of Rules 144,
144(k) and 701 described below, these restricted shares will be available for
sale in the public market as follows:
- no shares may be sold prior to 180 days from the date of this prospectus;
- 4,945,675 shares of our Class A common stock will have been held long
enough to be sold under Rule 144 or Rule 701 beginning 181 days after the
date of this prospectus; and
- the remaining shares may be sold under Rule 144 or 144(k) once they have
been held for the required time.
LOCK-UP AGREEMENTS. Stockholders who hold 6,453,023 shares of our Class A
common stock and Titan have signed lock-up agreements whereby each has agreed
not to transfer or dispose of, directly or indirectly, any shares of our
Class A common stock or any securities convertible into or exercisable or
exchangeable for shares of our Class A common stock, for a period of 180 days
after the date the registration statement of which this prospectus is a part is
declared effective. Transfers or dispositions can be made sooner with the prior
written consent of Credit Suisse First Boston Corporation. Titan's lock-up
agreement covers the 20,650,000 shares of our Class B common stock that it
holds. Credit Suisse First Boston Corporation may waive the lock-up restrictions
at its sole discretion at any time without notice.
RULE 144. In general, under Rule 144, a person who has beneficially owned
restricted securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of our Class A common stock then outstanding
which will equal approximately 130,284 shares immediately after this
offering; or
- the average weekly trading volume of our common stock on The Nasdaq Stock
Market's National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to the sale.
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Sales under Rule 144 are also limited by manner-of-sale provisions and
notice requirements and requirements regarding the availability of current
public information about us.
RULE 144(k). Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years is
entitled to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144 discussed above.
RULE 701. In general, under Rule 701, any of our employees, consultants or
advisors who purchases or receives shares from us under a compensatory stock
purchase plan or option plan or other written agreement will be eligible to
resell their shares beginning 90 days after the date of this prospectus.
Non-affiliates will be able to sell their shares subject only to the
manner-of-sale provisions of Rule 144. Affiliates will be able to sell their
shares without compliance with the holding period requirements of Rule 144.
REGISTRATION RIGHTS. Giving effect to the conversion of all of our
outstanding preferred stock into 4,842,425 shares of Class A common stock and
the exercise of warrants outstanding to purchase 1,023,827 shares of Class A
common stock, we will have, upon completion of this offering, 14,052,237 shares
of Class A common stock outstanding. Holders of 7,448,987 of these shares will
be entitled to rights with respect to the registration of their shares under the
Securities Act. See "Description of Capital Stock--Registration Rights." Except
for shares purchased by our affiliates, registration of their shares under the
Securities Act would result in these shares becoming freely tradable without
restriction under the Securities Act immediately upon the effectiveness of the
registration.
STOCK OPTIONS. Immediately after this offering, we intend to file a
registration statement under the Securities Act covering the shares of our
Class A common stock reserved for issuance upon exercise of outstanding options.
The registration statement is expected to be filed and become effective as soon
as practicable after the closing of this offering. Accordingly, shares
registered under the registration statement will be available for sale in the
open market beginning 181 days after the effective date of the registration
statement of which this prospectus is a part, except with respect to Rule 144
volume limitations that apply to our affiliates.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Donaldson,
Lufkin & Jenrette Securities Corporation and A.G. Edwards & Sons, Inc. are
acting as representatives, the following respective numbers of shares of
Class A common stock:
<TABLE>
<CAPTION>
Number
Underwriters of shares
------------ ---------
<S> <C>
Credit Suisse First Boston Corporation..................
Donaldson, Lufkin & Jenrette Securities Corporation.....
A.G. Edwards & Sons, Inc................................
---------
Total................................................... 6,500,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of our Class A common stock in the offering if any are
purchased, other than those shares covered by the over-allotment option
described below. The underwriting agreement also provides that if an underwriter
defaults the purchase commitments of non-defaulting underwriters may be
increased or the offering of our Class A common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 975,000 additional shares of Class A common stock from us at
the initial public offering price less the underwriting discounts and
commissions. The option may be exercised only to cover any over-allotments of
our Class A common stock.
The underwriters propose to offer the shares of our Class A common stock
initially at the public offering price on the cover page of this prospectus and
to selling group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses of
$ that we will pay. The underwriting fee will be equal to the public
offering price per share of the Class A common stock less the amount paid by the
underwriters to us per share of Class A common stock. The
66
<PAGE>
underwriting discount per share will be equal to % of the initial public
offering price per share of Class A common stock.
<TABLE>
<CAPTION>
Per share Total
------------------------------- -------------------------------
Without With Without With
over-allotment over-allotment over-allotment over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and commissions
paid by us.............................. $ $ $ $
Expenses payable by us.................... $0.25 $0.22 $1,650,000 $1,650,000
</TABLE>
The following are the expenses payable by us in connection with this
offering of our Class A common stock:
- registration fees of approximately $25,000 that we paid to the Commission
for the Class A common stock being offered hereby;
- filing fees of approximately $10,000 that we will pay to the National
Association of Securities Dealers, Inc. in connection with its review of
this offering's underwriting arrangements;
- application fees of $87,000 that we will pay to apply to list our Class A
common stock on The Nasdaq Stock Market's National Market;
- estimated fees and expenses of $500,000 for each of our accountants,
counsel, and printer;
- estimated fees and expenses of $5,000 for qualifying the Class A common
stock offered hereby under state securities laws;
- estimated fees and expenses of $3,000 for our transfer agent and
registrant; and
- estimated miscellaneous costs of approximately $19,000.
The underwriters have informed us that they do not expect sales to accounts
over which any underwriter exercises discretionary authority to exceed
five percent of the shares of our Class A common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Commission a
registration statement under the Securities Act relating to, any shares of our
common stock or securities convertible into or exchangeable or exercisable for
any shares of our common stock, or publicly disclose the intention to make any
such offer, sale, pledge, disposition or filing, without the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days after
the date of this prospectus, except issuances pursuant to the conversion or
exchange of convertible or exchangeable securities or the exercise of warrants
or options outstanding prior to the date of this prospectus and grants of
employee stock options pursuant to the terms of a plan in effect on the date of
this prospectus. Credit Suisse First Boston Corporation may waive such
restrictions at its sole discretion at any time without notice.
Our officers and directors and some of our existing stockholders have agreed
that they will not offer, sell, contract to sell, pledge or otherwise dispose
of, directly or indirectly, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, enter into a transaction which would have the same effect, or enter into
any swap, hedge or other arrangement that transfers, in whole or in part, any of
the economic consequences of ownership of our common stock, whether any such
aforementioned transaction is to be settled by delivery of our common stock or
such other securities, in cash or otherwise, or publicly disclose the intention
to make any such offer, sale, pledge or disposition, or to enter into any such
transaction, swap, hedge or other arangement, without, in each case, the prior
written consent of Credit Suisse First Boston Corporation for a period of
180 days after the date of this prospectus. Credit Suisse First Boston
Corporation may waive such restrictions at its sole discretion at any time
without notice.
67
<PAGE>
The underwriters have reserved for sale, at the initial public offering
price up to 650,000 shares of common stock for Titan employees, our employees,
directors and other persons associated with us who have expressed an interest in
purchasing our Class A common stock in the offering. The number of shares
available for sale to the general public in the offering will be reduced to the
extent these persons purchase such reserved shares. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
terms as the other shares.
We and Titan have agreed to indemnify the underwriters against liabilities
under the Securities Act, or to contribute to payments which the underwriters
may be required to make in that respect.
We have applied to list our Class A common stock on The Nasdaq Stock
Market's National Market under the trading symbol "CYTA."
Prior to this offering, there has been no public market for our Class A
common stock. The initial public offering price will be determined by
negotiation between us and the representatives. The principal factors to be
considered in determining the public offering price include the following:
- the information included in this prospectus and otherwise available to the
representatives;
- market conditions for initial public offerings;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
We can offer no assurance that the initial public offering price will
correspond to the price at which our Class A common stock will trade in the
public market subsequent to the offering or that an active trading market for
our Class A common stock will develop and continue after the offering.
A prospectus in electronic format will be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The underwriters may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the representatives of the underwriters to underwriters that may
make Internet distributions on the same basis as other allocations.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with
Regulation M under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the securities in the
open market after the distribution has been completed in order to cover
syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the securities originally sold by the
syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq Stock Market's National Market or otherwise and, if commenced, may be
discontinued at any time.
68
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of our Class A common stock in Canada is being made only on
a private placement basis exempt from the requirement that we prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of common stock are effected. Accordingly, any resale of our
Class A common stock in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of our Class A common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of our Class A common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that: (1) such purchaser is entitled under
applicable provincial securities laws to purchase our Class A common stock
without the benefit of a prospectus qualified under such securities laws,
(2) where required by law, such purchaser is purchasing as principal and not as
agent, and (3) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the SECURITIES ACT (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of our Class A common stock should consult their own
legal and tax advisors with respect to the tax consequences of an investment in
the common stock in their particular circumstances and with respect to the
eligibility of the common stock for investment by the purchaser under relevant
Canadian legislation.
69
<PAGE>
LEGAL MATTERS
Cooley Godward LLP, San Diego, California will pass upon the validity of the
shares of our Class A common stock offered by this prospectus for us. The
underwriters have been represented by Stoel Rives LLP, Seattle, Washington.
EXPERTS
The consolidated financial statements of Cayenta, Inc. as of December 31,
1998 and 1999 and for each of the three years in the period ended December 31,
1999, the financial statements of Transnational Partners II, LLC for the period
from February 9, 1997 (commencement of operations) through December 31, 1997 and
for the year ended December 31, 1998 and the financial statements of JB Systems,
Inc. (d.b.a. Mainsaver), for each of the two years in the period ended
December 31, 1998 and for the ten months ended October 31, 1999, included in
this prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The financial statements of Assist Cornerstone Technologies, Inc. as of
December 12, 1999 and December 31, 1998, and for the period ended December 12,
1999 and for each of the two years in the period ended December 31, 1998,
included in this prospectus and registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of SFG Technologies, Inc. as of
December 21, 1999 and December 31, 1998 and for the period from January 1, 1999
to December 21, 1999 and for the eight months ended December 31, 1998 and for
the years ended April 30, 1996, 1997 and 1998, included in this prospectus and
registration statement have been audited by KPMG LLP, independent auditors, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act, with respect to our Class A
common stock offered by this prospectus. As permitted by the rules and
regulations of the Commission, this prospectus, which is a part of the
registration statement, omits certain information, exhibits, schedules and
undertakings set forth in the registration statement. For further information
pertaining to us and our Class A common stock offered hereby, reference is made
to such registration statement and the exhibits and schedules thereto.
Statements contained in this prospectus as to the contents or provisions of any
contract or other document referred to herein are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference. A copy of the registration
statement may be inspected without charge at the Commission's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center,
13th Floor, New York, New York 10048. You may obtain information on the
operation of the Commission's Public Reference Room by calling the Commission at
1-800-SEC-0330. Copies of all or any part of the registration statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission. In addition, registration statements and certain other filings made
with the Commission through its Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system, including our registration statement and all
exhibits and amendments to our registration statements, are publicly available
through the Commission's Web site at http://www.sec.gov.
70
<PAGE>
CAYENTA, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
CAYENTA, INC.
Pro Forma Financial Statements (Unaudited):
Pro Forma Condensed Combined Statement of Operations
(Unaudited)............................................ F-2
Notes to Pro Forma Condensed Combined Financial
Statements (Unaudited)................................. F-3
Consolidated Financial Statements:
Report of Independent Public Accountants................ F-6
Consolidated Balance Sheets............................. F-7
Consolidated Statements of Income....................... F-8
Consolidated Statements of Stockholders' Equity......... F-9
Consolidated Statements of Cash Flows................... F-10
Notes to Consolidated Financial Statements.............. F-11
TRANSNATIONAL PARTNERS II, LLC
Report of Independent Public Accountants.................. F-25
Statements of Income...................................... F-26
Statements of Member's Equity............................. F-27
Statements of Cash Flows.................................. F-28
Notes to Financial Statements............................. F-29
JB SYSTEMS, INC.
Report of Independent Public Accountants.................. F-31
Statements of Operations.................................. F-32
Statements of Stockholders' Deficit....................... F-33
Statements of Cash Flows.................................. F-34
Notes to Financial Statements............................. F-35
ASSIST CORNERSTONE TECHNOLOGIES, INC.
Report of Independent Auditors............................ F-41
Balance Sheets............................................ F-42
Statements of Operations.................................. F-43
Statements of Shareholders' Equity (Deficit).............. F-44
Statements of Cash Flows.................................. F-45
Notes to Financial Statements............................. F-46
SFG TECHNOLOGIES, INC.
Auditors Report........................................... F-57
Balance Sheets............................................ F-58
Consolidated Statements of Operations..................... F-59
Consolidated Statements of Deficit........................ F-60
Consolidated Statements of Cash Flows..................... F-61
Notes to Consolidated Financial Statements................ F-62
</TABLE>
F-1
<PAGE>
CAYENTA, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------- PRO FORMA
ASSIST SFG ADJUSTMENTS PRO FORMA
CAYENTA MAINSAVER CORNERSTONE TECHNOLOGIES (NOTE 4) COMBINED
-------- --------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues.......................... $40,262 $ 6,698 $11,869 $6,749 $ -- $ 65,578
Cost of revenues.................. 28,355 1,835 6,265 1,348 -- 37,803
------- ------- ------- ------ -------- --------
Gross profit.................... 11,907 4,863 5,604 5,401 -- 27,775
------- ------- ------- ------ -------- --------
Operating expenses:
Selling, general and
administrative................ 7,227 5,526 5,915 3,234 10,530 (a) 32,432
Research and development........ 16 1,004 612 2,245 -- 3,877
------- ------- ------- ------ -------- --------
Total operating expenses...... 7,243 6,530 6,527 5,479 10,530 36,309
------- ------- ------- ------ -------- --------
Income (loss) from operations..... 4,664 (1,667) (923) (78) (10,530) (8,534)
Interest expense.................. 1,740 383 454 337 4,241 (b) 7,155
------- ------- ------- ------ -------- --------
Income (loss) before tax.......... 2,924 (2,050) (1,377) (415) (14,771) (15,689)
Income tax provision (benefit).... 2,392 -- (138) -- (1,484)(c) 770
------- ------- ------- ------ -------- --------
Net income (loss)................. $ 532 $(2,050) $(1,239) $ (415) $(13,287) $(16,459)
======= ======= ======= ====== ======== ========
Basic earnings (loss) per share... $ 0.05 $ (1.56)
======= ========
Weighted average shares--basic.... 10,047 474 10,521
======= ======== ========
Diluted earnings (loss) per
share........................... $ 0.04 $ (1.56)(d)
======= ========
Weighted average
shares--diluted................. 13,182 (2,661)(d) 10,521
======= ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS UNAUDITED PRO FORMA
FINANCIAL STATEMENT.
F-2
<PAGE>
CAYENTA, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
Cayenta, Inc. ("Cayenta" or the "Company") was formed as a wholly-owned
subsidiary of The Titan Corporation ("Titan") in 1997. Cayenta acquired
Transnational Partners II, LLC on January 1, 1999 and three additional companies
in 1999 ("the 1999 Acquired Companies") (see Note 3). Effective December 13,
1999, Titan contributed its software integration division to the Company. This
transaction has been accounted for as a combination of entities under common
control on a historical cost basis in a manner similar to a pooling of interests
for all periods presented. The Company is currently a majority-owned subsidiary
of Titan.
2. BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed combined statement of
operations is based on adjustments to the historical consolidated financial
statements of Cayenta to give effect to the acquisitions described in Note 3
below. The pro forma condensed combined statement of operations assumes the
acquisitions were consummated as of the beginning of 1999. The pro forma
condensed combined statement of operations is not necessarily indicative of
results that would have occurred had the acquisitions been consummated as of the
beginning of 1999 or the results that may be attained in the future.
Certain information normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
has been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. The pro forma condensed combined statement
of operations should be read in conjunction with the historical consolidated
financial statements of Cayenta, the historical financial statements of the 1999
Acquired Companies and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.
The information in the unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1999 has been derived from (i) the
audited statements of operations of Cayenta for the year ended December 31, 1999
and each of the 1999 Acquired Companies through their respective acquisition
dates.
The financial statements of SFG Technologies are translated from Canadian
dollars to U.S. dollars based on the end of the period exchange rate for balance
sheet items and average for the period rates for statement of operations data.
There are significant differences between U.S. and Canadian GAAP relative to SFG
Technologies.
3. ACQUISITIONS
All acquisitions were accounted for as purchases. Accordingly the operating
results are reflected in the consolidated results of Cayenta from the date of
acquisition. Summary information on the acquisitions follows:
THE 1999 ACQUIRED COMPANIES
MAINSAVER. In November 1999, Cayenta acquired JB Systems, Inc., an
enterprise asset management, or EAM, company doing business under the name
Mainsaver. The Company acquired Mainsaver for $11.7 million in cash, of which
$8.2 million was paid at the closing. Of the $3.5 million
F-3
<PAGE>
CAYENTA, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. ACQUISITIONS (CONTINUED)
withheld at the closing, $500,000 was used to satisfy a working capital
shortfall and $3.0 million is due in May 2001, after satisfaction of possible
additional working capital adjustments or indemnification obligations. In
addition, the Company paid approximately $3.4 million to reduce outstanding
indebtedness of Mainsaver.
ASSIST CORNERSTONE. In December 1999, Cayenta acquired Assist Cornerstone,
an e-commerce solutions and software company. The Company acquired Assist
Cornerstone for 516,000 shares of Cayenta Class A common stock and approximately
$12.9 million in cash, of which $9.9 million was paid at the closing. Of the
$3.0 million withheld at the closing, $1.7 million was paid in March 2000 and
$1.3 million is due in June 2001, after satisfaction of possible working capital
adjustments or indemnification obligations. In addition, the Company paid
approximately $3.2 million to retire outstanding indebtedness of Assist
Cornerstone and redeem all of its outstanding redeemable preferred stock.
SFG TECHNOLOGIES. In December 1999, Cayenta acquired SFG Technologies, a
solutions and software provider focusing on revenue cycle services for the
utility industry. The Company acquired SFG Technologies for $11.6 million in
cash, of which $9.5 million was paid at the closing. Of the $2.1 million placed
into escrow at the closing, $600,000 was released from escrow in March 2000 and
$1.5 million is due in June 2001, after satisfaction of possible working capital
adjustments or indemnification obligations. In addition, the Company paid
approximately $3.1 million to retire outstanding indebtedness of SFG
Technologies and redeem all of its outstanding redeemable preferred stock.
Acquisition costs related to the 1999 Acquired Companies approximated $5.1
million which includes approximately $2.1 million of estimated fair value
assigned to 495,800 warrants granted to an investment advisor for certain
advisory services performed in connection with these acquisitions. Goodwill
related to these acquisitions amounted to approximately $56.9 million and is
being amortized over 5 years.
4. ADJUSTMENTS TO HISTORICAL FINANCIAL STATEMENTS
The following pro forma adjustments have been made to the historical
condensed consolidated statement of operations as if the acquisitions described
in Note 3 were consummated as of January 1, 1999:
STATEMENT OF OPERATIONS
(a) To reflect incremental amortization (on a straight-line basis over
5 years) of goodwill related to the purchase of the 1999 Acquired Companies.
The goodwill adjustment was based on total goodwill from the 1999 Acquired
companies of $56.9 million, less the amount amortized subsequent to the
acquisitions of $850,000.
(b) To reflect incremental interest expense on advances under our
subordinated promissory note to fund the cash portion of the purchase prices
of the 1999 Acquired Companies. The incremental interest expense was
calculated based on the total cash paid for the 1999 Acquired companies of
$45.4 million. The adjustment was based on the period of time before
acquisition at an interest rate of 10.0%.
(c) To reflect the change in income taxes related to pro forma
adjustments (excluding goodwill amortization) at an effective tax rate of
35%.
(d) Pro forma increases in diluted earnings per share reflect the
issuance of 2,345,000 convertible preferred shares to former shareholders of
TNP and the effect of stock options issued of 790,000 shares. The impact of
the 2,345,000 convertible preferred shares and Cayenta's potentially
dilutive stock options have been eliminated in the pro forma earnings per
share as their impact would be anti-dilutive.
F-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cayenta, Inc.:
We have audited the accompanying consolidated balance sheets of Cayenta,
Inc. (a Delaware Corporation and a majority-owned subsidiary of The Titan
Corporation) and subsidiaries as of December 31, 1998 and 1999, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cayenta, Inc. and
subsidiaries as of December 31, 1998 and 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
ARTHUR ANDERSEN LLP
San Diego, California
January 31, 2000 (Except with respect
to the matters discussed in Note 12,
as to which the date is March 30, 2000)
F-5
<PAGE>
CAYENTA, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUES)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ -- $ 6,938 10,741
Accounts receivable....................................... 10,984 14,121 17,102
Prepaid expenses and other................................ 54 2,131 5,580
------- -------- --------
Total current assets.................................... 11,038 23,190 33,423
Property and equipment--net................................. 649 3,009 10,182
Goodwill--net............................................... 236 66,552 62,851
Investment in joint venture and other....................... -- 5,319 5,310
------- -------- --------
Total assets............................................ $11,923 $ 98,070 111,766
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 2,634 $ 9,256 10,383
Accrued compensation and benefits......................... 367 2,272 2,233
Income taxes payable...................................... -- 2,934 2,934
Notes payable............................................. -- 5,473 --
Other current liabilities................................. 1 11,186 10,281
Current portion of long-term debt......................... -- 308 --
------- -------- --------
Total current liabilities............................... 3,002 31,429 25,831
------- -------- --------
Long-term debt.............................................. -- 1,585 317
Deferred income tax liability............................... 15 -- --
Other non-current liabilities............................... -- 5,477 5,035
Subordinated promissory note................................ -- 50,389 68,244
Commitments and contingencies
Stockholders' Equity:
Preferred Stock, $.001 par value 17,345 shares authorized
Series A Convertible Preferred Stock, 2,345 shares
authorized,
0, 2,345 and 0 issued and outstanding................... -- 2 2
Class A Common Stock, $.001 par value, 100,000 shares
authorized, 0, 566 and 816 issued and outstanding......... -- 1 1
Class B Common Stock, $.001 par value, 50,000 shares
authorized,
10,000, 10,000 and 0 issued and outstanding............... 10 10 10
Additional paid-in-capital.................................. 83 7,248 16,185
Deferred compensation....................................... (49) (1,675) (2,104)
Parent company investment................................... 5,757 -- --
Cumulative foreign currency translation adjustment.......... -- (33) (30)
Retained earnings........................................... 3,105 3,637 (1,725)
------- -------- --------
Total stockholders' equity.............................. 8,906 9,190 12,339
------- -------- --------
Total liabilities and stockholders' equity.............. $11,923 $ 98,070 111,766
======= ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE
SHEETS.
F-6
<PAGE>
CAYENTA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------------- -------------------
1997 1998 1999 1999 2000
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues....................................... $10,191 $12,095 $40,262 6,666 15,687
Cost of revenues............................... 6,514 7,413 28,355 5,250 6,919
------- ------- ------- ------- -------
Gross profit................................. 3,677 4,682 11,907 1,416 8,768
Selling, general and administrative expenses... 1,705 2,259 7,243 969 12,574
------- ------- ------- ------- -------
Income (loss) from operations.................. 1,972 2,423 4,664 447 (3,806)
Interest expense-net........................... 139 204 1,740 226 1,556
------- ------- ------- ------- -------
Income (loss) before taxes..................... 1,833 2,219 2,924 221 (5,362)
Income tax provision........................... 734 908 2,392 -- --
------- ------- ------- ------- -------
Net income (loss).............................. $ 1,099 $ 1,311 $ 532 $ 221 $(5,362)
======= ======= ======= ======= =======
Basic earnings (loss) per share................ $ 0.11 $ 0.13 $ 0.05 $ 0.02 $ (0.51)
======= ======= ======= ======= =======
Weighted average shares--basic................. 10,000 10,000 10,047 10,000 10,568
======= ======= ======= ======= =======
Diluted earnings (loss) per share.............. $ 0.11 $ 0.13 $ 0.04 $ 0.02 $ (0.51)
======= ======= ======= ======= =======
Weighted average shares--diluted............... 10,030 10,148 13,182 10,735 10,568
======= ======= ======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-7
<PAGE>
CAYENTA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
SERIES A FOREIGN
CONVERTIBLE COMMON STOCK ADDITIONAL PARENT CURRENCY
PREFERRED --------------------- PAID-IN- DEFERRED COMPANY TRANSLATION
STOCK CLASS A CLASS B CAPITAL COMPENSATION INVESTMENT ADJUSTMENT
----------- --------- --------- ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1997........ $ -- $ -- $ 10 $ -- $ -- $ 2,283 --
Net income....................... -- -- -- -- -- -- --
Distribution to Titan, net....... -- -- -- -- -- (107) --
---- ---- ---- ------- ------- ------- ----
Balances at December 31, 1997...... -- -- 10 -- -- 2,176 --
Net income....................... -- -- -- -- -- -- --
Titan investment, net............ -- -- -- -- -- 3,581 --
Deferred compensation related to
the issuance of stock
options........................ -- -- -- 83 (83) -- --
Amortization of deferred
compensation................... -- -- -- -- 34 -- --
---- ---- ---- ------- ------- ------- ----
Balances at December 31, 1998...... -- -- 10 83 (49) 5,757 --
Net income....................... -- -- -- -- -- -- --
Deferred compensation related to
the issuance of stock
options........................ -- -- -- 1,852 (1,852) -- --
Amortization of deferred
compensation................... -- -- -- -- 226 -- --
Foreign currency translation
adjustment....................... -- -- -- -- -- -- (33)
Conversion of parent company
investment into subordinated
promissory note.................. -- -- -- -- -- (5,757) --
Issuance of preferred stock in
connection with the acquisition
of TNP......................... 2 -- 1,898 -- -- --
Issuance of common stock in
conjunction with exercise of
stock options.................. -- -- -- 18 -- -- --
Issuance of common stock in
connection with the acquisition
of Assist Cornerstone
Technologies, Inc.............. -- 1 -- 3,397 -- -- --
---- ---- ---- ------- ------- ------- ----
Balances at December 31, 1999...... 2 1 10 7,248 (1,675) -- (33)
==== ==== ==== ======= ======= ======= ====
Net loss (unaudited)............. -- -- -- -- -- -- --
Deferred compensation related to
the issuance of stock options
(unaudited).................... -- -- -- 564 (518) -- --
Amortization of deferred
compensation (unaudited)....... -- -- -- -- 89 -- --
Foreign currency translation
adjustment (unaudited)......... -- -- -- -- -- -- 3
Issuance of common stock to
Penton (unaudited)............. -- -- -- 8,373 -- -- --
---- ---- ---- ------- ------- ------- ----
Balances at March 31, 2000
(unaudited)...................... $ 2 $ 1 $ 10 $16,185 $(2,104) $ -- $(30)
==== ==== ==== ======= ======= ======= ====
<CAPTION>
RETAINED
EARNINGS TOTAL
-------- --------
<S> <C> <C>
Balances at January 1, 1997........ $ 695 $ 2,988
Net income....................... 1,099 1,099
Distribution to Titan, net....... -- (107)
------- -------
Balances at December 31, 1997...... 1,794 3,980
Net income....................... 1,311 1,311
Titan investment, net............ -- 3,581
Deferred compensation related to
the issuance of stock
options........................ -- --
Amortization of deferred
compensation................... -- 34
------- -------
Balances at December 31, 1998...... 3,105 8,906
Net income....................... 532 532
Deferred compensation related to
the issuance of stock
options........................ -- --
Amortization of deferred
compensation................... -- 226
Foreign currency translation
adjustment....................... -- (33)
Conversion of parent company
investment into subordinated
promissory note.................. -- (5,757)
Issuance of preferred stock in
connection with the acquisition
of TNP......................... -- 1,900
Issuance of common stock in
conjunction with exercise of
stock options.................. -- 18
Issuance of common stock in
connection with the acquisition
of Assist Cornerstone
Technologies, Inc.............. -- 3,398
------- -------
Balances at December 31, 1999...... 3,637 9,190
======= =======
Net loss (unaudited)............. (5,362) (5,362)
Deferred compensation related to
the issuance of stock options
(unaudited).................... -- 46
Amortization of deferred
compensation (unaudited)....... -- 89
Foreign currency translation
adjustment (unaudited)......... -- 3
Issuance of common stock to
Penton (unaudited)............. -- 8,373
------- -------
Balances at March 31, 2000
(unaudited)...................... $(1,725) $12,339
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-8
<PAGE>
CAYENTA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................ $ 1,099 $ 1,311 $ 532 $ 221 $ (5,362)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization.............. 375 286 3,900 710 3,949
Deferred income taxes...................... 20 10 436 -- (14)
Deferred compensation charge............... -- 34 225 -- 135
Foreign currency translation adjustment.... -- -- (33) -- 3
Change in operating assets and liabilities,
net of effects of businesses acquired:
Accounts receivable........................ (487) (7,333) (2,309) (4,235) (2,981)
Prepaid expenses and other................. (71) 17 77 (1,435)
Accounts payable........................... 93 2,541 1,932 (24) 1,127
Income tax payable......................... -- -- 2,934 949 --
Accrued compensation and benefits.......... 520 (153) 1,905 (345) (39)
Other accrued liabilities.................. (264) (42) 6,792 510 (1,623)
------- ------- -------- -------- --------
Net cash provided by (used in) operating
activities............................. 1,285 (3,329) 16,391 (2,214) (6,240)
------- ------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................... (883) (252) (975) (34) (7,627)
Payment for purchase of businesses, net of
cash acquired.............................. (295) -- (48,110) -- (4,285)
Purchase of investment....................... -- -- (5,000) -- --
------- ------- -------- -------- --------
Net cash used in investing activities.... (1,178) (252) (54,085) (34) (11,912)
------- ------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Subordinated promissory note................. -- -- 50,389 2,248 17,855
Proceeds from the sale of stock.............. -- -- -- -- 6,373
Payments on debt............................. -- -- -- -- (2,273)
Titan investment (distribution), net......... (107) 3,581 (5,757) -- --
------- ------- -------- -------- --------
Net cash provided by (used in) financing
activities................................. (107) 3,581 44,632 2,248 21,955
------- ------- -------- -------- --------
Net change in cash........................... -- -- 6,938 -- 3,803
Cash at beginning of year.................. -- -- -- -- 6,938
------- ------- -------- -------- --------
Cash at end of year........................ $ -- $ -- $ 6,938 $ -- 10,741
======= ======= ======== ======== ========
Acquisitions of TNP, Mainsaver, Assist and
SFG:
Premium paid in excess of assets
acquired........................... $ -- $ -- $ 66,408 $ -- $ --
Notes payable........................ -- -- (10,900) -- --
Series A Convertible Preferred
Stock.............................. -- -- (1,900) -- --
Class A common stock................. -- -- (3,398) -- --
Warrants to Financial Advisor........ -- -- (2,100) -- --
------- ------- -------- -------- --------
Cash................................. $ -- $ -- $ 48,110 -- --
======= ======= ======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-9
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF THE BUSINESS
Cayenta, Inc. ("Cayenta" or the "Company") was formed as a wholly-owned
subsidiary of The Titan Corporation ("Titan") in 1997. In January 1999, the
Company acquired substantially all of the assets and liabilities of
Transnational Partners II, LLC ("TNP"), an enterprise application integration
consulting company, to broaden its systems integration capabilities and access
its customer base. Effective December 13, 1999, Titan contributed its software
integration division to the Company. This transaction has been accounted for as
a combination of entities under common control on a historical cost basis in a
manner similar to a pooling of interests for all periods presented. The Company
is currently a majority-owned subsidiary of Titan.
In September 1999, together with a Sempra Energy subsidiary and modis, the
Company established Soliance LLC ("Soliance"), a joint venture that markets and
delivers systems and solutions, including total services provider ("TSP")
offerings, to the utility industry. The Company owns a 10% equity interest in
Soliance which is being accounted for under the cost method. Cayenta has a
Management Services Agreement with Soliance pursuant to which the Company
provides TSP services to Soliance's customers in the utility industry.
During late 1999, the Company acquired all of the capital stock of JB
Systems, Inc., an enterprise asset management, or EAM, company doing business
under the name Mainsaver. Also during late 1999, the Company acquired all of the
capital stock of Assist Cornerstone Technologies, Inc., an e-commerce solutions
and software company, and SFG Technologies, Inc., a solutions and software
company focusing on revenue cycle services for the utility industry.
Cayenta has historically derived its revenues from application integration
and consulting services and from sales of its proprietary software solutions.
Historically, the Company has provided services primarily on a fixed-time,
fixed-price basis and, to a lesser extent, on a time and materials basis.
On a historical basis, the Company's principal business risks generally
result from its dependence upon a small number of customers and the
uncertainties inherent in government contracting. As the Company launches its
TSP offering, the Company faces a number of new risks, including but not limited
to:
- The market for TSP offerings is new and undeveloped. Furthermore, the
Company has no history of generating revenues from its TSP offering.
- The development of the Company's TSP offering is highly dependent upon the
successful integration of the products recently acquired from Mainsaver,
Assist Cornerstone Technologies, Inc., and SFG Technologies, Inc.
- The Company's TSP strategy will require a significant investment in
infrastructure, sales and marketing, processes and solutions. As a result,
the Company expects to incur losses for the foreseeable future.
See "Risk Factors" in the accompanying prospectus for a more complete
discussion of risks faced by the Company.
F-10
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Cayenta and its subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
INTERIM RESULTS (UNAUDITED). The accompanying consolidated balance sheet as
of March 31, 2000 and the related consolidated statements of income and of cash
flows for the three months ended March 31, 1999 and 2000, and the consolidated
statement of stockholders' equity for the three months ended March 31, 2000 are
unaudited. In the opinion of management, these statements have been prepared on
the same basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of results of the interim periods. The data disclosed in these
notes to the financial statements at such dates and for such periods are also
unaudited.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION. Revenues for consulting services are recorded at the
time services are performed, except for fixed-price contracts, which are
accounted for using the percentage-of-completion method. Estimated losses on
fixed-price contracts are recorded in the period the losses are determinable. In
determining the applicability of the percentage of completion method to
accounting for fixed price contracts the company considers the risks associated
with estimating its costs to complete a contract if the estimate are deemed
unreliable or contain a significant degree of risk the company will seek to
modify the contract to time and materials or use the completed contract method.
The Company also generates revenues from licensing the rights to use its
software products primarily to end users. The Company further generates revenues
from post-contract support (maintenance), consulting and training services
performed for customers who license its products.
Revenues from software license agreements are recognized currently, provided
that all of the following conditions are met: a noncancelable license agreement
has been signed, the software has been delivered, there are no material
uncertainties regarding customer acceptance, collection of the resulting
receivable is deemed probable and the risk of concession is deemed remote, and
no other significant vendor obligations exist. Revenues from maintenance
services are recognized ratably over the term of the maintenance period,
generally one year. Maintenance revenues which are bundled with license
agreements are unbundled using vendor specific objective evidence.
DEFERRED REVENUES. Deferred revenues consists principally of customer
deposits and payments for software maintenance agreements with customers whereby
the Company receives payment in advance of performing the service. Revenues from
the contracts is recognized ratably over the contract period.
FOREIGN CURRENCY TRANSLATION. The financial statements of the Company's one
foreign subsidiary are measured using the local functional currency. Assets and
liabilities of the subsidiary are translated at exchange rates in effect as of
the balance sheet date. Revenues and expenses are translated at average rates of
exchange in effect during the year. The resulting cumulative translation
adjustments
F-11
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
have been recorded as a separate component of stockholders' equity. Foreign
currency transaction gains and losses are included in consolidated net income.
PROPERTY AND EQUIPMENT. Property and equipment are stated at acquisition
cost. Depreciation is provided using the straight-line method, with estimated
useful lives of two to eight years for leasehold improvements (or the life of
the lease if shorter) and three to seven years for machinery and equipment and
furniture and fixtures.
SOFTWARE DEVELOPMENT COSTS. In accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the costs of computer software to
be sold, leased or otherwise marketed", software development costs are
capitalized from the time the product's technological feasibility has been
established until such time as the product is released for sale to the general
public. Amortization of capitalized software is generally recorded on a
straight-line basis over four years. No amounts were capitalized in the years
ended December 31, 1997, 1998 and 1999.
GOODWILL. The excess of the cost over the fair value of net assets of
purchased businesses ("goodwill") is amortized on a straight-line basis over
five years. The Company periodically re-evaluates the original assumptions and
rationale utilized in the establishment of the carrying value and estimated
lives of its goodwill. The criteria used for these evaluations include
management's estimate of the asset's continuing ability to generate positive
income from operations and positive cash flow in future periods as well as the
strategic significance of the intangible asset to the Company's business
objectives.
IMPAIRMENT OF LONG-LIVED ASSETS. Periodically, the Company reviews for
possible impairment of its long-lived assets and certain identifiable
intangibles to be held and used. Whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable,
asset values are adjusted accordingly. In evaluating whether an impairment
exists, the Company compares the carrying value of the asset to the estimated
undiscounted future cash flows. If an impairment is deemed to exist, the asset's
carrying value is adjusted to the present value of its estimated future cash
flows.
STOCK-BASED COMPENSATION. The Company has elected to adopt the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Accordingly, the
Company will continue to account for its stock-based compensation plans under
the provisions of APB No. 25.
INCOME TAXES. The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
requires the use of the liability method of accounting for deferred income
taxes. Under this method, deferred income taxes are recorded to reflect the tax
consequences on future years of temporary differences between the tax bases of
assets and liabilities and their financial reporting amounts at each year-end.
If it is more likely than not that some portion or all of a deferred tax asset
will not be realized, a valuation allowance is recognized.
The Company and Titan intend to enter into a tax allocation agreement under
which the Company will be included in Titan's consolidated federal and certain
state income tax returns. The Company believes that the agreement will be
structured so that in the years in which the Company has taxable income, it will
pay Titan amounts comparable to the taxes the Company would have paid if it had
filed separate tax returns. For so long as Titan maintains beneficial ownership
of at least 80% of the total
F-12
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
voting power and 80% of the total value of the outstanding Common Stock, the
Company will be included in the consolidated federal and certain state income
tax returns filed by Titan.
PER SHARE INFORMATION. Basic and diluted earnings per share are presented
in conformity with Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"), for all periods presented. In accordance with
SFAS 128, basic earnings per share has been computed using the weighted-average
number of shares of common stock outstanding during the period. Diluted earnings
per share include the effects of potentially dilutive securities using the
as-converted and treasury stock methods.
The following data summarize information relating to the per share
computations for continuing operations:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
----------------------------------------
INCOME SHARES (000'S) PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
----------- -------------- ---------
<S> <C> <C> <C>
Basic EPS:
Net Income...................................... $ 532 10,047 $ .05
Effect of dilutive securities:
Stock Options................................... -- 790 --
Series A Preferred Stock........................ -- 2,345 (.01)
------- ------ -----
Diluted EPS:
Net Income plus assumed conversions............. $ 532 13,182 $ .04
======= ====== =====
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
----------------------------------------
INCOME SHARES (000'S) PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
----------- -------------- ---------
<S> <C> <C> <C>
Basic EPS:
Net Income...................................... $ 1,311 10,000 $ .13
Effect of dilutive securities: Stock Options...... -- 148 --
------- ------ -----
Diluted EPS:
Net Income plus assumed conversions............. $ 1,311 10,148 $ .13
======= ====== =====
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------
INCOME SHARES (000'S) PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
----------- -------------- ---------
<S> <C> <C> <C>
Basic EPS:
Net Income...................................... $ 1,099 10,000 $ .11
Effect of dilutive securities: Stock Options.... -- 30 --
------- ------ -----
Diluted EPS:
Net Income plus assumed conversions............. $ 1,099 10,030 $ .11
======= ====== =====
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amounts of the Company's
financial instruments, including cash, accounts receivable, and accounts payable
and accrued liabilities approximate their fair
F-13
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
values due to their short term nature. Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of trade
accounts receivable. The Company believes it is not exposed to any significant
credit risk on its accounts receivable.
COMPREHENSIVE INCOME. Effective January 1, 1998, the Company adopted
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). This statement establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. The objective of the statement is to report a
measure of all changes in equity of an enterprise that result from transactions
and other economic events of the period other than transactions with owners.
Comprehensive income is the total of net income and all other nonowner changes
in equity.
During the year ended December 31, 1999, the Company's only element of other
comprehensive income resulted from foreign currency translation adjustments in
1999, which are reflected in the consolidated statements of changes in
stockholders' equity as foreign currency translation adjustments.
START-UP COSTS. The Company expenses the costs of start-up activities as
incurred in accordance with the provisions of AICPA Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities".
PARENT COMPANY INVESTMENT. The cash receipts and disbursements of the
Company's operations have historically been combined with other Titan cash
transactions and balances. Titan funded all of the Company's cash requirements
through December 31, 1999.
NEW ACCOUNTING STANDARDS. In December 1999, the Securities and Exchange
Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements." This SAB summarizes the SEC's view in
applying generally accepted accounting principles to revenue recognition in
financial statements. This SAB is effective for all registrants during the
second quarter of fiscal 2000. The Company's accounting policies comply with the
provisions of SAB 101.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In June 1999, the effective date of SFAS 133 was amended to be
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000 by Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of Effective Date of
FASB Statement No. 133". The Company anticipates that the adoption of SFAS 133
will not have a material impact on the Company's financial position or results
of operations.
NOTE 3. ACQUISITIONS AND JOINT VENTURE.
In September 1999, together with a Sempra Energy subsidiary and modis, the
Company established Soliance, a joint venture that markets and delivers systems
and solutions, including TSP offerings, to the utility industry. In exchange for
a $5.0 million investment, the Company received a 10% equity interest in
Soliance which is being accounted for under the cost method. Cayenta has a
Management
F-14
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. ACQUISITIONS AND JOINT VENTURE. (CONTINUED)
Services Agreement with Soliance pursuant to which the Company provides TSP
services to Soliance's customers in the utility industry. Under certain
circumstances, the Company may also be required to make up to $2.5 million in
additional capital contributions.
On January 1, 1999, the Company acquired certain assets of TNP for a
purchase price of $9.8 million, consisting of $7.0 million cash, a $2.8 million
note paid in February 2000 (bearing interest at 7%), subject to certain
post-closing adjustments, and 2,345 shares of Series A convertible preferred
stock representing a minority interest in Cayenta. The transaction was accounted
for as a purchase. The excess of the purchase price over the estimated fair
value of net assets acquired, approximately $9.5 million, net at March 31, 2000,
is being amortized on a straight-line basis over 5 years. TNP's results of
operations have been consolidated with the Company's results of operations since
January 2, 1999.
In November 1999, Cayenta acquired J.B. Systems, an EAM company doing
business under the name Mainsaver. The Company acquired Mainsaver for
$11.7 million in cash, of which $8.2 million was paid at the closing. Of the
$3.5 million withheld at the closing, $500,000 was used to satisfy working
capital adjustments in March 2000 and $3.0 million is due in May 2001, after
satisfaction of possible working capital adjustments or indemnification
obligations. In addition, the Company paid approximately $3.4 million to reduce
outstanding indebtedness of Mainsaver.
In December 1999, Cayenta acquired Assist Cornerstone Technologies, Inc., an
e-commerce solutions and software company. The Company acquired Assist
Cornerstone for 516,000 shares of Cayenta Class A common stock and approximately
$12.9 million in cash, of which $9.9 million was paid at the closing. Of the
$3.0 million withheld at the closing, $1.7 million was paid in March 2000 and
$1.3 million is due in June 2001, after satisfaction of possible working capital
adjustments or indemnification obligations. In addition, the Company paid
approximately $3.2 million to retire outstanding indebtedness of Assist
Cornerstone and redeem all of its outstanding redeemable preferred stock.
In December 1999, Cayenta acquired SFG Technologies, Inc., a solutions and
software provider focusing on revenue cycle services for the utility industry.
The Company acquired SFG Technologies for $11.6 million in cash, of which
$9.5 million was paid at the closing. Of the $2.1 million placed into escrow at
the closing, $600,000 was released in March 2000 and $1.5 million is due in June
2001, after satisfaction of possible working capital adjustments or
indemnification obligations. In addition, the Company paid approximately
$3.1 million to retire outstanding indebtedness of SFG Technologies and redeem
all of its outstanding redeemable preferred stock.
In connection with the acquisition of Mainsaver, Assist, and SFG
Technologies the Company has recorded $56.9 million related to the excess of
purchase price over the estimated fair value of the net assets acquired. This
amount is being amortized to operations on a straight line basis over 5 years.
The results of operations of Mainsaver, Assist, and SFG Technologies have been
consolidated with the Company from their respective dates of acquisition.
All of these acquisitions have been funded by Titan during the year ended
December 31, 1999.
In connection with the acquisitions described above, except for the
acquisition of TNP, the Company has issued warrants to a financial advisor to
purchase up to 496,000 shares of Class A common stock for $13.11 per share. The
warrants are exercisable at any time and expire in 5 years.
F-15
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. ACQUISITIONS AND JOINT VENTURE. (CONTINUED)
All of the above acquisitions were accounted for under the purchase method,
accordingly their results of operations have been included from the date of
acquisition.
Goodwill of approximately $200 at December 31, 1999 relates to an
acquisition in 1997, and is being amortized over five years.
Unaudited pro forma data for the years ended December 31, 1998 and 1999
giving effect to the purchase of TNP, Mainsaver, Assist and SFG, as if they had
been acquired at the beginning of 1998 and 1999 are shown below:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Revenues.................................................... $41,348 $ 65,578
Net loss.................................................... (4,466) (16,459)
Basic loss per share........................................ $ (0.42) $ (1.56)
Diluted loss per share...................................... (0.42) $ (1.56)
</TABLE>
NOTE 4. OTHER FINANCIAL DATA
Following are details concerning certain balance sheet accounts as of
December 31, 1998, 1999 and March 31, 2000:
<TABLE>
<CAPTION>
1998 1999 2000
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts Receivable:
Billed.............................. $ 1,297,000 $10,796,000 $14,797,000
Unbilled............................ 9,687,000 3,325,000 2,305,000
----------- ----------- -----------
$10,984,000 $14,121,000 $17,102,000
=========== =========== ===========
</TABLE>
Unbilled receivables represent work-in-process that will be billed in
accordance with contract terms and delivery schedules. Also included in unbilled
receivables are amounts billable upon final execution of contracts, contract
completion, milestones or completion of rate negotiations. Generally, unbilled
receivables are expected to be collected within one year.
<TABLE>
<CAPTION>
1998 1999 2000
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Property and Equipment:
Machinery and equipment............................... $1,190,000 $ 2,885,000 9,749,000
Furniture, fixtures and leasehold improvements........ 152,000 1,136,000 5,011,000
---------- ----------- -----------
1,342,000 4,021,000 14,760,000
Less accumulated depreciation and amortization.......... (693,000) (1,012,000) (4,578,000)
---------- ----------- -----------
$ 649,000 $ 3,009,000 $10,182,000
========== =========== ===========
</TABLE>
F-16
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. RELATED PARTY TRANSACTIONS
CORPORATE SERVICES AGREEMENT. Titan provides to the Company routine and
ordinary corporate services, including financial, insurance, accounting,
employee benefits, payroll, tax and legal services. Titan also provides the
Company corporate planning, government relations and corporate quality assurance
services. The Company shares certain Titan systems, including its accounting
system and human resource system. Because Titan engages in government contracts
work, Titan allocates costs to its subsidiaries based upon government cost
accounting requirements. The Company pays Titan for human resources services
based upon the Company's percentage of the total number of Titan group
employees. The Company pays for other corporate services based upon the average
of three percentages: (1) the percentage of the Company's payroll to the total
payroll of the Titan group, (2) the percentage of the Company's operating
revenues to the total operating revenues of the Titan group and (3) the
percentage of the Company's average net book value which is the sum of the
Company's tangible capital assets plus inventories to the total average net book
value of the tangible capital assets plus inventory of the Titan group as of the
end of the last fiscal year and as of the final day of each calendar quarter in
the current fiscal year. Titan may adjust its fees based upon its assessment of
the Company's relative use of these services.
The initial term of the Corporate Services Agreement is one year. This
agreement renews automatically unless the Company elects not to renew by giving
Titan notice. The Company intends to build its own administrative infrastructure
and end the Corporate Services Agreement with Titan by the end of 2000. Amounts
aggregating $284,000, $230,000, $438,000, $84,000 and $402,000 are included in
the Company's results of operations in the accompanying consolidated financial
statements for the years ended December 31, 1997, 1998, 1999 and for the
unaudited three month periods ended March 31, 1999 and 2000 respectively.
Management believes that these allocations have been and will be reasonable.
TAX ALLOCATION AGREEMENT As long as Titan maintains beneficial ownership of
at least 80% of the total voting power of the Company's capital stock and 80% of
the total value of the Company's outstanding common stock, the Company will be
included in Titan's consolidated federal income tax returns. Following
completion of this offering, the Company expects to file separate federal income
tax returns.
Cayenta and Titan intend to enter into a Tax Allocation Agreement. Under the
Tax Allocation Agreement, the Company will agree to pay to the applicable tax
authorities an amount generally equal to the tax liability that the Company
would have incurred if it had prepared and filed a separate return. Titan will
have broad discretion in determining the amount of separate taxable income and
tax liability that the Company would realize on such a separate return. In
computing this separate tax liability, the Company's tax attributes, including
net operating loss and tax credit carryovers, will be deemed to be the amount
that it would have had had it always owned the businesses transferred to the
Company by Titan.
As a member of the Titan group for purposes of filing consolidated federal
income tax returns, the Company will be liable for the federal income tax of the
Titan group if Titan or any member of the group fails to pay its taxes.
FACILITIES AGREEMENT The Company has subleased approximately 26,000 square
feet in Reston, Virginia from Titan. Under the Facilities Agreement, Titan
provides the Company rent, maintenance, property taxes, utilities, landlord
pass-through expenses, property insurance, reception desk services,
F-17
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. RELATED PARTY TRANSACTIONS (CONTINUED)
telephone services and centralized mail and postage and other services. The
Company pays Titan an annual fee determined by the Company's percentage of
Titan's annual costs for this facility. This percentage is based upon the
percentage of the total square feet in the facility that the Company occupies.
Amounts aggregating $227,000, $145,000, $424,000, $100,500 and $119,000 are
included in the Company's results of operations in the accompanying consolidated
financial statements for the years ended December 31, 1997, 1998, 1999 and for
the unaudited three month periods ended March 31, 1999 and 2000 respectively.
EMPLOYEE BENEFIT PLANS The Company's employees are eligible to participate
in the Titan benefit plans. Those plans include a 401(k) plan, an employee stock
ownership plan, a non-qualified executive deferred compensation plan, an
employee stock purchase plan, and a health and welfare cafeteria plan. The
direct cost of these plans for the Company's employees are charged by Titan to
the Company.
SUBORDINATED PROMISSORY NOTE As of December 31, 1999, the Company owed
$50.4 million to Titan under a subordinated, unsecured promissory note. As of
March 31, 2000, the Company owed $68.2 million (unaudited) under the note. The
Company can have a maximum of $70.0 million of indebtedness outstanding under
this promissory note at any one time. The promissory note is due in December
2004 and bears interest, payable quarterly, at the greater of the rate of 10%
per annum or Titan's effective weighted average interest rate under its senior
credit facility. The Company can repay amounts outstanding under the promissory
note at any time without penalty. At Titan's option, the Company may repay
amounts outstanding under the promissory note with the net proceeds of any asset
sales the Company makes that are not in the ordinary course of business or if
the Company obtains a credit facility from a third party lender and the lender
and the facility permits the use of proceeds to repay existing indebtedness. The
Company cannot use any of the proceeds of its initial public offering to repay
amounts outstanding under the promissory note or under any indebtedness the
Company incurs to refinance the promissory note.
OTHER In December 1999, Titan contributed its software integration division
to Cayenta (Note 1). As part of this transaction, Titan contributed
$7.0 million in cash and eliminated $10.0 million of the division's debt to
Titan for $17.0 million of the division's accounts receivable.
The company is a Guarantor under Titan's $275 million Senior Secured Credit
Facility. The Company shall be automatically released from this Guaranty and
shall no longer be a Guarantor thereunder upon the occurrence of: (a) the
issuance of shares in connection with the initial public offering of Cayenta and
(b) delivery of an officer's certificate certifying that no default shall have
occurred and then be continuing or would result from the Guarantors initial
public offering.
NOTE 6. SIGNIFICANT CUSTOMERS
For the three months ended March 31, 2000, sales to a single utility
customer were $2.4 million and sales to a waste management company were $1.9
million (unaudited).
Sales to a single federal agency were $8.8 million, $11.2 million and
$8.5 million for the years ended December 31, 1997, 1998 and 1999, respectively.
Sales to another local government customer and to a single utility customer were
$15.3 million and $10.8 million respectively, for the year ended December 31,
1999. For all periods presented, substantially all accounts receivable were due
from these customers.
F-18
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. SIGNIFICANT CUSTOMERS (CONTINUED)
Sales to a single commercial customer were $1.4 million for the year ended
December 31, 1997.
No other single customer accounted for 10% or more of the revenues for these
periods.
NOTE 7. COMMITMENTS AND CONTINGENCIES
The Company periodically is a defendant in cases incidental to its business
activities. Furthermore, providers of products and services to the U.S.
government are generally subject to multiple levels of audit and investigation
by various U.S. government agencies. In the opinion of management, the amount of
ultimate liability, if any, with respect to these actions will not materially
affect the financial position or results of operations of the Company.
During 1999, the Company entered into employment agreements with certain key
officers of Cayenta. The agreements specify, among other things, an annual base
salary, annual bonus and entitlement to receive options to purchase shares of
the Company's Class A common stock at $0.36 per share. These agreements also
provide eligibility to receive options to purchase Titan common shares.
The Company leases office space from an unrelated third party under a
noncancelable operating lease expiring in 2004. Rent expense for this lease was
$825,000 for the year ended December 31, 1999. The related future minimum lease
payments as of December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING:
- ------------
<S> <C>
2000........................................................ $ 647,000
2001........................................................ 508,000
2002........................................................ 424,000
2003........................................................ 414,000
2004........................................................ 135,000
Thereafter.................................................. --
----------
$2,128,000
==========
</TABLE>
Future minimum rentals under capital leases as of December 31, 1999 are
approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING:
- ------------
<S> <C>
2000........................................................ $382,000
2001........................................................ 254,000
2002........................................................ 116,000
2003........................................................ 81,000
2004........................................................ 10,000
Thereafter.................................................. --
--------
Total future minimum lease payments......................... 843,000
Less amount representing interest........................... (125,000)
--------
Present value of minimum lease payments..................... 718,000
Current portion of capital lease obligations................ (323,000)
--------
Long-term capital lease obligations......................... $395,000
========
</TABLE>
F-19
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Long-term capital lease obligations are included in the Other non-current
liabilities in the accompanying balance sheet as of December 31, 1999.
The Company has also guaranteed certain obligations of Titan, see Note 5.
NOTE 8. INCOME TAXES
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- ----------
<S> <C> <C> <C>
Current:
Federal................................... $641,000 $780,000 $2,515,000
State..................................... 113,000 138,000 440,000
-------- -------- ----------
754,000 918,000 2,955,000
Deferred.................................... (20,000) (10,000) (563,000)
-------- -------- ----------
$734,000 $908,000 $2,392,000
======== ======== ==========
</TABLE>
Following is a reconciliation of the income tax provision expected (based on
the United States federal income tax rate applicable in each year) to the actual
tax provision on income:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- ----------
<S> <C> <C> <C>
Expected federal income tax provision....... $623,000 $750,000 $ 994,000
State income taxes, net of federal income
tax benefits.............................. 110,000 132,000 351,000
Goodwill amortization....................... -- -- 1,080,000
Other....................................... 1,000 26,000 (33,000)
-------- -------- ----------
Actual income tax provision................. $734,000 $908,000 $2,392,000
======== ======== ==========
</TABLE>
The net deferred tax asset (liability) as of December 31, 1998 and 1999,
result from the following temporary differences:
<TABLE>
<CAPTION>
1998 1999
-------- -----------
<S> <C> <C>
Loss carryforward..................................... $ -- $ 1,746,000
Accrued payroll and employee benefits................. 42,000 232,000
Deferred compensation................................. 7,000 --
Reserves.............................................. -- 980,000
Depreciation.......................................... (64,000) (183,000)
-------- -----------
Deferred tax asset (liability)........................ (15,000) 2,775,000
Valuation allowance................................... -- (2,227,000)
-------- -----------
Net deferred tax asset (liability).................... $(15,000) $ 548,000
======== ===========
</TABLE>
F-20
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. INCOME TAXES (CONTINUED)
Based on the weight of the available evidence, including the fact that the
Company will be included in the consolidated tax return of Titan, management
presently believes that it more likely than not will realize its net deferred
tax asset of $548,000.
NOTE 9. STOCKHOLDERS' EQUITY
The Company has two classes of authorized common stock, Class A common stock
and Class B common stock. The rights of the holders of Class A common stock and
Class B common stock are identical, except with respect to voting and
conversion. Each share of Class A common stock is entitled to one vote per
share. Each share of Class B common stock is entitled to ten votes per share and
is convertible into one share of Class A common stock. As of March 31, 2000
Titan owns 100% of the issued and outstanding Class B common stock.
The Company also has 17,345,000 authorized shares of $.001 par value
preferred stock with voting rights. Each preferred share is convertible into one
Class A common share. As of March 31, 2000, 100% of the 2,345,000 issued
preferred shares are held by the former owners of TNP. These preferred shares
have no dividend requirements and automatically convert to 2,345,000 shares of
Class A common stock upon the occurrence of an initial public offering of the
Company's Class A common stock. The Board of Directors has the authority,
without further action by the shareholders to issue any authorized but
undesignated series of preferred stock in one or more series and to fix all the
terms, including rights, preferences, restrictions and redemptions.
NOTE 10. STOCK-BASED AND OTHER COMPENSATION PLANS
The Company provides stock-based compensation to officers, directors and key
employees through two stock option plans. The Company's board of directors has
options available for grant under the 1997 Stock Option Plan (the "1997 Plan")
of 725,550 shares and no shares available under the Nonstatutory Stock Option
Plan (the "1999 Plan") adopted in December 1999. Total options authorized for
grant under the 1997 Plan are 2,872,000. The total options authorized for grant
under the 1999 Plan are 628,000. Under the Plans, an option's maximum term is
ten years, and the exercise price of each option under the 1997 Plan equals the
fair market value of the Company's stock on the date of grant. For the 1999
Plan, exercise price shall not be less than book value and the date of the
grant. Employee options may be granted throughout the year. All options vest in
four equal annual increments beginning one year after the grant date.
F-21
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCK-BASED AND OTHER COMPENSATION PLANS (CONTINUED)
A summary of the status of the Company's 1997 and 1999 Plans as of December
31, 1997, 1998, 1999 and March 31, 2000 and changes during the periods ended on
those dates is presented below:
<TABLE>
<CAPTION>
1997 1998 1999 2000
------------------------- ------------------------- -------------------------- ---------
WEIGHTED-AVG. WEIGHTED-AVG. WEIGHTED-AVG.
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES
OPTIONS -------- -------------- -------- -------------- --------- -------------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period.................... -- $0.36 419,000 $0.36 503,000 $3.49 2,515,750
Granted..................... 419,000 84,000 2,103,700 232,100
Exercised................... -- -- (50,000) --
Terminated.................. -- -- (40,950) (23,400)
------- ------- --------- ---------
Outstanding at end of
period.................... 419,000 503,000 2,515,750 2,724,450
======= ======= ========= =========
Options exercisable at end
of period................. 105,000 230,000 210,000 345,700
======= ======= ========= =========
<CAPTION>
2000
--------------
WEIGHTED-AVG.
EXERCISE PRICE
OPTIONS --------------
(UNAUDITED)
<S> <C>
Outstanding at beginning of
period.................... $5.24
Granted.....................
Exercised...................
Terminated..................
Outstanding at end of
period....................
Options exercisable at end
of period.................
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------
OUTSTANDING WEIGHTED-AVERAGE
EXERCISE AT MARCH REMAINING
PRICE 31,2000 CONTRACTUAL LIFE
- -------- ----------- ----------------
<S> <C> <C>
$0.36 1,238,750 9.1
6.58 1,253,600 9.7
22.94 232,100 10.0
</TABLE>
Under the 1999 Plan, certain employees who qualify as sophisticated
investors have agreed to resell any shares purchased under their options back to
the Company at book value. This constitutes a variable plan under APB No. 25.
Accordingly, deferred compensation has been recorded to the extent that book
value exceeds the exercise price of the options at the date of grant. Deferred
compensation is also recorded for changes in book value occurring subsequent to
the initial grant date. Compensation expense related to these grants is
recognized as these options vest. Compensation expense amounted to $0, $34,000,
$143,000, $0 and $137,000 for the years ended December 31, 1997, 1998, 1999 and
the unaudited three month periods ended March 31, 1999 and 2000, respectively.
There are 628,000 options outstanding at December 31, 1999 subject to this
buyback provision.
On August 12, 1999, the Company issued 245,000 options at $0.36 per share to
employees under the 1997 Plan. On this date the deemed fair value of a share of
common stock was $2.46 per share. Accordingly, the Company has recognized
deferred compensation related to these grants of $514,000 on August 12, 1999. On
November 8, 1999 the Company issued 175,500 shares under the 1997 Plan. On this
date the fair value of a share of common stock was $5.55 per share. Accordingly,
the Company has recognized deferred compensation related to these grants of
$911,000, in connection therewith. This deferred charge will be amortized to
expense over the four year vesting period of these options $82,000 of such
expense was recognized in 1999. Of the remaining 284,000 options granted, 26,000
and 258,000 were granted in February 1998 and September 1997, respectively.
These options were granted at exercise prices which the Company believes
approximated fair value at the date of grant. The fair value of these option
grants were estimated on the date of grant using the Black-Scholes
option-pricing
F-22
<PAGE>
CAYENTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCK-BASED AND OTHER COMPENSATION PLANS (CONTINUED)
model with the following weighted-average assumptions used for grants in 1997,
1998 and 1999: zero dividend yield; expected volatility of 0%; a risk-free
interest rate of 5.5%; and an expected life of five years.
As permitted, the Company has adopted the disclosure only provisions of SFAS
123. Accordingly, no compensation expense, except as specifically described
above, has been recognized for the stock option plans. Had compensation expense
been determined based on the fair value at the date of the grant for the years
ended December 31, 1997, 1998 and 1999 consistent with the provisions of SFAS
123, the Company's net income and net income per share would have been reported
as the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ------------
<S> <C> <C> <C>
Net income (loss)--as reported.......... $1,099,000 $1,311,000 $ 532,000
Net income (loss)--pro forma............ 1,099,000 1,153,000 (16,459,000)
Basic Earnings per share--as reported... $ 0.11 $ 0.13 $ .05
Basic Earnings per share--pro forma..... 0.11 0.12 (1.56)
Diluted Earnings per share - as
reported.............................. $ 0.11 $ 0.13 $ .04
Diluted Earnings per share - pro
forma................................. $ 0.11 $ 0.11 $ (1.56)
</TABLE>
Certain officers and key employees participate in the Titan non-qualified
executive deferred compensation plan. The Company also has performance bonus
plans for certain of its employees. Related expense for these two plans amounted
to approximately $152,000, $189,000 and $557,000 in years ended December 31,
1997, 1998 and 1999, respectively.
During the first quarter of fiscal 2000 the Company issued approximately
232,000 options when the fair value of common stock was deemed to be $24.78 per
share. The Company has recorded approximately $380,000 of additional deferred
compensation related to these grants.
NOTE 11. GEOGRAPHIC OPERATIONS
The Company has historically operated in one business segment, application
integration and consulting services, exclusively in North America and
principally the United States.
NOTE 12. SUBSEQUENT EVENTS
In February 2000, the Company entered into a new long-term lease agreement
with an entity affiliated with Titan which requires future minimum lease
payments of approximately $6.6 million over 7 years. There is additional space
in the facilities which, if vacant or desired by the Company, could obligate the
Company for additional future minimum lease payments of approximately
$0.7 million over the 7 years. Titan is a guarantor on this lease.
On March 30, 2000 the Company executed a Stock Purchase Agreement with
Penton Media ("Penton") whereby Penton purchased 250,000 pre-split shares of
Class A common stock for $6.4 million. In addition Penton agreed to provide up
to $2 million in marketing services to Cayenta.
F-23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cayenta, Inc.:
We have audited the accompanying statements of income, members' equity, and
cash flows for the period from commencement of operations (February 9, 1997) to
December 31, 1997 and for the year ended December 31, 1998 of Transnational
Partners II, LLC, a California limited liability company, (the "Company"). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows for the
period from commencement of operations (February 9, 1997) to December 31, 1997
and for the year ended December 31, 1998 of Transnational Partners II, LLC in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
San Diego, California
December 28, 1999
F-24
<PAGE>
TRANSNATIONAL PARTNERS II, LLC
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 9, 1997
(COMMENCEMENT
OF OPERATIONS) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
----------------- ------------
<S> <C> <C>
Revenues.................................................... $2,850 $5,644
Cost of revenues............................................ 2,211 4,067
------ ------
Gross profit.............................................. 639 1,577
Selling, general, and administrative expenses............... 31 146
------ ------
Income from operations...................................... 608 1,431
Interest income............................................. 5 9
------ ------
Income before tax........................................... 613 1,440
Provision for income tax.................................... 5 5
------ ------
Net income.................................................. $ 608 $1,435
====== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-25
<PAGE>
TRANSNATIONAL PARTNERS II, LLC
STATEMENTS OF MEMBERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
MEMBERS' RETAINED
CAPITAL EARNINGS TOTAL
-------- -------- --------
<S> <C> <C> <C>
Balances at February 9, 1997 (Commencement of Operations.... $ -- $ -- $ --
Membership contributions.................................. 20 -- 20
Net income................................................ 608 608
Distributions............................................. -- (360) (360)
------- ------- -------
Balances at December 31, 1997............................... 20 248 268
Membership contributions.................................. 2 -- 2
Repurchase of membership shares........................... (2) -- (2)
Net income................................................ 1,435 1,435
Distributions............................................. -- (1,280) (1,280)
------- ------- -------
Balances at December 31, 1998............................... $ 20 $ 403 $ 423
======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-26
<PAGE>
TRANSNATIONAL PARTNERS II, LLC
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 9, 1997
(COMMENCEMENT
OF OPERATIONS) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
----------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 608 $ 1,435
Adjustments to reconcile net income to net cash provided
by operating activities:
Changes in operating assets and liabilities:
Accounts receivable................................... (370) (242)
Accounts payable and accrued expenses................. 285 163
----- -------
Net cash provided by operating activities................... 523 1,356
----- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of membership shares................................. 20 2
Repurchase of membership shares........................... -- (2)
Distributions to members.................................. (360) (1,280)
----- -------
Net cash used in financing activities....................... (340) (1,280)
----- -------
Net increase in cash........................................ 183 76
Cash at beginning of period................................. -- 183
----- -------
Cash at end of period....................................... $ 183 $ 259
===== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
State income taxes paid................................... $ 1 $ 4
===== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-27
<PAGE>
TRANSNATIONAL PARTNERS II, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(IN THOUSANDS)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Transnational Partners II, LLC a California limited liability company, (the
"Company") is an enterprise application integration consulting company. The
Company was formed on September 25, 1996, with the execution of a limited
liability company operating agreement (the "Agreement"), commenced operations on
February 9, 1997. In January 1999, Cayenta, Inc. acquired substantially all of
the assets and liabilities of the Company.
REVENUE RECOGNITION The majority of the Company's revenues are derived from
time and material contracts and are recognized as services are performed.
Revenues derived from fixed-price contracts are recognized under the
percentage-of-completion method. Estimated losses on fixed-price contracts are
recorded in the period the losses are determinable.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES The Company is treated as a partnership for income tax
reporting purposes, rather than an association taxable as a corporation.
Accordingly, no provision for federal taxes has been included in the
accompanying statements of income. Such taxes are imposed on the individual
members for their respective shares of the Company's income. The tax returns and
amounts of distributable income or loss of the Company are subject to
examination by federal and state taxing authorities. If such examination results
in a change in the Company's income tax status or in a change to distributable
income or loss of the Company, the tax liability of the Company or of the
members could be changed accordingly.
DISTRIBUTIONS Membership interests of the members reflect capital
contributions made in accordance with the Agreement. Distributions or
allocations of assets are made in proportion to the partner's respective
membership interest, and are made at the sole discretion of the Company's
management.
FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of the Company's
financial instruments, including cash, accounts receivable, and accounts payable
approximate their fair values due to the short-term nature. Financial
instruments which potentially subject the Company to concentrations of credit
risk consist primarily of trade accounts receivable. The Company believes it is
not exposed to any significant credit risk on its accounts receivable.
2. CREDIT RISK
All of the Company's revenues are from a single customer. Accounts
receivable due from this customer totaled $612 and $370 at December 31, 1998 and
1997, respectively. Historically, the Company has not incurred credit losses.
F-28
<PAGE>
TRANSNATIONAL PARTNERS II, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS)
3. SALE OF LLC MEMBERSHIP UNITS
The Company was formed with a contribution of $20 made by the two senior
(voting) members for 60% and 40% of the membership units, respectively.
On April 2, 1998, the Company sold associate membership units to 16
individuals. Associate membership units are non-voting but are otherwise
entitled to all the benefits afforded to associated members as defined in the
agreement. The units were sold for $0.1 and entitled the member to 0.5% of the
equity of the Company.
4. SUBSEQUENT EVENT
In January 1999, the Company was acquired by Cayenta, Inc., a wholly owned
subsidiary of The Titan Corporation, for $9.8 million in a transaction that was
accounted for as a purchase. The purchase price consisted of $7.0 million cash,
a $2.8 million note due January 2000 (bearing interest at 7%), subject to
certain post-closing adjustments, and 2,345 shares of convertible preferred
stock of Cayenta, Inc.
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cayenta, Inc.:
We have audited the accompanying statements of operations, stockholders'
deficit and cash flows for each of the two years in the period ended December
31, 1998 and for the ten months ended October 31, 1999 of JB Systems, Inc.,
d.b.a. Mainsaver (a California corporation). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows for each of
the two years in the period ended December 31, 1998 and for the ten months ended
October 31, 1999 of JB Systems, Inc. in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
San Diego, California
February 4, 2000
F-30
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS
DECEMBER 31, ENDED
------------------- OCTOBER 31,
1997 1998 1999
-------- -------- -----------
<S> <C> <C> <C>
Revenues.................................................... $6,162 $ 7,218 $ 6,698
Cost of revenues............................................ 2,459 2,387 1,835
------ ------- -------
Gross profit.............................................. 3,703 4,831 4,863
------ ------- -------
Operating expenses:
Selling, general and administrative....................... 2,932 4,892 5,312
Research and development.................................. 778 946 1,004
Depreciation and amortization............................. 274 295 214
------ ------- -------
Total operating expenses................................ 3,984 6,133 6,530
------ ------- -------
Loss from operations........................................ (281) (1,302) (1,667)
Interest expense............................................ 75 165 383
------ ------- -------
Net loss.................................................. $ (356) $(1,467) $(2,050)
====== ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-31
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
NUMBER ACCUMULATED
OF SHARES AMOUNT DEFICIT TOTAL
--------- -------- ----------- --------
<S> <C> <C> <C> <C>
Balances at January 1, 1997............................ 1,286 $ 210 $ (1,632) $(1,422)
Net loss............................................. -- -- (356) (356)
Repurchase of common stock and stockholder
distributions...................................... (15) (1) (14) (15)
Stock compensation charge............................ -- 6 -- 6
Exercise of stock options and warrants............... 1 1 -- 1
Issuance of common stock............................. -- -- -- --
------ ------ -------- -------
Balances at December 31, 1997.......................... 1,272 216 (2,002) (1,786)
Net loss............................................. -- -- (1,467) (1,467)
Repurchase of common stock and stockholder
distributions...................................... (1,272) (216) (5,885) (6,101)
Issuance of common stock............................. 1,174 5,800 -- 5,800
------ ------ -------- -------
Balances at December 31, 1998.......................... 1,174 5,800 (9,354) (3,554)
Net loss............................................. -- -- (2,050) (2,050)
Issuance of warrants................................. -- 397 -- 397
Balances at October 31, 1999........................... 1,174 $6,197 $(11,404) $(5,207)
====== ====== ======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-32
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS
DECEMBER 31, ENDED
------------------- OCTOBER 31,
1997 1998 1999
-------- -------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(356) $(1,467) $(2,050)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 274 295 278
Stock compensation charge............................... 6 -- --
Amortization of debt discount........................... -- -- 83
Loss on disposal of assets.............................. -- 8 --
Changes in operating assets and liabilities:
Accounts receivable, net.............................. 145 (207) (502)
Prepaid expenses and other current assets............. 18 (59) (10)
Accounts payable...................................... (50) 333 656
Accrued expenses...................................... (41) (50) 282
Deferred revenues..................................... 249 (129) 241
Other assets.......................................... -- (79) 118
----- ------- -------
Net cash provided by (used in) operating
activities........................................ 245 (1,355) (904)
----- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (67) (352) (44)
----- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net line of credit borrowings (repayments)................ (200) 1,192 664
Change in bank overdraft.................................. 192 -- (192)
Net (repayments) borrowings on note payable to
stockholder............................................. 404 (502) 600
Repayment of capital lease obligations.................... (59) (73) (124)
Net repayments on long term debt.......................... (502) -- --
Proceeds from issuance of common stock.................... 1 5,800 --
Repurchase of Common Stock................................ (15) -- --
Distributions to stockholders............................. -- (4,701) --
----- ------- -------
Net cash provided by (used in) financing
activities........................................ (179) 1,716 948
----- ------- -------
Net increase (decrease) in cash............................. (1) 9 --
Cash, beginning of year..................................... 16 15 24
----- ------- -------
Cash, end of year........................................... $ 15 $ 24 $ 24
===== ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest................................................ 59 139 301
Income taxes............................................ -- -- 1
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Redemption of common stock in exchange for note payable to
stockholder in connection with the leveraged
recapitalization........................................ -- 1,400 --
Acquisition of equipment financed by capital lease
obligations............................................. 32 125 347
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-33
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
JB Systems, Inc. (the "Company") is an enterprise asset management, or EAM,
company whose software enables customers to efficiently manage their equipment
maintenance processes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION The Company generates revenues from licensing the
rights to use its software products primarily to end users. The Company also
generates revenues from post-contract support (maintenance), consulting and
training services performed for customers who license its products.
Revenues from software license agreements are recognized currently, provided
that all of the following conditions are met: a noncancelable license agreement
has been signed, the software has been delivered, there are no material
uncertainties regarding customer acceptance, collection of the resulting
receivable is deemed probable and the risk of concession is deemed remote, and
no other significant vendor obligations exist. Revenues from maintenance
services are recognized ratably over the term of the maintenance period,
generally one year. Maintenance revenues which are bundled with license
agreements are unbundled using vendor specific objective evidence. Consulting
revenues are primarily related to implementation services performed on a time
and material basis under separate service agreements for the installation of the
Company's software products. Revenues from consulting and training services are
recognized as the respective services are performed.
DEFERRED REVENUES Deferred revenues consists principally of customer
deposits and payments for software maintenance agreements with customers whereby
the Company receives payment in advance of performing the service. Revenues from
the contracts is recognized ratably over the contract period.
SOFTWARE DEVELOPMENT COSTS In accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the costs of computer software to
be sold, leased or otherwise marketed", software development costs are
capitalized from the time the product's technological feasibility has been
established until such time as the product is released for sale to the general
public. Amortization of capitalized software is generally recorded on a
straight-line basis over four years. No amounts were capitalized in the years
ended December 31, 1997, 1998 or in the ten month period ended October 31, 1999,
respectively. Amortization of capitalized software amounted to $137,000,
$137,000, and $46,000 in such periods.
PROPERTY AND EQUIPMENT Property and equipment are stated at cost.
Depreciation and amortization of property and equipment are provided for using
the straight-line method over the estimated useful lives of the assets of five
years. Leasehold improvements are amortized on a straight-line basis over the
shorter of the lease term or estimated useful life of the leasehold improvement.
INCOME TAXES
Deferred income taxes are provided for temporary differences between the
financial statement and income tax bases of the Company's assets and
liabilities, based on statutory tax rates. A valuation allowance is provided
when it is more likely than not that some portion or all of the deferred income
tax assets will not be realized.
F-34
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments that subject the Company to credit risk consist
primarily of accounts receivable. The Company performs ongoing credit
evaluations of its customers and maintains an allowance for potential credit
losses.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. If the sum of the expected future undiscounted cash flows is
less than the carrying amount of the asset, the Company recognizes an impairment
loss. The amount of the impairment loss is calculated as the difference between
the carrying value of the asset and the present value of the expected future
cash flows.
3. RECAPITALIZATION
On August 11, 1998, the Company completed a leveraged buyout
recapitalization (the "Recapitalization") pursuant to a Plan of Merger (the
"Merger") among JBS Acquisition, Inc. ("Newco") as a purchaser, and both the
Company and the founder and majority stockholder of the Company (the "Founder")
as sellers. Under the Recapitalization, Newco was merged with and into the
Company, and the separate corporate existence of Newco ceased, resulting in the
Company as the surviving corporation. Each share of common stock of Newco issued
and outstanding immediately prior to the Merger was converted into one share of
common stock of the Company.
Under the Recapitalization, each share of the Company's stock issued and
outstanding immediately prior to the merger, other than the Founder's 25%
retained interest, was canceled and extinguished and converted automatically
into the right to receive Merger consideration as follows: (a) the Founder
received a note in the principal amount of $2.0 million and a cash payment of
$1.9 million and (b) the minority stockholders of the Company who owned common
stock prior to the Merger received a cash payment of $2.3 million. The
Recapitalization was financed through cash contributions of $5.0 million by
stockholders of Newco in exchange for Newco common stock. These transactions are
being accounted for as a recapitalization under which the existing basis of
accounting will be continued, and assets and liabilities of the continuing
business are being carried forward.
On April 30, 1999, as a result of certain disputes, the Company, its
stockholders and the Founder agreed to reduce the note payable to the Founder
from $2.0 million to $1.4 million, which has been recorded as a $600,000
reduction in note payable to stockholder and repurchase of common stock in the
accompanying financial statements.
F-35
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RECAPITALIZATION (CONTINUED)
On August 11, 1998, one of the stockholders of Newco entered into a Purchase
Option Agreement with the Company and each of the other stockholders of the
Company, whereby the stockholder is entitled to buy out the other stockholders
of the Company. The purchase price of the option paid to the stockholders was
$757,000 in aggregate, which the stockholders used to acquire additional shares
of stock from the Company. The purchase option expired upon the acquisition of
the Company by Cayenta, Inc. (See Note 12.)
Sources and uses of cash in connection with the Recapitalization are
summarized below:
<TABLE>
<S> <C>
Sources of cash:
Newco common stock issued................................. $5,043,000
Purchase option agreement................................. 757,000
----------
$5,800,000
==========
Uses of cash:
Payment to founder........................................ $1,924,000
Payment to minority stockholders.......................... 2,326,000
Repayment of debt and accrued interest.................... 772,000
Transaction costs......................................... 421,000
Remaining cash............................................ 357,000
----------
$5,800,000
==========
</TABLE>
4. LINE OF CREDIT
The Company has a $2.0 million line of credit with a bank. Advances against
the line of credit bear interest at the bank's reference rate plus 0.75% (9% at
October 31, 1999). Interest is payable monthly. The line of credit matures April
2000 and is collateralized by substantially all of the assets of the Company.
The line of credit contained certain restrictions and financial covenants. The
line of credit was extinguished in connection with the Company being acquired by
Titan.
5. NOTES PAYABLE TO STOCKHOLDERS
At December 31, 1996, the Company had a note payable to an
officer/stockholder in the amount of $45,000 with interest payable quarterly at
8% and principal due on demand. Additionally, the Company had a note payable to
an officer/stockholder of $457,000, due in monthly installments of $11,000
including interest at 11.25%, maturing September 2002. Both of these notes were
extinguished in connection with the recapitalization (see Note 3).
On August 18, 1999, the Company entered into a Convertible Subordinated Loan
Agreement whereby a total of $600,000 was loaned to the Company by its
stockholders in amounts proportionate to their respective ownership percentages.
The loans are payable in $100,000 monthly installments commencing March 15,
2000, with a final payment due on August 15, 2000. Interest is payable monthly
commencing September 15, 1999 at eight %. The loan is subordinated to the credit
line the Company has with a bank.
F-36
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE TO STOCKHOLDERS (CONTINUED)
The stockholders may convert any unpaid balance on August 15, 2000 into a
certain number of Class A common stock determined by dividing the unpaid balance
by the conversion price of $3.71. The agreement also provides that, upon
repayment of the loans, the Company will issue the stockholders 59,000 warrants
of the Company's Class A common stock at an exercise price of $3.71 per share.
The warrants expire after ten years. The Company has recorded debt discount
related to these warrants of $397,000 as of August 1999 and has recorded related
amortization of $83,000 in the ten month period ended October 31, 1999.
In connection with the Recapitalization, the Company issued a note payable
to the Founder in the amount of $2.0 million, which was subsequently reduced to
$1.4 million (see Note 3), payable in full on September 1, 2001, plus interest
at a rate of ten percent per annum. The principal sum of this note may be
prepaid in whole or in part without penalty at any time by or on behalf of the
Company. Interest is payable monthly. This note was paid down to $500,000 in
connection with Cayenta's acquisition of the Company (see Note 12).
6. INCOME TAXES
As of October 31, 1999, the Company had net operating loss carryforwards of
approximately $3.6 million and $1.5 million for Federal and California reporting
purposes, respectively. The differences between the federal and the California
losses are primarily attributable to the 50% limitation on state carryforwards.
The Federal loss carryforwards will begin expiring in 2011, unless previously
utilized, while the California losses will begin expiring in 2003. Utilization
of the Company's net operating loss carryforwards may be limited as a result of
certain changes in the Company's ownership. The realization of the deferred tax
asset is dependant upon the Company generating sufficient taxable income prior
to expiration of its operating loss and credit carryforwards. Due to the
uncertainty regarding realization of the deferred tax asset, management has
provided a full valuation allowance against the net deferred tax asset.
7. COMMITMENTS
The Company leases its facilities under operating leases that require
minimum monthly payments of $24,000, as well as payment of all property taxes,
insurance and other costs. In addition, the Company leases certain office
equipment under operating leases through August 2001.
Property under capital leases at October 31, 1999 consists primarily of
computer and office equipment. Total cost of property under capital leases was
$658,000 at October 31, 1999. Accumulated depreciation related to property under
capital leases was $334,000 at October 31, 1999.
F-37
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS (CONTINUED)
Future minimum rentals under capital and operating leases as of October 31,
1999 are approximately as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
--------- ---------
<S> <C> <C>
1999 (November and December)........................... $ 31,000 $ 51,000
2000................................................... 169,000 179,000
2001................................................... 144,000 6,000
2002................................................... 105,000 --
2003................................................... 75,000 --
2004................................................... 10,000 --
--------- --------
Total future minimum lease payments.................... 534,000 $236,000
========
Less amount representing interest...................... (96,000)
---------
Present value of minimum lease payments................ 438,000
Current portion of capital lease obligations........... (129,000)
---------
Long-term capital lease obligations.................... $ 309,000
=========
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) plan. Under the plan, qualified employees may
elect to defer up to 15% of their salaries, subject to the Internal Revenue Code
limits. The Company contributes a matching 30% of employee contributions for all
employees with annual incomes less than $80,000. Employees with annual incomes
of $80,000 or more do not receive matching contributions from the Company.
Company contributions to the Plan were $14,000, $36,000 and $46,000 during the
years ended December 31, 1997, 1998 and for the ten months ended October 31,
1999, respectively.
9. STOCK OPTIONS
The Company had an incentive stock option plan which was terminated in 1998,
and all outstanding options were canceled. The Company adopted a new stock
option plan (the "Plan") in 1998 to enable key employees and non-employees to
acquire shares of the Company's common stock. Up to 141,000 options may be
issued under the Plan at an exercise price of not less than 100% of the fair
market value at the date of grant. The stock options vest ratably over a
four-year period from the date of grant. The stock options may be granted with
expiration dates not to exceed ten years. The Company granted 118,000 and
14,000 stock options during the year ended 1998 and the ten month period ended
October 31, 1999, respectively, with an exercise price of $6.31 per share. No
options are exercisable at October 31, 1999.
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," defines and encourages the use of the fair-value
method of accounting for employee stock-based compensation, but allows the
continued use of the intrinsic value based method of accounting prescribed in
Accounting Principles Board Opinion No. 25 and related interpretations. As
permitted under SFAS No. 123, the Company continues to use the intrinsic method
of accounting for stock-based compensation. Had the compensation cost for the
Plan been determined using the
F-38
<PAGE>
JB SYSTEMS, INC.
(D.B.A. MAINSAVER)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS (CONTINUED)
fair-value method described in SFAS No. 123, the Company's net loss would not
have been substantially different from the reported net loss in 1997 and 1998.
10. RELATED PARTY TRANSACTIONS
The Company has a management agreement with one of its stockholders to
provide management and consulting services related to the operations of the
Company. The monthly service fee in connection with the agreement is $8,000 plus
out-of-pocket expenses, and will continue until the occurrence of certain events
as defined in the agreement. Additionally, the Company paid a $50,000
transaction fee to the stockholder in connection with the Recapitalization
described in Note 3.
Additionally, the Company entered into a consulting agreement with the
Founder to provide services commencing February 1999 at $17,000 per month, plus
benefits and out-of-pocket expenses, for one year.
11. LEGAL PROCEEDINGS
On September 14, 1998, a former distributor of the Company filed an action
alleging the Company wrongfully terminated its distribution agreement and is
claiming damages of not less than $650,000. Settlement negotiations are in
process. Management believes that the claim is without merit. Additionally, the
Company has received indemnification from loss on the claim from the Founder.
12. EVENTS SUBSEQUENT TO DECEMBER 31, 1998
In November 1999, the Company was acquired by Cayenta, Inc. for
$11.7 million cash of which approximately $8.2 million was paid at closing,
$500,000 due in February 2000 and $3.0 million due May 2001 after satisfaction
of possible working capital adjustments or indemnification obligations. In
addition, Cayenta paid approximately $3.4 million to reduce the outstanding
indebtedness of the Company. The Company entered into agreements with its option
and warrant holders pursuant to which all options and warrants of the Company
were terminated concurrently with the closing of the acquisition.
F-39
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Assist Cornerstone Technologies, Inc.
We have audited the accompanying balance sheets of Assist Cornerstone
Technologies, Inc. as of December 12, 1999 and December 31, 1998, and the
related statements of operations, shareholders' equity (deficit), and cash flows
for the period ended December 12, 1999 and each of the two years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Assist Cornerstone
Technologies, Inc. at December 12, 1999 and December 31, 1998, and the results
of its operations and its cash flows for the period ended December 12, 1999 and
for each of the two years in the period ended December 31, 1998 in conformity
with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Salt Lake City, Utah
February 11, 2000
F-40
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 12, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 558,703 $ 741,701
Accounts receivable, less allowance of $215,991 in 1999,
$160,392 in 1998........................................ 2,388,948 2,813,220
Prepaid expenses.......................................... 290,664 77,328
Deferred income taxes..................................... 158,918 128,000
Other receivables......................................... 43,253 107,277
----------- ----------
Total current assets........................................ 3,440,486 3,867,526
Property and equipment:
Office furniture and equipment............................ 316,247 312,447
Leasehold improvements.................................... 45,122 45,122
Computer equipment........................................ 524,049 369,647
----------- ----------
885,418 727,216
Less accumulated depreciation............................. (603,918) (445,556)
----------- ----------
Net property and equipment.................................. 281,500 281,660
Loan fees, net of accumulated amortization of $131,888 in
1999 and $80,296 in 1998.................................. 247,261 298,853
Intangible asset, net of accumulated amortization of
$225,000 in 1998.......................................... -- 75,000
----------- ----------
$ 3,969,247 $4,523,039
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 1,740,912 $ 928,770
Accrued liabilities....................................... 646,871 397,353
Deferred revenue.......................................... 318,587 989,763
Current portion of capital leases......................... 87,955 74,490
Current portion of notes payable to related parties....... 160,000 160,000
----------- ----------
Total current liabilities................................... 2,954,325 2,550,376
Long-term portion of capital leases......................... 59,588 142,243
Notes payable to related parties............................ 2,300,000 1,845,617
Deferred income taxes....................................... -- 107,000
Other long-term liabilities................................. 106,091 151,558
Commitments and contingencies
Redeemable preferred stock:
Preferred stock, issuable in series, $.001 par value,
12,800 shares authorized; $100 per share liquidation
value:
Series A, redeemable preferred stock, 6,200 shares
authorized; 6,200 shares issued and outstanding in 1999
and 1998 (redemption value of $706,800)................ 706,800 197,963
Series B, redeemable preferred stock, 6,600 shares
authorized; 5,000 shares issued and outstanding in 1999
and 1998 (redemption value of $500,000)................ 500,000 107,148
Shareholders' equity (deficit):
Common stock, $.001 par value, 20,000,000 shares
authorized; 4,661,645 shares issued in 1999, 4,642,787
shares issued in 1998................................... 4,662 4,643
Additional paid-in-capital................................ -- --
Accumulated deficit....................................... (2,662,219) (583,509)
----------- ----------
Total shareholders' equity (deficit)........................ (2,657,557) (578,866)
----------- ----------
$ 3,969,247 $4,523,039
=========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
F-41
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED DECEMBER 31
DECEMBER 12, -------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Revenues:
Licenses............................................ $ 2,253,900 $ 2,392,583 $ 2,105,301
Service and support................................. 6,068,965 4,604,541 3,399,074
Hardware............................................ 3,545,720 4,525,538 5,418,202
----------- ----------- -----------
Total revenues........................................ 11,868,585 11,522,662 10,922,577
Operating expenses:
Cost of license revenue............................. 425,090 498,031 527,082
Cost of service and support revenue................. 2,925,664 2,734,878 2,498,159
Cost of hardware revenue............................ 2,914,199 3,684,431 4,519,858
General and administrative.......................... 3,255,337 2,499,123 1,921,569
Sales and marketing................................. 2,659,657 1,978,027 1,588,379
Research and development............................ 611,988 396,965 139,144
----------- ----------- -----------
12,791,935 11,791,455 11,194,191
----------- ----------- -----------
Loss from operations.................................. (923,350) (268,793) (271,614)
Other income (expense):
Interest income..................................... 26,398 29,690 35,052
Interest expense.................................... (480,334) (318,716) (200,939)
Cumulative effect of change in taxable status of
entity............................................ -- -- (236,000)
----------- ----------- -----------
Loss before income taxes.............................. (1,377,286) (557,819) (673,501)
Income tax benefit (expense)........................ 137,918 179,794 (76,000)
----------- ----------- -----------
Net loss.............................................. (1,239,368) (378,025) (749,501)
Accretion of:
Series A preferred stock............................ (508,837) (131,971) (65,986)
Series B preferred stock............................ (392,852) (71,429) (35,714)
----------- ----------- -----------
Net loss applicable to common shareholders............ $(2,141,057) $ (581,425) $ (851,201)
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-42
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1997............ 8,500,000 $ 2,000 $ -- $ 1,118,142 $ 1,120,142
Issuance of common stock............. 97,112 97 43,403 -- 43,500
Issuance of common stock upon
exercise of preemptive right....... 315,430 315 (215) -- 100
Adjustment to par value for stock
split.............................. -- 6,501 (6,501) -- --
Issuance of Series A preferred
stock.............................. -- -- 619,994 -- 619,994
Issuance of Series B preferred
stock.............................. -- -- 499,995 -- 499,995
Issuance of warrant to purchase
2,166,377 common shares............ -- -- 198,100 -- 198,100
Shares acquired in shareholder
buyout............................. (4,250,000) (4,250) (1,053,434) (562,316) (1,620,000)
Accretion of Series A preferred
stock.............................. -- -- (65,986) -- (65,986)
Accretion of Series B preferred
stock.............................. -- -- (35,714) -- (35,714)
Net loss............................. -- -- -- (749,501) (749,501)
---------- ------- ----------- ----------- -----------
Balances at December 31, 1997.......... 4,662,542 4,663 199,642 (193,675) 10,630
Issuance of common stock for
services........................... 43,331 43 13,886 -- 13,929
Issuance of warrant to purchase
100,000 common shares.............. 18,000 -- 18,000
Shares acquired in shareholder
buyout............................. (63,086) (63) (39,937) -- (40,000)
Accretion of Series A preferred
stock.............................. -- -- (131,971) -- (131,971)
Accretion of Series B preferred
stock.............................. -- -- (59,620) (11,809) (71,429)
Net loss............................. -- -- -- (378,025) (378,025)
---------- ------- ----------- ----------- -----------
Balances at December 31, 1998.......... 4,642,787 4,643 -- (583,509) (578,866)
Issuance of common stock for
services........................... 3,056 3 7,497 -- 7,500
Issuance of common stock upon
exercise of stock options.......... 15,802 16 9,465 -- 9,481
Issuance of warrant to purchase
186,192 common shares.............. -- -- 42,824 -- 42,824
Issuance of warrant to purchase
256,126 common shares.............. -- -- 2,561 -- 2,561
Accretion of Series A preferred
stock.............................. -- -- (62,347) (446,490) (508,837)
Accretion of Series B preferred
stock.............................. -- -- -- (392,852) (392,852)
Net loss............................. -- -- -- (1,239,368) (1,239,368)
---------- ------- ----------- ----------- -----------
Balances at December 12, 1999.......... 4,661,645 $ 4,662 $ -- $(2,662,219) $(2,657,557)
========== ======= =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-43
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
PERIOD ENDED 31,
DECEMBER 12, ---------------------
1999 1998 1997
------------ --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $(1,239,368) $(378,025) $(749,501)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization........................... 233,362 309,121 217,664
Amortization of loan fees............................... 51,592 53,950 26,346
Amortization of rental fees............................. 45,467 3,789 --
Accretion on note payable to related party for
warrant............................................... 156,944 28,284 15,333
Warrant issued for services............................. 42,824 -- --
Provision for bad debts................................. 66,895 219,153 9,023
Common stock issued for services........................ 7,500 13,929 --
Deferred income taxes................................... (137,918) (180,000) 159,000
Change in operating assets and liabilities:
Accounts receivable................................... 357,377 (458,598) (300,669)
Prepaid expenses and other receivables................ (149,312) (81,666) (43,339)
Accounts payable...................................... 812,142 68,722 286,404
Accrued liabilities and other long-term liabilities... 158,584 106,980 19,779
Deferred revenue...................................... (671,176) 342,001 349,047
Income taxes payable.................................. -- (132,821) 132,821
----------- --------- ---------
Net cash (used in) provided by operating activities......... (265,087) (85,181) 121,908
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment......................... (158,202) (68,638) (62,679)
Addition of intangible asset................................ -- -- (300,000)
----------- --------- ---------
Net cash used in investing activities....................... (158,202) (68,638) (362,679)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes to related parties...................... 460,000 160,000 --
Principal payments on notes to related parties.............. (160,000) (75,000) (25,000)
Proceeds from short-term financing.......................... 118,906 -- --
Payments on short-term financing............................ (118,906) -- --
Net proceeds from issuance of debt.......................... -- -- 1,638,851
Principal payments on line of credit........................ -- -- (200,000)
Net proceeds from lease buyout.............................. -- 155,347 --
Principal payments on capital lease obligations............. (69,190) (69,315) (61,182)
Net proceeds from issuance of common stock.................. 9,481 -- 43,600
Proceeds from issuance of preferred stock................... -- -- 500,000
Issuance of warrant......................................... -- -- 100
Shareholder buyout.......................................... -- (40,000) (900,000)
----------- --------- ---------
Net cash provided by financing activities................... 240,291 131,032 996,369
----------- --------- ---------
Net (decrease) increase in cash............................. (182,998) (22,787) 755,598
Cash at beginning of year................................... 741,701 764,488 8,890
----------- --------- ---------
Cash at end of period....................................... $ 558,703 $ 741,701 $ 764,488
=========== ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
F-44
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Assist Cornerstone Technologies, Inc., (the Company) is a Utah Corporation
formed in December 1987. The Company develops financial accounting software
designed to run on the IBM AS/400. The Company has a working relationship with
IBM, which includes the remarketing of IBM hardware. The Company generates
revenue from three primary sources: license fees, consulting services and
software support, and hardware resales.
The Company is developing an e-commerce solution based on its current
developed technology.
The Company employs a direct sales force with salespersons located in
California, Florida, Illinois, Utah, Georgia, Washington, Maryland, Texas and
Massachusetts.
On June 11, 1997 the Company entered into a series of transactions, the net
effect of which was a recapitalization of the Company. The Company received
$2,500,100 from an outside group of investors. Of this total, $2,000,000 was
received in exchange for a promissory note (Note 4) bearing interest at twelve
percent and due in seven years; $500,000 was received in exchange for 5,000
shares of Series B Non-Cumulative Non-Voting Redeemable Preferred Stock; and,
$100 was received for 2,166,377 warrants convertible into common stock at zero
cost.
The Company used a portion of the proceeds to repurchase 4,250,000 shares of
common stock from a selling shareholder and also paid a portion of the proceeds
as consideration for a non-compete agreement. The selling shareholder received
additional consideration in the form of a $100,000 note payable and 6,200 shares
of Series A Cumulative Convertible Redeemable Exchangeable Non-Voting Preferred
Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with general accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements and the accompanying
notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash and accounts receivable. Risks
associated with cash are mitigated by banking with creditworthy institutions.
The Company sells its products to distributors and end users. To reduce credit
risk, management performs periodic credit evaluations of its customers'
financial condition and requires deposits from new customers. The Company
maintains reserves for potential credit losses, but historically has not
experienced any significant losses related to end users or distributors.
SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way companies report information about
operating segments in financial statements. It also establishes
F-45
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
standards for related disclosures about products and services, geographic areas,
and major customers. In accordance with the provisions of SFAS No. 131, the
Company has determined that it does not currently have any separately reportable
operating segments. Revenues from foreign operations have been insignificant.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation and amortization are determined using the straight-line method over
the estimated useful lives of the assets ranging from three to ten years.
Leasehold improvements are amortized over the shorter of the estimated lives or
the remaining lease term. Maintenance and repairs are expensed as incurred.
INTANGIBLE ASSETS
Intangible assets consist of a non-compete agreement that is stated at cost.
Amortization is calculated on the straight-line method, a rate based on an
estimated useful life of two years. The asset was fully depreciated by
December 12, 1999.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF,
the Company reviews long-lived and intangible assets for impairment whenever
events or circumstances indicate the carrying value of an asset may not be
recoverable. In evaluating whether an impairment exists, the Company compares
the carrying value of the asset to the estimated undiscounted future cash flows.
If an impairment is deemed to exist, the asset's carrying value is adjusted to
the present value of its estimated future cash flows.
DEFERRED REVENUE
Service revenue is deferred and recognized ratably over the term of the
service contracts, on a straight-line basis. Costs for work performed under the
service contracts are charged to operations as incurred.
INCOME TAXES
The Company was an S Corporation from inception through June 11, 1997 and
therefore did not compute a federal or state income tax provision under current
tax laws prior to that date. Shareholders were taxed on their share of the
Company's income while the Company was an S Corporation. From June 12, 1997
forward the Company has operated as a C Corporation. The 1997 tax provision on
the financial statements reflects the cumulative effect of changing from an S
corporation and also provides for the period the Company was a C Corporation.
The Company uses an asset and liability approach to account for income taxes
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the financial
statement carrying amount and the tax bases of assets and liabilities and net
operating loss and tax credit carry forwards.
F-46
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25) and related
Interpretations in accounting for its employee stock options rather than
adopting the alternative fair value accounting provided for under
FASB Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS 123).
Under APB 25, because the exercise price of the Company's stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
REVENUE RECOGNITION
Revenue from software license agreements are recognized currently, provided
that all of the following conditions are met: A noncancelable license agreement
has been signed, the software has been delivered, there are no material
uncertainties regarding customer acceptance, collection of the resulting
receivable is deemed probable and the risk of concession is deemed remote, and
no other significant vendor obligations exist.
Support revenue is recognized ratably over the life of the support contract,
which is generally one year. Service revenue from consulting and custom
programming is recognized as the services are performed. No accrual for losses
on fixed price contracts was made at period end, as management believes that
expected future costs do not exceed anticipated future revenues. The associated
costs are included in the cost of service and support revenue. Hardware revenue
is recognized on the date IBM ships the hardware to the customer with the
associated costs included in cost of hardware revenue.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to operations as incurred.
Statement of Financial Accounting Standards ("SFAS") No. 86, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED, requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility.
Based on the Company's product development process, technological
feasibility is established upon completion of a working model. Costs incurred by
the Company between completion of the working model and the point at which the
product is ready for general release have been insignificant.
ADVERTISING COSTS
Advertising costs are expensed in the period in which they are incurred.
Advertising costs were $275,272, $51,234 and $14,736, respectively for the
period ended December 12, 1999 and for the years ended December 31, 1998 and
1997.
COMPREHENSIVE INCOME
In 1998, the Company adopted SFAS No. 130, REPORTING COMPREHENSIVE INCOME,
which is effective for fiscal years beginning after December 15, 1997. SFAS
No. 130 requires that all items that are recognized under accounting standards
as components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements. The items
of other comprehensive income that are typically required to be displayed are
foreign currency items,
F-47
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
minimum pension liability adjustments, and unrealized gains and losses on
certain investments in debt and equity securities. There were no items of other
comprehensive income in 1999 or prior.
INTERNALLY DEVELOPED SOFTWARE
In March 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. SOP 98-1 requires all costs related to the
development of internal use software other than those incurred during the
application development stage to be expensed as incurred. Costs incurred during
the application development stage are required to be capitalized and amortized
over the estimated useful life of the software. The Company adopted SOP 98-1 on
January 1, 1999 and the costs eligible for capitalization have been
insignificant to date.
SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information were as follows:
<TABLE>
<CAPTION>
PERIOD YEAR ENDED DECEMBER
ENDED 31,
DECEMBER12, -------------------
1999 1998 1997
----------- -------- --------
<S> <C> <C> <C>
Cash paid for:
Interest.................................. $296,760 $288,075 $185,606
Income taxes.............................. -- -- 24,000
SCHEDULE OF NON CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of warrant(s) in connection with
$300,000 note in 1999, $160,000 note in
1998 and $2,000,000 note in 1997........ 2,561 18,000 198,000
Issuance of warrant(s) in connection with
obtaining a binding financing commitment
in 1999................................. 42,824 -- --
Issuance of note in shareholder buyout.... -- -- 100,000
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
The Company entered into a $345,000, sixty month lease agreement in
September 1996. The agreement was used to acquire furniture, a phone system, and
computer equipment for the new leased facilities and is collateralized by this
equipment. The ownership of the equipment passes to the Company at the end of
the lease period. The lease carries an annual interest rate of 10.4%. Annual
lease payments total $93,746.
The Company entered into a sixty month lease agreement in October 1995. The
Company acquired leasehold improvements valued at $20,255, and the lease is
collateralized by these improvements.
The Company entered into a non-cancellable operating lease with a related
party for its new headquarters in May 1996. Beginning November 1, 1998, the
Company agreed to modify the lease. In
F-48
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
exchange for consideration received of $155,347, the Company agreed to a monthly
rent increase of $4,205 through the remaining term of the lease. The
consideration received has been accrued and is being offset against future rent
expense on a straight-line basis over the remaining initial lease term. The
lease runs through April 30, 2004, and contains an option to renew the lease for
two, successive five year periods. The Company may exercise the option at any
time. The lease requires future annual payments of $201,856. The Company entered
into two other facilities leases in 1997. One lease is for a sales office in
Illinois, and the other is for a sales office in Southern California. Both
leases are on a month to month basis. Rent expense was approximately $166,000
for the period ended December 12, 1999 and $161,000 and $157,000 for the years
ended December 31, 1998 and 1997, respectively.
The following summarizes the future minimum lease payments required under
non-cancellable leases with initial terms greater than one year as of
December 12, 1999:
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31 CAPITAL LEASES LEASE
- ----------------------- -------------- ----------
<S> <C> <C>
2000........................................................ $ 99,431 $ 207,993
2001........................................................ 66,521 201,856
2002........................................................ -- 201,856
2003........................................................ -- 201,856
2004........................................................ -- 67,285
Thereafter.................................................. -- --
-------- ----------
Total....................................................... 165,952 $ 880,846
==========
Amount representing interest................................ (18,409)
--------
Present value of minimum payments........................... 147,543
Current portion of capital leases........................... (87,955)
--------
Long-term portion of capital leases......................... $ 59,588
========
</TABLE>
Furniture and equipment includes assets recorded under capital leases of
approximately $328,950 at December 12, 1999 and December 31, 1998. Accumulated
depreciation on assets recorded under capital leases was $270,080 at
December 12, 1999 and $192,914 at December 31, 1998.
The Company is involved in various legal proceedings which arise from time
to time in connection with the conduct of the Company's business. In the opinion
of management, such proceedings will not have a material adverse effect on the
Company's financial condition, results of operations, or cash flows.
4. DEBT FINANCING
On June 11, 1997 the Company issued a $2,000,000 Note to an outside group of
investors. The Note is due in seven years and carries an interest rate of twelve
percent. Interest is due monthly with principal payments due quarterly over the
final three years of the Note. The Note is secured by all tangible and
intangible assets of the Company.
On February 13, 1998 the Company issued a $160,000 secured convertible
promissory note to an outside group of investors with a warrant to purchase up
to 100,000 common shares at $.45 per share. The note is convertible at any time
into 1,600 Series B preferred shares, subject to certain adjustments. In
addition, the Company will issue a warrant to purchase 257,341 common shares at
$.45 per share if certain events occur. The note was due in one year and carried
an interest rate of ten percent with interest due monthly. This note was paid on
March 26, 1999.
F-49
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DEBT FINANCING (CONTINUED)
In May of 1999 the Company issued an additional $160,000 secured convertible
promissory note to the same outside group of investors with substantially the
same terms as documented above except new warrants were not issued but the
warrants issued above were extended. The note is due May 12, 2000 and carries an
interest rate of ten percent.
In July of 1999 the Company signed an accounts receivable purchase agreement
with Silicon Valley Bank authorizing availability of up to $1,000,000 from
receivable balances less than 90 days past due to be purchased by Silicon Valley
Bank. Interest is charged at prime plus 4% and the agreement is effective for
one year. The Company borrowed approximately $118,900 during the period ended
December 12, 1999 and repaid all borrowings prior to December 12, 1999.
On September 22, 1999 the Company issued a note to a shareholder for cash of
$300,000. The Company agreed to a repayment schedule to coincide with the
repayment schedule for the $2,000,000 loan discussed above. As part of the
agreement the shareholder agreed to subordinate its security position to Silicon
Valley Bank, waive the original loan covenants under the $2,000,000 loan
agreement and modify the loan covenants. The Company is in compliance with the
modified loan covenants.
Interest payments on the Notes totaled $263,468, $252,000 and $134,667 for
the period ended December 12, 1999 and the years ended December 31, 1998 and
1997, respectively.
5. REDEEMABLE PREFERRED STOCK
On June 9, 1997 the Company authorized a total of 12,800 shares of
redeemable preferred stock, with a par value per share of $0.001 and a
liquidation value per share of $100. The redeemable preferred stock is issuable
in series consisting of 6,200 shares of Series A 7% Cumulative Convertible
Redeemable Exchangeable Non-Voting preferred stock (Series A Preferred) and
6,600 shares of Series B 8% Non-Cumulative Non-Voting redeemable preferred stock
(Series B Preferred).
In exchange for $100 and in connection with the recapitalization, the
Company issued a warrant convertible into 2,166,377 shares of common stock at
zero cost. An additional $500,000 was received in exchange for 5,000 shares of
Series B Preferred. The holder of the Series B Preferred and warrant is entitled
to designate two of the five directors to the Company's Board of Directors. The
Series B Preferred is mandatorily redeemable upon maturity, prepayment or
mandatory prepayment of the Note (See Note 4). Accretion totaling $392,852,
$71,429 and $35,714 have been recorded for the period ended December 12, 1999
and the years ended December 31, 1998 and 1997, respectively, as an increase to
the value of the Series B Preferred stock to reflect the redemption provision.
In June 1997, the Company used a portion of the proceeds from the
recapitalization to repurchase 4,250,000 shares of common stock from a selling
shareholder and also paid a portion of the proceeds as consideration for a
non-compete agreement. The selling shareholder received additional consideration
in the form of a $100,000 note payable (none of which remains outstanding at
December 31, 1998) issued by the Company and 6,200 shares of Series A Preferred
stock. The Series A Preferred stock is convertible on a share-for-share basis
into common stock at $1.50 per share. The Series A Preferred stock is
mandatorily redeemable if the Note is still outstanding at the end of the 85(th)
month from the original issue date. The preferred shares, however, cannot be
redeemed if the Note is in default or redemption of the preferred shares would
cause the Note to be in default or cause a reduction in the Company's capital to
less than the amount of capital required by law. For the period ended
December 12, 1999 and the years ended December 31, 1998 and 1997, the Company
accreted $508,837 $131,971 and $65,986, respectively, relating to the Series A
preferred shares.
F-50
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SHAREHOLDERS' EQUITY (DEFICIT)
In March 1997, the Company authorized a 425 for one forward stock split. All
share amounts have been retroactively adjusted to reflect the forward stock
split.
At December 12, 1999, the Company had reserved 7,291,650 shares of common
stock for future issuance, including 413,333 shares reserved for the conversion
of Series A Preferred, 4,070,606 shares for exercise of warrants, and 2,807,711
shares for the exercise of stock options.
On June 9, 1997 the Company changed the par value per share of the Common
Stock from $0.0002 to $0.001 and increased the number of authorized shares of
the Company's Common Stock from 10,000,000 shares to 20,000,000 shares.
In 1997, a former shareholder exercised his preemptive right to purchase
5 percent of the Company's common stock for $100, which resulted from the sale
of ten percent or more of the then outstanding stock.
STOCK OPTION PLAN
On March 1, 1996, the Board of Directors adopted an employee stock option
plan which authorized 1,000,000 common shares for issuance under the provisions
of the plan. The stock option plan was subsequently amended to increase the
authorized number of common shares issuable to 2,807,711. During 1997, 410,830
options were granted to Company personnel and 31,602 options were issued to an
outside consultant. The stock options issued to the outside consultant were
granted at their deemed fair value ($.45). The options were valued at
approximately $6,200 using the Black-Scholes option valuation model. For the
year ended December 31, 1998 the company granted 207,900 options to employees.
For the period ended December 12, 1999, the Company granted 1,186,250 options of
which 530,000 were to board members and 656,250 were to employees. The options
issued to Company personnel vest three or four years from the date of grant and
expire no more than ten years from the date of grant.
A summary of stock option activity, and related information for the period
ended December 12, 1999 and the years ended December 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
OUTSTANDING STOCK
OPTIONS
SHARES --------------------- WEIGHTED-
AVAILABLE NUMBER OF PRICE PER AVERAGE
FOR GRANT SHARES SHARE EXERCISE PRICE
---------- --------- --------- --------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997...................... 273,500 726,500 $ .60 $.60
Additional authorization...................... 1,807,711 -- -- --
Options granted............................... (442,432) 442,432 $ .45-.60 $.58
Options canceled.............................. 249,477 (249,477) $ .60 $.60
---------- ---------
Balance at December 31, 1997.................... 1,888,256 919,455 $ .45-.60 $.60
Options granted............................... (207,900) 207,900 $ .45 $.45
---------- ---------
Balance at December 31, 1998.................... 1,680,356 1,127,355 $ .45-.60 $.51
Options granted................................. (1,186,250) 1,186,250 $.45-1.00 $.99
Options canceled................................ 900,559 (900,559) $.45-1.00 $.61
---------- ---------
Balance at December 12, 1999.................... 1,394,665 1,413,046 $.45-1.00 $.86
========== =========
Exercisable at December 12, 1999................ 1,162,816 $.45-1.00 $.62
=========
</TABLE>
F-51
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The weighted average fair value of options granted for the period ended
December 12, 1999 was $.39 and for the years ended December 31, 1998 and 1997
was $.18 and $.18, respectively. The weighted average remaining contractual life
of the options outstanding and options exercisable at December 12, 1999 was
8.9 years and 7.4 years, respectively.
>Pro forma information regarding net income (loss) is required by SFAS 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method. The fair value of these options was
estimated at the date of grant using a Minimum Value option pricing model with
the following weighted average assumptions for the period ended December 12,
1999 and for the years ended December 31, 1998 and 1997, respectively: risk-free
interest rate of 5.0; dividend yield of 0%; and a weighted-average expected life
of the option of 10 years.
>For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period. Because the effect of
SFAS No. 123 is prospective, the initial impact on pro forma net loss may not be
representative of compensation expense in future years.
>For the period ended December 12, 1999 and the years ended December 31,
1998 and 1997, pro forma net loss was approximately $1,512,282, $343,000 and
$805,000, respectively.
Prior to December 12, 1999, all individuals holding stock options entered
into a "stock options exercise agreement," whereby stock options became fully
vested, or an "agreement to terminate the options," whereby the stock options
are exchanged for cash, contingent upon an acquisition of the Company.
WARRANTS
In connection with the issuance of a $2,000,000 Note to a related party, the
Company issued a warrant to purchase 2,166,377 shares of the Company's common
stock at zero cost. Each warrant is exercisable for a period of ten years from
the date of the closing of the Note. In addition, at closing, the Company issued
a warrant to acquire an additional 373,576 for $.10 per share to one individual
In June 1997 the Company also issued a warrant for services provided to
purchase 79,322 shares of common stock at $.10 per share.
In February 1998, the Company issued a warrant to purchase 100,000 common
shares at $.45 per share in connection with the issuance of a secured promissory
note for $160,000 to a related party. In conjunction with the issuance of the
warrant, the Company capitalized additional expense of $18,000 to loan fees in
the accompanying balance sheet. The warrant expired one year from the date of
the debt issuance but was extended with additional borrowings the next month.
On April 29, 1999, the Company entered into an agreement for services to be
provided and granted a warrant to purchase 837,864 shares of common stock at an
exercise price of $1.00. At the signing of the agreement 186,192 warrants to
purchase common stock vested. The remaining warrants vest as certain events take
place, which had not occurred at December 12, 1999.
During the period ended December 12, 1999, the Company issued additional
warrants to purchase common stock to a related party, in conjunction with
providing additional financing for the Company. These consisted of a contingent
warrants to purchase 257,341 shares of common stock with an exercise price of
$.45 and warrants to purchase 256,126 shares of common stock with an exercise
price of $1.00.
Warrants to purchase 3,161,593 and 2,719,275 shares of common stock were
outstanding at December 12, 1999 and December 31, 1998, respectively, with
contingent warrants to purchase 909,013 shares of common stock outstanding at
December 12, 1999.
F-52
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. BENEFIT PLAN
The Company has a 401(k) savings plan that covers substantially all
full-time employees. Under the terms of the plan, the Company provides no match
of employee contributions. Employees are eligible for participation after one
month of service. The Company's administrative expenses relating to the 401(k)
plan was $3,532 for the period ended December 12, 1999 and $4,744 and $5,230 for
the years ended December 31, 1998 and 1997, respectively.
8. INCOME TAXES
The provision for income taxes is computed for the period June 11, 1997
(when the Company converted from Subchapter S to Subchapter C status) to
December 12, 1999 and consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
PERIOD ENDED DECEMBER 31,
DECEMBER 12, --------------------
1999 1998 1997
------------ --------- --------
<S> <C> <C> <C>
Current taxes:
Federal.................................. $ -- $ -- $127,000
State.................................... -- -- 26,000
Deferred taxes:
Federal.................................. (120,394) (164,000) (70,000)
State.................................... (17,524) (16,000) (7,000)
--------- --------- --------
$(137,918) $(180,000) $ 76,000
========= ========= ========
</TABLE>
Deferred income taxes are provided for temporary differences in recognizing
certain income and expense items for financial and tax reporting purposes.
Significant components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
PERIOD ENDED DECEMBER 31,
DECEMBER 12, --------------------
1999 1998 1997
------------ -------- ---------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.......... $105,000 $ 60,000 $ 53,000
Accrued liabilities and other............ 70,000 80,000 42,000
Covenant not to compete.................. -- 73,000 24,000
Net operating loss carryforward and
carryback.............................. 369,000 -- --
-------- -------- ---------
Total deferred assets...................... 544,000 213,000 119,000
Deferred tax liabilities:
Change from Cash to Accrual.............. (77,000) (155,000) (232,000)
Depreciation............................. (1,000) (24,000) (32,000)
Other.................................... (3,000) (13,000) (14,000)
-------- -------- ---------
Total deferred liabilities................. (81,000) (192,000) (278,000)
-------- -------- ---------
Net deferred tax asset (liability)......... $463,000 $ 21,000 $(159,000)
======== ======== =========
</TABLE>
F-53
<PAGE>
ASSIST CORNERSTONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
A valuation allowance is required by SFAS 109 if, based on the weight of the
available evidence, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The need for the valuation allowance
is evaluated periodically by management. Based on available evidence, including
operating losses over the prior three years, management concluded that a
valuation allowance of $304,000 was necessary at December 12, 1999, to partially
offset the net deferred tax asset.
9. SUBSEQUENT EVENTS
On December 7, 1999, the Company signed a Stock Exchange and Stock Purchase
Agreement. This agreement entitles the selling shareholders to exchange their
common stock in the company for cash and stock in Cayenta, Inc. (Cayenta).
On December 13, 1999, the sale of the Company to Cayenta became effective.
Cayenta acquired the Company for 516,458 shares of Cayenta's Class A Common
Stock and approximately $12.9 million in cash, of which $9.9 million was paid at
the closing. Cayenta also paid approximately $3.2 million to retire outstanding
indebtedness with accrued interest and redeem all of the Company's outstanding
preferred stock.
In conjunction with the acquisition, the Company purchased 456,842 stock
options for $687,583 and the remaining stock options became fully vested and
were exercised into 956,204 shares of the Company's common stock. All warrants
were exercised into 4,707,606 shares of Assist common stock. All Assist common
shares issued and outstanding were exchanged for cash and stock in Cayenta.
F-54
<PAGE>
AUDITORS' REPORT
To the Board of Directors
SFG Technologies Inc.
We have audited the consolidated balance sheets of SFG Technologies Inc. as
at December 21, 1999 and December 31, 1998 and the consolidated statements of
operations, deficit and cash flows for the period from January 1, 1999 to
December 21, 1999, the eight months ended December 31, 1998 and the years ended
April 30, 1998 and 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 21,
1999 and December 31, 1998 and the results of its operations and cash flows for
the period from January 1, 1999 to December 21, 1999, the eight months ended
December 31, 1998 and the years ended April 30, 1998 and 1997 in accordance with
Canadian generally accepted accounting principles.
Significant measurement differences between Canadian and United States
accounting principles as they affect these consolidated financial statements are
explained and quantified in note 16.
KPMG LLP
Chartered Accountants
Vancouver, Canada
January 31, 2000
F-55
<PAGE>
SFG TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 21, DECEMBER 31,
1999 1998
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 277,094 $ 331,709
Accounts receivable....................................... 1,826,428 1,511,403
Investment tax credits receivable......................... 143,748 195,338
Prepaid expenses.......................................... 139,670 64,766
----------- -----------
2,386,940 2,103,216
Capital assets (note 4)..................................... 655,988 535,856
Investment.................................................. 67,705 130,225
Deferred charges.......................................... 289,776 --
----------- -----------
$ 3,400,409 $ 2,769,297
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Bank indebtedness (note 6)................................ $ 1,029,113 $ 1,084,126
Accounts payable and accrued liabilities.................. 1,732,540 1,150,286
Current portion of deferred revenue (note 7).............. 860,237 653,348
Current portion of long-term debt (note 8)................ 185,119 318,454
Current portion of obligations under capital leases (note
9)...................................................... 106,047 161,777
----------- -----------
3,913,056 3,367,991
Deferred revenue (note 7)................................... 457,597 435,238
Long-term debt (note 8)..................................... 1,766,995 3,184,209
Obligations under capital leases (note 9)................... 56,971 39,125
----------- -----------
6,194,619 7,026,563
Shareholders' deficiency:
Share capital (note 10)................................... 5,063,248 3,013,364
Deficit................................................... (7,813,556) (7,398,286)
Foreign currency translation account...................... (43,902) 127,656
----------- -----------
(2,794,210) (4,257,266)
Commitments (note 12)
Subsequent event (notes 8, 10(b), (c), and 13)
Year 2000 Issue (note 15)
----------- -----------
$ 3,400,409 $ 2,769,297
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-56
<PAGE>
SFG TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, EIGHT MONTHS
1999 TO ENDED YEARS ENDED APRIL 30,
DECEMBER 21, DECEMBER 31, ------------------------
1999 1998 1998 1997
------------ ------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues............................................. $6,749,060 $3,604,916 $ 3,533,514 $7,188,855
Cost of sales........................................ 1,347,834 613,963 783,415 1,240,885
---------- ---------- ----------- ----------
Gross profit......................................... 5,401,226 2,990,953 2,750,099 5,947,970
Costs and expenses:
Selling, general and administrative................ 3,233,555 1,695,256 3,931,291 4,494,763
Research and development........................... 2,245,363 1,137,626 1,784,763 1,549,092
Write-down of deferred software development costs
(note 5)......................................... -- -- 2,653,486 --
Gain on sale of division (note 14)................. -- -- -- (424,366)
---------- ---------- ----------- ----------
5,478,918 2,832,882 8,369,540 5,619,489
---------- ---------- ----------- ----------
Operating profit (loss).............................. (77,692) 158,071 (5,619,441) 328,481
Interest expense..................................... 337,578 217,905 366,412 203,501
---------- ---------- ----------- ----------
Income (loss) before income tax expense.............. (415,270) (59,834) (5,985,853) 124,980
Income tax benefit (expense) (note 11)............... -- -- 397,445 (29,995)
---------- ---------- ----------- ----------
Net income (loss).................................... $ (415,270) $ (59,834) $(5,588,408) $ 94,985
========== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-57
<PAGE>
SFG TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF DEFICIT
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, EIGHT MONTHS
1999 TO ENDED YEARS ENDED APRIL 30,
DECEMBER 21, DECEMBER 31, -------------------------
1999 1998 1998 1997
------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
Deficit, beginning of period............... $(7,398,286) $(7,304,757) $(1,686,037) $(1,694,303)
Premium on redemption of shares
(note 10(d))............................. -- (33,695) (30,312) (86,719)
Net income (loss).......................... (415,270) (59,834) (5,588,408) 94,985
----------- ----------- ----------- -----------
Deficit, end of period..................... $(7,813,556) $(7,398,286) $(7,304,757) $(1,686,037)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-58
<PAGE>
SFG TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, EIGHT MONTHS
1999 TO ENDED YEARS ENDED APRIL 30,
DECEMBER 21, DECEMBER 31, -------------------------
1999 1998 1998 1997
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (415,270) $ (59,834) $(5,588,408) $ 94,985
Items not involving cash:
Amortization............................................ 213,610 100,877 197,545 1,479,420
Gain on sale of division................................ -- -- -- (424,366)
Loss on sale of asset................................... 37,592 -- -- 12,243
Common stock issued in exchange for services............ -- -- 19,534 --
Write-down of deferred software development costs....... -- -- 2,653,486 --
Deferred income taxes................................... -- -- (390,587) 29,477
Changes in non-cash operating working capital:
Accounts receivable................................... (315,025) (77,974) 386,758 (527,753)
Investment tax credits receivable..................... 51,590 -- 503,105 (140,855)
Prepaid expenses...................................... (74,904) (4,576) 43,886 (31,639)
Deferred software development costs................... -- -- -- (1,763,335)
Accounts payable and accrued liabilities.............. 582,254 (104,977) (404,731) 55,912
Deferred revenue...................................... 229,248 (174,731) (133,647) (576,982)
---------- --------- ----------- -----------
Net cash provided by (used in) operating activities....... 309,095 (321,215) (2,713,059) (1,792,893)
Cash flows from investing activities:
Purchase of capital assets................................ (402,416) (31,240) (106,423) (569,597)
Disposal of capital assets................................ 31,082 -- -- 4,964
Proceeds from sale of investment.......................... -- -- -- 210,224
Investment................................................ 62,520 -- -- --
---------- --------- ----------- -----------
Net cash used in investing activities..................... (308,814) (31,240) (106,423) (354,409)
Cash flows from financing activities:
Bank indebtedness......................................... (55,013) (35,811) 885,321 234,616
Proceeds from issuance of long-term debt.................. 438,390 893,191 2,663,509 453,789
Repayment of long-term debt............................... (91,925) (152,962) (498,112) (55,803)
Obligations under capital leases.......................... (37,884) (78,063) (100,869) 140,560
Issue of common shares for cash........................... 234,117 346 (100,098) 1,240,936
Redemption of common and preferred shares................. (81,247) (41,058) (30,312) (225,429)
Deferred charges.......................................... (289,776) -- -- --
---------- --------- ----------- -----------
Net cash provided by financing activities................. 116,662 585,643 2,819,439 1,788,669
Net effect of foreign exchange rate changes on cash......... (171,558) 1,613 96,951 (142)
---------- --------- ----------- -----------
Increase (decrease) in cash and cash equivalents............ (54,615) 234,801 96,908 (358,775)
Cash and cash equivalents, beginning of period.............. 331,709 96,908 -- 358,775
---------- --------- ----------- -----------
Cash and cash equivalents, end of period.................... $ 277,094 $ 331,709 $ 96,908 $ --
========== ========= =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for taxes..................... $ -- $ -- $ -- $ --
Cash paid during the period for interest.................. $ 96,506 142,592 366,412 203,501
Supplemental disclosure of non-cash financing activities:
Common stock issued in exchange for services.............. $ -- $ -- $ 19,534 $ --
Common stock issued in exchange on debt conversion........ $1,897,014 -- -- --
</TABLE>
See accompanying notes to financial statements.
F-59
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
PERIOD FROM JANUARY 1, 1999 TO DECEMBER 21, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
1. GENERAL:
SFG Technologies Inc. ("SFG" or the "Company") is a private company
incorporated under the Canada Business Corporations Act. Its principal business
activity is developing and marketing computing software for the utilities and
public sector markets.
2. SIGNIFICANT ACCOUNTING POLICIES:
(A) PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the financial statements of
SFG Technologies Inc. and its wholly-owned subsidiaries Nissi Technologies
(U.S.A.) Inc. ("Nissi"), SFG Technologies Inc., and SFG Technologies Limited.
All material intercompany transactions and balances have been eliminated.
(B) CASH AND CASH EQUIVALENTS:
Cash and cash equivalents are highly liquid investments having terms of
maturity at the date of acquisition of not more than three months.
(C) REVENUE RECOGNITION:
The Company generates and recognizes revenue as follows:
(I) SOFTWARE LICENCE FEES:
The Company licences software products to customers under perpetual
software licence agreements. The Company has two types of sales related to
licence fees.
Software licence fees from contracts that do not require significant
production, modification or customization are recognized when software is
delivered and implemented if persuasive evidence of an arrangement and customer
acceptance exists, collection is probable and the fees are fixed or
determinable.
Software licence fees from contracts involving significant production,
modification or customization of software are recognized as revenue using
the completed contract method. Contracts are considered complete when
customer acceptance of the software is obtained.
Cash received in advance of meeting the revenue recognition criteria is
recorded as deferred revenue.
(II) PROFESSIONAL SERVICES:
The Company provides consulting and implementation services to its
customers. Revenues from these services are recognized as the services are
performed in accordance with contract terms.
F-60
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
PERIOD FROM JANUARY 1, 1999 TO DECEMBER 21, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
(III) MAINTENANCE:
Maintenance agreements generally require that the Company provide
technical support and certain systems updates to customers. Revenue is
recognized proportionately over the maintenance period, typically one year.
(IV) SOFTWARE MODIFICATIONS:
The Company provides updates to software licensed to customers. Revenues
from these services are recognized as the services are performed in
accordance with contract terms.
(V) HARDWARE SALES:
Hardware sales are recognized as revenue upon delivery of the hardware
to customer locations.
(D) RESEARCH AND DEVELOPMENT COSTS:
The Company expenses research costs as incurred. Development costs are
deferred if they meet certain specified and stringent criteria; otherwise they
are expensed as incurred. At December 21, 1999, no development costs have been
deferred.
(E) CAPITAL ASSETS:
Capital assets are recorded at historical cost less applicable investment
tax credits and accumulated amortization. Amortization is computed using the
declining balance method over their estimated useful lives at the following
annual rates:
<TABLE>
<CAPTION>
CAPITAL ASSETS RATE
- -------------- ---------
<S> <C>
Automotive equipment........................................ 30%
Computer equipment.......................................... 30% - 40%
Office equipment............................................ 15% - 20%
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the term
of the lease.
(F) INVESTMENT TAX CREDITS:
Investment tax credits are accounted for using the cost reduction method
whereby the benefit of the credits is recognized as a reduction to the carrying
value of the related asset or expenditure.
(G) INCOME TAXES:
The Company follows the tax allocation method of accounting for income taxes
under which deferred income taxes are recognized for the difference in the
timing of recognition of transactions in
F-61
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
PERIOD FROM JANUARY 1, 1999 TO DECEMBER 21, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
income for accounting and income tax purposes. The major timing differences
relate primarily to capital assets and research and development expenditures.
(H) FOREIGN CURRENCY TRANSLATION:
The Canadian dollar is the functional currency of the Company and its
subsidiaries. Monetary assets and liabilities denominated in a foreign currency
have been translated into Canadian dollars at rates of exchange in effect at the
balance sheet date. Other assets and revenue and expense items are translated at
rates prevailing when they were acquired or incurred. Exchange gains and losses
arising on translation of assets and liabilities denominated in foreign
currencies are included in income.
For U.S. dollar reporting purposes, the balance sheet amounts as at
December 21, 1999 have been translated at the exchange rate in effect at the end
of December 21, 1999, and the income statement amounts for the period from
January 1, 1999 to December 21, 1999 have been translated at the average
exchange rate for the period. Differences arising on translation have been
recorded on the balance sheet in the foreign currency translation account in
shareholders' deficiency. The balance sheet amounts as at December 31, 1998 have
been translated at the exchange rate in effect at the end of December 31, 1998,
and the income statement amounts for the eight month period ended December 31,
1998 and the years ended April 30, 1998 and 1997 have been translated at the
average exchange rate for the eight month period ended December 31, 1998.
Differences arising on translation have been recorded on the balance sheet in
the foreign currency translation account in shareholders' deficiency.
(I) USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Significant areas requiring the use of management estimates relate to the
valuation of accounts and investment tax credits receivable. Actual amounts may
differ from those estimates.
(J) INVESTMENT:
Investment is carried at the lower of cost and estimated fair value. Income
from the investment is recognized as receivable.
(K) DEFERRED CHARGES:
Deferred charges represent professional fees relating to the purchase of the
Company's shares by Cayenta, Inc. on December 22, 1999 (see note 13).
F-62
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
PERIOD FROM JANUARY 1, 1999 TO DECEMBER 21, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
3. FINANCIAL INSTRUMENTS:
(A) FAIR VALUE:
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents accounts receivable, bank indebtedness and
accounts payable and accrued liabilities, approximate fair value due to their
short-term maturities or ability for prompt liquidation. Based on borrowing
notes available to the Company for loans with similar terms, management
estimates the carrying value of its long-term debt approximates fair value.
(B) FOREIGN EXCHANGE RISK:
Foreign exchange risk reflects the risk that the Company's earnings will
decline due to fluctuations in exchange rates. As payments on contracts billed
in United States dollars are due in the short-term the Company has determined
there is no significant exposure to its reported assets due to foreign exchange
fluctuations. At December 21, 1999, the Company does not have foreign exchange
hedges in place.
(C) CREDIT RISK:
Credit risk reflects the risk that the Company may be unable to recover
contractual receivables. The Company has a significant number of individual
contracts and no one contract represents a concentration of credit risk. In
addition, the Company employs established credit approval practices to further
mitigate this risk.
4. CAPITAL ASSETS:
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
DECEMBER 21, 1999 COST AMORTIZATION VALUE
- ----------------- ---------- ------------ --------
<S> <C> <C> <C>
Automotive equipment....................... $ 40,702 $ 6,014 $ 34,688
Computer equipment......................... 1,546,140 1,109,752 436,388
Office equipment........................... 380,369 224,163 156,206
Leasehold improvements..................... 53,299 24,593 28,706
---------- ---------- --------
$2,020,510 $1,364,522 $655,988
========== ========== ========
<CAPTION>
ACCUMULATED NET BOOK
DECEMBER 31, 1998 COST AMORTIZATION VALUE
- ----------------- ---------- ------------ --------
<S> <C> <C> <C>
Automotive equipment....................... $ 22,131 $ 20,676 $ 1,455
Computer equipment......................... 1,324,154 990,404 333,750
Office equipment........................... 384,962 222,774 162,188
Leasehold improvements..................... 97,730 59,267 38,463
---------- ---------- --------
$1,828,977 $1,293,121 $535,856
========== ========== ========
</TABLE>
F-63
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
PERIOD FROM JANUARY 1, 1999 TO DECEMBER 21, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
4. CAPITAL ASSETS: (CONTINUED)
Included in automotive, computer and office equipment are assets under
capital leases with a cost of $1,096,790 (December 31, 1998--$1,228,355) and
accumulated amortization of $909,027 (December 31, 1998--$890,257).
5. DEFERRED SOFTWARE DEVELOPMENT COSTS:
In years prior to 1998, the Company had in accordance with the accounting
policy described in note 2(d), deferred development costs related to certain
software products. As set out in note 16, such costs were expensed as incurred
for United States accounting purposes.
During the year ended April 30, 1998, criteria related to the availability
of sufficient resources to continue development was no longer met. Accordingly,
in the year ended April 30, 1998, the Company wrote-off all deferred software
development costs as recoverability of the costs was no longer reasonably
ensured.
6. BANK INDEBTEDNESS:
The Company has an operating loan facility with a credit limit of
approximately $1,500,000 (Canadian). The facility is due on demand, bears
interest at prime plus 2.25% and is secured by a general security agreement.
Subsequent to December 21, 1999, the loan facility was repaid.
7. DEFERRED REVENUE:
<TABLE>
<CAPTION>
DECEMBER 21, DECEMBER 31,
1999 1998
------------ -------------
<S> <C> <C>
Deferred maintenance................................ $1,317,834 $ 1,088,586
Less current portion................................ (860,237) (653,348)
---------- -----------
$ 457,597 $ 435,238
========== ===========
</TABLE>
F-64
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
PERIOD FROM JANUARY 1, 1999 TO DECEMBER 21, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
8. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 21, DECEMBER 31,
1999 1998
------------ -------------
<S> <C> <C>
Bank term loan, maturing December 2001, bearing interest at
prime plus 1.25% per annum payable monthly, principle
repayable in 30 equal installments beginning July 1999,
secured by a general security agreement................... $ 159,783 $ 192,000
Bank demand loan, maturing March 2002, bearing interest at
prime plus 2.0% per annum payable monthly, principle
repayable monthly in the amount of $10,516, secured by
SR&ED refund.............................................. 220,329 280,037
Promissory notes including accrued interest of $88,397
(December 1998--$44,387), maturing July 2002, bearing
interest at 5.0% until July 1999 and 13.0% per annum,
thereafter, payable monthly in arrears beginning
July 1999, secured by a general security agreement........ 1,085,689 1,672,203
Promissory notes including accrued interest of $33,727
(December 1998--$29,626), maturing July 2002, bearing
interest at 13.0% per annum payable monthly, secured by a
general security agreement, convertible into Class A
preferred shares at $2 (Canadian) per share............... 169,137 420,302
Promissory notes, bearing interest at 13.0% per annum....... -- 651,126
Promissory notes, including accrued interest of $2,963
maturing July 2002, bearing interest at 12.0% per annum
payable monthly in arrears beginning July 1999 or in event
of agreement default, secured by a general security
agreement, convertible into Class B preferred shares at
$100 (Canadian) per share................................. 172,225 162,782
Shareholder loan, bearing interest at prime plus 1.0% per
annum, no specific terms of repayment, unsecured,
shareholder has indicated that payment will not be
demanded within the next twelve months.................... 138,338 120,619
Other....................................................... 6,613 3,594
---------- ----------
1,952,114 3,502,663
Less current portion........................................ (185,119) (318,454)
---------- ----------
$1,766,995 $3,184,209
========== ==========
</TABLE>
On November 26, 1999, the Company converted 1,897,014 of promissory notes,
owing to Working Opportunity Fund (EVCC) Ltd., SCC Canada Inc., Ventures West
III--Canada Limited Partnership, and Discovery Enterprises Inc. into Class B
preferred shares (see note 10(b)) at a price of $0.05 (Canadian) per share and
Class C preferred shares (see note 10(b)) at a price of $100 (Canadian) per
share.
F-65
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
PERIOD FROM JANUARY 1, 1999 TO DECEMBER 21, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
8. LONG-TERM DEBT: (CONTINUED)
The minimum aggregate amounts of principal payments required in each of the
next five years, assuming that the shareholder loan is not repaid, are as
follows:
<TABLE>
<S> <C>
2000........................................................ $ 185,119
2001........................................................ 184,658
2002........................................................ 1,443,998
2003........................................................ --
2004 and thereafter......................................... 138,339
----------
$1,952,114
==========
</TABLE>
Subsequent to December 21, 1999, $1,658,550 of debt outstanding was repaid.
9. OBLIGATIONS UNDER CAPITAL LEASES:
The Company has commitments under capital leases as follows:
<TABLE>
<S> <C>
2000........................................................ $ 113,510
2001........................................................ 43,216
2002........................................................ 11,340
2003........................................................ 6,211
---------
174,277
Less interest imputed at rates between 9% and 15%........... (11,259)
---------
163,018
Less current portion........................................ (106,047)
---------
$ 56,971
=========
</TABLE>
10. SHARE CAPITAL:
(A) AUTHORIZED:
Unlimited common shares, Class A, non voting, no par value
Unlimited common shares, Class B, voting, no par value
Unlimited common shares, Class X, voting, no par value, non participating
Unlimited preferred shares, Class A, voting, convertible, retractable,
redeemable
Unlimited preferred shares, Class B, voting, convertible, retractable,
redeemable
Unlimited preferred shares, Class C, voting, retractable, redeemable
Unlimited preferred shares, Class F, non voting, redeemable
F-66
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
PERIOD FROM JANUARY 1, 1999 TO DECEMBER 21, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
10. SHARE CAPITAL: (CONTINUED)
Each Class A and Class B preferred share is convertible into one Class B
common share at the option of the holder and is entitled to one vote.
Dividends are provided at the discretion of the directors of the Company.
Only Class A and Class B common shareholders and Class A and Class B
preferred shareholders are entitled to dividends.
Class A, Class B and Class C preferred shares are retractable any time after
July 30, 2002 and under certain other instructions.
Class A, Class B and Class C preferred shares are redeemable at the
Company's option at any time, in whole or in part, after July 1, 2002 at the
issue price plus any unpaid dividends.
Class F preferred shares are redeemable at the Company's option at $1
(Canadian) per share (see note10(d)).
(B) ISSUED:
<TABLE>
<CAPTION>
NUMBER OF
SHARES AMOUNT
----------- ----------
<S> <C> <C>
Class A common shares:
Balance at April 30, 1996................................. 67,050 $ 34,211
Shares redeemed for cash.................................. (22,650) (8,486)
----------- ----------
Balance at April 30, 1997................................. 44,400 25,725
Shares issued for cash.................................... 8,231 22,374
Shares issued for services rendered....................... 3,614 19,534
Shares redeemed for cash.................................. (7,205) (5,268)
----------- ----------
Balance at April 30, 1998................................. 49,040 62,365
Shares issued for cash.................................... 133 345
Shares redeemed for cash.................................. (7,979) (7,363)
----------- ----------
Balance at December 31, 1998.............................. 41,194 55,347
Shares issued for cash on exercise of options (see
below).................................................. 6,900,000 234,117
----------- ----------
Balance at December 21, 1999.............................. 6,941,194 289,464
----------- ----------
Class B common shares:
Balance at April 30, 1996................................. 1,405,200 587,779
Shares issued in exchange for Class Z preferred shares.... 302,500 759,256
Shares issued for cash.................................... 271,673 1,322,337
----------- ----------
Balance at April 30, 1997, 1998 and December 31, 1998..... 1,979,373 2,669,372
Shares issued pursuant to price adjustment options (see
below).................................................. 759,037 --
----------- ----------
Balance at December 21, 1999.............................. 2,738,410 $2,669,372
</TABLE>
F-67
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
PERIOD FROM JANUARY 1, 1999 TO DECEMBER 21, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
10. SHARE CAPITAL: (CONTINUED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES AMOUNT
----------- ----------
<S> <C> <C>
Class X common shares:
Balance at April 30, 1995, 1996, 1997 and 1998............ -- --
Shares issued in conjunction with issuance of promissory
notes................................................... 20,000,000 1
----------- ----------
Balance at December 31, 1998.............................. 20,000,000 1
Shares redeemed for cash.................................. (20,000,000) (1)
Balance at December 21, 1999.............................. -- --
----------- ----------
Total common shares, December 21, 1999...................... 9,679,604 $2,958,836
----------- ----------
Class B preferred shares:
Balance at December 31, 1998.............................. -- --
Shares issued on debt conversion (note 8)................. 20,000,000 677,048
----------- ----------
Balance at December 21, 1999.............................. 20,000,000 677,048
----------- ----------
Class C preferred shares:
Balance at April 30, 1996, 1997, 1998 and December 31,
1998.................................................... -- --
Shares issued on debt conversion (note 8)................. 18,019 1,219,966
----------- ----------
Balance at December 21, 1999.............................. 18,019 1,219,966
Class F preferred shares:
Balance at April 30, 1996................................. 823,300 536,072
Shares redeemed for cash.................................. (200,000) (130,225)
----------- ----------
Balance at April 30, 1997................................. 623,300 405,847
Shares redeemed for cash.................................. (180,000) (117,203)
----------- ----------
Balance at April 30, 1998 and December 31, 1998........... 443,300 288,644
Shares redeemed for cash.................................. (120,000) (81,246)
Balance at December 21, 1999.............................. 323,300 207,398
----------- ----------
Class Z preferred shares:
Balance at April 30, 1996................................. 302,500 759,256
Shares redeemed in exchange for Class B common shares..... (302,500) (759,256)
Balance at April 30, 1997 and 1998, December 31, 1998 and
December 31, 1999....................................... -- --
----------- ----------
Total preferred shares, December 21, 1999................... 20,341,319 2,104,412
----------- ----------
Total common and preferred shares........................... $5,063,248
=========== ==========
</TABLE>
F-68
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
PERIOD FROM JANUARY 1, 1999 TO DECEMBER 21, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
10. SHARE CAPITAL: (CONTINUED)
Share purchase options for 6,900,000 Class A common shares were exercised by
option holders on December 21, 1999. Included as cash and cash equivalents at
December 21, 1999 is funds held in trust, related to the exercise, that were
released from escrow on December 22, 1999.
Pursuant to a anti-dilution clause relating to equity financing, of a prior
year, 759,037 Class B common shares were issued in the period ended
December 21, 1999.
(C) WARRANTS:
At December 21, 1999, 74,534 warrants were outstanding that entitle the
holders to purchase one Class B common share at a price of $0.01 (Canadian) per
share prior to July 30, 2002. Subsequent to December 21, 1999, these warrants
were exercised.
(D) PREMIUM ON REDEMPTION OF SHARES:
The Company records the excess of the purchase price over the par value of
shares redeemed as a charge against retained earnings.
11. INCOME TAXES:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, EIGHT MONTHS
1999 TO ENDED YEARS ENDED APRIL 30,
DECEMBER 21, DECEMBER 31, -----------------------
1999 1998 1998 1997
------------ ------------- ---------- ----------
<S> <C> <C> <C> <C>
Current......................... $ -- $ -- $ -- $ --
Deferred........................ -- -- 397,445 (29,995)
---- ---- -------- --------
$ -- $ -- $397,445 $(29,995)
==== ==== ======== ========
</TABLE>
At December 21, 1999, the Company has Canadian non-capital losses carried
forward of approximately $1,250,000 which are available to reduce taxable income
of future years, the benefit of which has not been recorded in the accounts and
which expire as follows:
<TABLE>
<S> <C>
December 31, 2002........................................... $ 750,000
2005............................................ 500,000
----------
$1,250,000
==========
</TABLE>
As a result of the acquisition on December 22, 1999, the Canadian
non-capital losses can only be applied to subsequent profits from the sale of
similar products and services.
F-69
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
PERIOD FROM JANUARY 1, 1999 TO DECEMBER 21, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
12. COMMITMENTS:
At December 21, 1999, the Company was committed to the following operating
lease payments for premises and equipment:
<TABLE>
<S> <C>
2000........................................................ $ 236,181
2001........................................................ 188,489
2002........................................................ 129,422
----------
$ 554,092
==========
</TABLE>
13. SUBSEQUENT EVENTS:
(a) Capital stock purchase:
On December 22, 1999 more than 99% of the common shares of the Company
outstanding at December 21, 1999 was acquired by Cayenta, Inc.
(b) Share redemption:
On December 22, 1999, the remaining balance of Class B, Class C and Class F
preferred shares in the amounts of $677,048, $1,219,966 and $207,398,
respectively, were redeemed for cash.
14. SALE OF DIVISION:
On April 30, 1997, the Company disposed of the net assets and operations of
its Govern division for proceeds of $340,449, which includes $130,225 of
preferred shares of the purchaser.
For the year ended April 30, 1997, the division incurred an operating loss
of $118,337 and revenues of $498,636.
The gain on sale of division comprises:
<TABLE>
<CAPTION>
<S> <C>
Cash proceeds............................................... $210,224
Preferred shares............................................ 130,225
--------
Net proceeds................................................ 340,449
Net assets sold:
Accounts receivable....................................... (33,877)
Deferred revenue.......................................... 118,106
Fixed assets.............................................. (10,251)
Contract.................................................. 9,939
--------
83,917
--------
Gain on sale of the division................................ $424,366
========
</TABLE>
F-70
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
PERIOD FROM JANUARY 1, 1999 TO DECEMBER 21, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
15. YEAR 2000 ISSUE:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
Year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
December 31, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers, or third
parties, will be fully resolved.
16. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
These consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles ("GAAP") in Canada, of
which conform, in all material respects, with those in the United States except
as described below:
(a) Research and development:
For United States GAAP purposes, Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased,
or Otherwise Marketed," provides for the capitalization of certain software
development costs after technological feasibility of the software is
established. Under the Company's current practice of developing new products
and enhancements, the technological feasibility of the underlying software
is not established until substantially all product development is complete,
including the development of a working model. No such costs have been
capitalized as their impact would not be material.
Deferred software development costs of $2,153,130 which were capitalized
during the year ended April 30, 1997 would have been expensed as incurred
under U.S. accounting principles. As such, deferred software development
costs of $1,010,094 which were amortized during the year ended April 30,
1997 and the write-down of deferred software development costs in the year
ended April 30, 1998 of $2,653,486 would not have been required.
(b) Loss per share:
For United States GAAP purposes, Statement of Financial Accounting Standards
No. 128, "Earnings Per Share," requires the disclosure of basic and diluted
earnings per share for each period presented. Basic earnings per share is
computed by dividing the net loss by the weighted average number of all
classes of common shares outstanding during the period. Diluted earnings per
share is computed by dividing the net loss by the weighted average number of
all classes of common and dilutive common equivalent shares outstanding
during the period.
Excluded from the computation of diluted earnings per share for the period
from January 1, 1999 to December 21, 1999 and the eight months ended
December 31, 1998 and the years ended April 30, 1998 and 1997 are options
and warrants to acquire common shares and preferred shares convertible into
common shares, as their effects would be anti-dilutive.
F-71
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
PERIOD FROM JANUARY 1, 1999 TO DECEMBER 21, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
16. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
(c) Income taxes:
Under the asset and liability method of United States Statement of Financial
Accounting Standards No. 109 ("FAS 109"), deferred income tax assets and
liabilities are measured using enacted tax rates for the future income tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases. The application of the provisions of FAS 109 on the Company's balance
sheet would result in no net difference in deferred taxes from that reported
under Canadian GAAP. At December 21, 1999, the gross deferred tax asset
amount relating to a non-capital loss carry forward was $517,500 which is
reduced by a valuation allowance of $517,500 as management does not consider
that it is more likely than not that such assets will be realized in the
carry forward period.
(d) Stock-based compensation:
For United States GAAP purposes, the Company has elected to follow the
disclosure-only provisions under Statement of Financial Accounting Standards
No. 123 ("FAS 123"), "Accounting for Stock-Based Compensation," and applies
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued
Employees" ("APB 25") and related interpretations in accounting for its
stock-based compensation to employees. As such, the Company's stock-based
compensation is measured based on the intrinsic value of the option on the
date of grant.
Under the intrinsic value method of APB 25, the stock option compensation is
the excess, if any, of the quoted market value of the stock at the
measurement date of the grant over the amount an optionee must pay to
acquire the stock. The Company grants stock options having exercise prices
based on the market price at the date of grants. Accordingly, under the
intrinsic value method, no stock-based compensation expense has resulted for
the period from January 1, 1999 to December 21, 1999, for the eight month
period ended December 31, 1998 and the years ended April 30, 1998 and 1997
for United States GAAP purposes.
(e) Redeemable preferred shares:
For United States GAAP purposes, preferred stock subject to mandatory
redemption requirements or whose redemption is outside the control of the
issuer is required to be presented outside of shareholders' equity. For the
periods presented, the Company's Class B, C, and F preferred shares would be
presented outside of shareholders' equity.
F-72
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
PERIOD FROM JANUARY 1, 1999 TO DECEMBER 21, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
16. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
(f) Summary of United States GAAP adjustments:
The amounts in the balance sheets that differ from those reported under
Canadian GAAP are as follows.
<TABLE>
<CAPTION>
DECEMBER 21, 1999 DECEMBER 31, 1998
----------------------- -----------------------
CDN GAAP US GAAP CDN GAAP US GAAP
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Class B redeemable preferred
shares...................... $ -- $ 677,048 $ -- $ --
Class C redeemable preferred
shares...................... -- 1,219,966 -- --
Class F redeemable preferred
shares--current portion..... -- 207,398 -- 166,819
Class F redeemable preferred
shares--net of current
portion..................... -- -- -- 121,825
Shareholders' equity:
Share capital............... 5,063,248 -- 3,013,364 --
Class A common stock, issued
and outstanding 6,941,194
and 41,194................ -- 289,464 -- 55,347
Class B common stock, issued
and outstanding 2,738,410
and 1,979,373............. -- 2,669,372 -- 2,669,372
Class X common stock, issued
and outstanding nil and
20,000,000................ -- -- -- 1
</TABLE>
F-73
<PAGE>
SFG TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (CONTINUED)
PERIOD FROM JANUARY 1, 1999 TO DECEMBER 21, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
16. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
The following table sets forth the effect on the loss for the period and
loss per share:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, EIGHT MONTHS
1999 TO ENDED YEARS ENDED APRIL 30,
DECEMBER 21, DECEMBER 31, -------------------------
1999 1998 1998 1997
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) under Canadian GAAP...... $ (415,270) $ (59,834) $(5,588,408) $ 94,985
Less deferred software development costs
capitalized.............................. -- -- -- (2,153,130)
Add deferred software development costs
amortized................................ -- -- -- 1,010,094
Add write-down of software development
costs.................................... -- -- 2,653,486 --
----------- ----------- ----------- -----------
Loss determined under United States GAAP... (415,270) (59,834) (2,934,922) (1,048,051)
Premium on redemption of shares............ -- (33,695) (30,312) (86,719)
----------- ----------- ----------- -----------
Loss available to common shareholders
determined under United States GAAP...... $ (415,270) $ (93,529) $(2,965,234) $(1,134,770)
=========== =========== =========== ===========
Weighted average number of shares
outstanding, United States GAAP.......... 22,070,547 16,084,028 2,002,344 1,509,658
=========== =========== =========== ===========
Net loss per share under United States
GAAP..................................... $ (0.02) $ -- $ (1.48) $ (0.75)
=========== =========== =========== ===========
</TABLE>
(g) Comprehensive loss:
For United States GAAP purposes, Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and disclosure of comprehensive income and its components. The
Company's comprehensive income consists of net income (loss), and changes in
its foreign currency translation account as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, EIGHT MONTHS
1999 TO ENDED YEARS ENDED APRIL 30,
DECEMBER 21, DECEMBER 31, -------------------------
1999 1998 1998 1997
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) under United States
GAAP..................................... $ (415,270) $ (59,834) $(2,934,922) $(1,048,051)
Foreign currency translation account....... (171,558) 1,613 96,951 (142)
----------- ----------- ----------- -----------
Comprehensive loss......................... $ (586,828) $ (58,221) $(2,837,971) $(1,048,193)
=========== =========== =========== ===========
</TABLE>
F-74
<PAGE>
[BACK COVER]
[Our logo and address]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the common stock being registered. All of the
amounts shown are estimates, except for the SEC registration fee, the NASD
filing fee and the Nasdaq National Market application fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
Registration fee............................................ $ 25,654
NASD filing fee............................................. 10,218
Nasdaq Stock Market Listing Application fee................. 87,000
Blue sky qualification fees and expenses.................... 5,000
Printing and engraving expenses............................. 500,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 500,000
Transfer agent and registrar fees........................... 3,000
Miscellaneous............................................... 19,128
Total................................................... 1,650,000
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its Directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act").
The Registrant's Certificate of Incorporation and Bylaws include provisions
to (i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by
Section 102(b)(7) of the General Corporation Law of Delaware (the "Delaware
Law") and (ii) require the Registrant to indemnify its Directors and officers to
the fullest extent permitted by Section 145 of the Delaware Law, including
circumstances in which indemnification is otherwise discretionary. Pursuant to
Section 145 of the Delaware Law, a corporation generally has the power to
indemnify its present and former directors, officers, employees and agents
against expenses incurred by them in connection with any suit to which they are,
or are threatened to be made, a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in or not opposed to, the best interests of the corporation and
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. The Registrant believes that these provisions are
necessary to attract and retain qualified persons as Directors and officers.
These provisions do not eliminate the Directors' duty of care, and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware Law. In addition,
each Director will continue to be subject to liability for breach of the
Director's duty of loyalty to the Registrant, for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
any transaction from which the Director derived an improper personal benefit,
for improper distributions to stockholders and for improper stock purchases or
redemptions where the Director acted wilfully or negligently. The provision also
does not affect a Director's responsibilities under any other law, such as the
federal securities law or state or federal environmental laws.
The Registrant has entered into indemnity agreements with each of its
Directors and executive officers that require the Registrant to indemnify such
persons against any and all expenses, including attorney's fees, witness fees,
damages, judgments, fines and amounts paid in settlement and any other
II-1
<PAGE>
amounts that such person becomes legally obligated to pay because of any claim
or claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative to which such person is, was or at the time
becomes a party, or is threatened to be made a party, by reason of the fact that
such person is or was serving as a director, officer, employee, or other agent
of us or of another corporation at our request. Further, we shall advance, prior
to the final disposition of any proceeding, promptly following request therefor,
all expenses incurred by such person in connection with such proceeding upon
receipt of an undertaking by or on behalf of such person to repay such amounts
if it shall be determined ultimately that such person is not entitled to
indemnification. The indemnification agreements also set forth certain
procedures that will apply in the event of a claim for indemnification
thereunder.
The Registrant has entered into employment agreements with David P. Porreca
and Gregory R. Smith that provide for the indemnification of Mr. Porreca and
Mr. Smith to the maximum extent permitted by law for any acts made in good faith
while performing services in the ordinary and regular course of business for
Cayenta. To the same extent, Cayenta will pay and subject to any legal
limitations, advance all expenses, including reasonable attorneys' fees and
costs of court approved settlements, actually and necessarily incurred by
Mr. Porreca or Mr. Smith in connection with the defense of any action, suit or
proceeding and in connection with any appeal, which has been brought against
Mr. Porreca or Mr. Smith by reason of his service as an officer or agent of
Cayenta.
At present, there is no pending litigation or proceeding involving a
Director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or Director.
The Registrant has an insurance policy covering the officers and Directors
of the Registrant with respect to certain liabilities, including liabilities
arising under the Securities Act or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its inception in September 1997, the Registrant has sold and issued
the following unregistered securities:
(a) In January 1999, the Registrant acquired substantially all of the assets
of Transnational Partners II, LLC, a company that focused on systems integration
and architecture. The Registrant acquired Transnational Partners II for
$7 million in cash and 4,842,425 shares of Series A preferred stock. The
Registrant also paid off an additional $2.8 million note that the Registrant
issued as part of the acquisition of Transnational Partners II, plus 7% interest
thereon, in February 2000. The Registrant issued such shares in reliance upon
the exemption from securities registration afforded by Rule 506 of Regulation D
under the Securities Act.
(b) In December 1999, the Registrant acquired Assist Cornerstone
Technologies, Inc., an e-commerce software company. The Registrant acquired
Assist Cornerstone for 1,066,485 shares of Class A common stock which were
issued to the former equity holders of Assist Cornerstone. Each share of Class A
common stock was valued at $3.19 per share. In addition, the Registrant paid
$12.9 million in cash, of which $9.9 million was paid at the closing, with the
balance withheld to satisfy possible working capital adjustments or
indemnification obligations. The Registrant issued such shares in reliance upon
the exemption from securities registration afforded by Rule 506 of Regulation D
under the Securities Act.
II-2
<PAGE>
(c) In connection with the Registrant's reorganization with Titan in
December 1999, the Registrant issued 20,650,000 shares of Class B common stock
to Titan. The Registrant issued such shares in reliance on the exemption
provided in Section 3(a)(9) of the Securities Act.
(d) In December 1999, the Registrant issued to Batchelder & Partners
warrants to purchase up to 1,023,827 shares of its Class A common stock at a
weighted average exercise price of $6.35 per share in consideration of strategic
advisory services provided to the Registrant by Batchelder & Partners. The
Registrant issued such warrants in reliance upon the exemption from securities
registration afforded by Rule 506 of Regulation D under the Securities Act.
(e) In October 1999, the Registrant issued 103,250 shares of Class A common
stock to Dr. Gene Ray upon the exercise of an option at an exercise price of
$0.18 per share. The Registrant issued such shares in reliance upon the
exemption from securities registration afforded by Rule 701 under the Securities
Act.
(f) In March 2000, the Registrant issued 516,250 shares of Class A common
stock to Penton Media, Inc. for $6,372,500, or $12.34 per share. The Registrant
issued such shares in reliance upon the exemption from securities regulation
afforded by Rule 506 of Regulation D under the Securities Act.
The stock amounts and per-share exercise prices in the descriptions above
reflect the 2.065 for 1 stock split of the Registrant's common stock which will
take place prior to the effectiveness of this offering. The recipients of the
above-described securities represented their intention to acquire the securities
for investment only and not with a view to distribution thereof. Appropriate
legends were affixed to the stock certificates issued in such transactions. All
recipients had adequate access, through employment or other relationships, to
information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------------------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.(1)
2.1 Asset Purchase Agreement among Transnational Partners II,
LLC, Cayenta and The Titan Corporation dated as of
January 1, 1999.*
2.2 Stock Purchase Agreement dated as of November 2, 1999 among
Cayenta, J.B. Systems, Inc., d.b.a. Mainsaver Corporation
and Mainsaver, JKS Separate Property Trust, The Gehl
Living Trust, JBS Acquisition Company, LLC, Epicor
Software Corporation, Mark Stevens and The Titan
Corporation.*
2.3 Stock Exchange and Stock Purchase Agreement dated as of
December 7, 1999 among Cayenta, Cayenta Operating Company,
The Titan Corporation, Assist Cornerstone Technologies,
Inc. and Selling Shareholders.*
2.4 Stock Purchase Agreement dated as of December 23, 1999 among
Cayenta, SFG Technologies, Inc., the Common Selling
Shareholders, the Preferred Selling Shareholders and the
Option Holders.*
2.5 Contribution Agreement dated December 7, 1999 among The
Titan Corporation, Cayenta, Gene W. Ray and Transnational
Partners II, LLC.*
2.6 Limited Liability Company Agreement of Soliance, LLC dated
August 25, 1999 among Sempra Energy Information Solutions,
Modis, Inc. and Cayenta.*(2)
3.1 Certificate of Incorporation.*
3.2 Certificate of Amendment to Certificate of Incorporation.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------------------- -----------------------
<C> <S>
3.3 Bylaws.*
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2 Specimen Stock Certificate.(1)
5.1 Opinion of Cooley Godward LLP.(1)
10.1 Cayenta Investor Rights Agreement.*
10.2 Cayenta 1997 Stock Option Plan.*
10.3 Titan 1995 Employee Stock Purchase Plan.*
10.4 Titan Supplemental Retirement Plan for Executives dated
December 17, 1993, as amended May 18, 1995.*
10.5 Form of Nonstatutory Stock Option Agreement under 1997 Stock
Option Plan.*
10.6 Form of Incentive Stock Option Agreement under 1997 Stock
Option Plan.*
10.7 Employment Agreement dated January 1, 1999 between David P.
Porreca and Cayenta.*
10.8 Employment Agreement dated January 1, 1999 between Gregory
R. Smith and Cayenta.*
10.9 Letter Agreement dated November 1, 1999 between Cayenta and
William G. Atkinson.*
10.10 Letter Agreement dated December 18, 1999 between Cayenta and
Edward M. Lake.*
10.11 Form of Indemnity Agreement.*
10.12 Contract between the Federal Aviation Administration and
Cayenta dated as of July 24, 1995.*(2)
10.13 Agreement for Consulting Services dated as of January 1,
1999 between Sempra Energy Information Solutions, LLC and
Transnational Partners II, LLC.*(2)
10.14 Management Services Agreement dated August 25, 1999 between
Cayenta and Soliance, LLC.*
10.15 Contract for Professional Services dated as of September 8,
1999 between Cayenta and Waste Management, Inc.*(2)
10.16 Software License Agreement dated September 23, 1998 between
Assist Cornerstone Technologies, Inc. and 800.com,
Inc.*(2)
10.17 Purchase Notification dated February 10, 1999 between Titan
and the Government of the District of Columbia.*(2)
10.18 Subcontract Agreement dated March 23, 1999 between Cap
Gemini America LLC and Cayenta.*(2)
10.19 Tax Allocation Agreement.
10.20 Corporate Services Agreement.
10.21 Facilities Agreement.
10.22 Office Space Lease dated March 9, 1999 between San Diego 225
RPF III, LLC and Titan.*
10.23 Subordinated Promissory Note dated December 27, 1999 between
Cayenta Operating Company, Inc. and Titan.*
10.24 Technical Services Agreement dated January 1, 1997 between
Enova Corporation and Transnational Partners II, LLC, as
amended.*(2)
10.25 Total Service Provider Services and License Agreement dated
March 30, 2000 between Cayenta and Penton Media, Inc.(2)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------------------- -----------------------
<C> <S>
10.26 Strategic Alliance Agreement dated March 30, 2000 between
Penton Media, Inc. and Cayenta.*
10.27 Investor Rights Agreement dated March 30, 2000 among
Cayenta, Titan and Penton Media, Inc.*
10.28 Cayenta Nonstatutory Stock Option Plan.*
10.29 Pacific Corporate Center Lease dated January 14, 2000
between TIPAC-I, L.P and Cayenta.
10.30 Agreement for Technical Services dated as of January 1, 2000
between Sempra Energy and Cayenta for Information
Technology Consulting Services, Contract
No. 5600001842.(2)
10.31 Agreement for Technical Services dated as of January 1, 2000
between Sempra Energy and Cayenta for Information
Technology Consulting Services, Contract No.
5600001843.(2)
11.1 Computation of Net Income per Share.*
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of KPMG LLP.
23.5 Consent of Ernst & Young LLP, independent auditors.
23.6 Consent of Cooley Godward LLP. Reference is made to
Exhibit 5.1.(1)
24.1 Power of Attorney. Reference is made to page II-6.
27.1 Financial Data Schedule.*
</TABLE>
- ------------------------
* Previously filed.
(1) To be filed by amendment.
(2) Confidential treatment requested.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE>
The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(b) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriters, and the terms of any subsequent reoffering thereof. If any public
offering by the underwriters is to be made on terms differing from those set
forth on the cover page of the prospectus, a post effective amendment will be
filed to set forth the terms of such offering.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 3 to this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Diego, County of San Diego, State of California, on May 5, 2000.
<TABLE>
<S> <C> <C>
Registrant
By: /s/ EDWARD M. LAKE
-----------------------------------------
Edward M. Lake
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David P. Porreca and Edward M. Lake and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments, exhibits thereto and other documents in connection therewith) to
this Registration Statement and any subsequent registration statement filed by
the registrant pursuant to Rule 462(b) of the Securities Act of 1933, as
amended, which relates to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to this Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
President, Chief Executive
* Officer and Director
------------------------------------------- (PRINCIPAL EXECUTIVE May 5, 2000
David P. Porreca OFFICER)
Senior Vice President and
/s/ EDWARD M. LAKE Chief Financial Officer
------------------------------------------- (PRINCIPAL FINANCIAL AND May 5, 2000
Edward M. Lake ACCOUNTING OFFICER)
* Senior Vice President,
------------------------------------------- General Counsel and May 5, 2000
Nicholas J. Costanza Secretary
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
*
------------------------------------------- Chairman of the Board and May 5, 2000
Gene W. Ray Director
*
------------------------------------------- Director May 5, 2000
Robert E. La Blanc
/s/ JOHN C. ARME
------------------------------------------- Director May 5, 2000
John C. Arme
/s/ PAUL MELCHIORRE
------------------------------------------- Director May 5, 2000
Paul Melchiorre
/s/ EDWARD M. LAKE
-------------------------------------------
Edward M. Lake
*ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.(1)
2.1 Asset Purchase Agreement among Transnational Partners II,
LLC, Cayenta and The Titan Corporation dated as of
January 1, 1999.*
2.2 Stock Purchase Agreement dated as of November 2, 1999 among
Cayenta, J.B. Systems, Inc., d.b.a. Mainsaver Corporation
and Mainsaver, JKS Separate Property Trust, The Gehl
Living Trust, JBS Acquisition Company, LLC, Epicor
Software Corporation, Mark Stevens and The Titan
Corporation.*
2.3 Stock Exchange and Stock Purchase Agreement dated as of
December 7, 1999 among Cayenta, Cayenta Operating Company,
The Titan Corporation, Assist Cornerstone Technologies,
Inc. and Selling Shareholders.*
2.4 Stock Purchase Agreement dated as of December 23, 1999 among
Cayenta, SFG Technologies, Inc., the Common Selling
Shareholders, the Preferred Selling Shareholders and the
Option Holders.*
2.5 Contribution Agreement dated December 7, 1999 among The
Titan Corporation, Cayenta, Gene W. Ray and Transnational
Partners II, LLC.*
2.6 Limited Liability Company Agreement of Soliance, LLC dated
August 25, 1999 among Sempra Energy Information Solutions,
Modis, Inc. and Cayenta.*(2)
3.1 Certificate of Incorporation.*
3.2 Certificate of Amendment to Certificate of Incorporation.*
3.3 Bylaws.*
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2 Specimen Stock Certificate.(1)
5.1 Opinion of Cooley Godward LLP.(1)
10.1 Cayenta Investor Rights Agreement.*
10.2 Cayenta 1997 Stock Option Plan.*
10.3 Titan 1995 Employee Stock Purchase Plan.*
10.4 Titan Supplemental Retirement Plan for Executives dated
December 17, 1993, as amended May 18, 1995.*
10.5 Form of Nonstatutory Stock Option Agreement under 1997 Stock
Option Plan.*
10.6 Form of Incentive Stock Option Agreement under 1997 Stock
Option Plan.*
10.7 Employment Agreement dated January 1, 1999 between David P.
Porreca and Cayenta.*
10.8 Employment Agreement dated January 1, 1999 between Gregory
R. Smith and Cayenta.*
10.9 Letter Agreement dated November 1, 1999 between Cayenta and
William G. Atkinson.*
10.10 Letter Agreement dated December 18, 1999 between Cayenta and
Edward M. Lake.*
10.11 Form of Indemnity Agreement.*
10.12 Contract between the Federal Aviation Administration and
Cayenta dated as of July 24, 1995.*(2)
10.13 Agreement for Consulting Services dated as of January 1,
1999 between Sempra Energy Information Solutions, LLC and
Transnational Partners II, LLC.*(2)
10.14 Management Services Agreement dated August 25, 1999 between
Cayenta and Soliance, LLC.*
10.15 Contract for Professional Services dated as of September 8,
1999 between Cayenta and Waste Management, Inc.*(2)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
10.16 Software License Agreement dated September 23, 1998 between
Assist Cornerstone Technologies, Inc. and 800.com,
Inc.*(2)
10.17 Purchase Notification dated February 10, 1999 between Titan
and the Government of the District of Columbia.*(2)
10.18 Subcontract Agreement dated March 23, 1999 between Cap
Gemini America LLC and Cayenta.*(2)
10.19 Tax Allocation Agreement.
10.20 Corporate Services Agreement.
10.21 Facilities Agreement.
10.22 Office Space Lease dated March 9, 1999 between San Diego 225
RPF III, LLC and Titan.*
10.23 Subordinated Promissory Note dated December 27, 1999 between
Cayenta Operating Company, Inc. and Titan.*
10.24 Technical Services Agreement dated January 1, 1997 between
Enova Corporation and Transnational Partners II, LLC, as
amended.*(2)
10.25 Total Service Provider Services and License Agreement dated
March 30, 2000 between Cayenta and Penton Media, Inc.(2)
10.26 Strategic Alliance Agreement dated March 30, 2000 between
Penton Media, Inc. and Cayenta.*
10.27 Investor Rights Agreement dated March 30, 2000 among
Cayenta, Titan and Penton Media, Inc.*
10.28 Cayenta Nonstatutory Stock Option Plan.*
10.29 Pacific Corporate Center Lease dated January 14, 2000
between TIPAC-I, L.P and Cayenta.
10.30 Agreement for Technical Services dated as of January 1, 2000
between Sempra Energy and Cayenta for Information
Technology Consulting Services, Contract
No. 5600001842.(2)
10.31 Agreement for Technical Services dated as of January 1, 2000
between Sempra Energy and Cayenta for Information
Technology Consulting Services, Contract No.
5600001843.(2)
11.1 Computation of Net Income per Share.*
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of KPMG LLP.
23.5 Consent of Ernst & Young LLP, independent auditors.
23.6 Consent of Cooley Godward LLP. Reference is made to
Exhibit 5.1.(1)
24.1 Power of Attorney. Reference is made to page II-6.
27.1 Financial Data Schedule.*
</TABLE>
- ------------------------
* Previously filed.
(1) To be filed by amendment.
(2) Confidential treatment requested.
<PAGE>
EXHIBIT 10.25
Confidential Treatment Requested
under 17 C.F.R. Sections 200.80(B)(4),
200.83 and 230.406
CAYENTA, INC.
TOTAL SERVICE PROVIDER SERVICES AND LICENSE AGREEMENT
This TOTAL SERVICE PROVIDER SERVICES AND LICENSE AGREEMENT (the "Agreement"),
is made this 30th day of March, 2000, (the "Consulting Effective Date") by
and between CAYENTA, INC. ("CAYENTA"), a Delaware corporation with its
principal place of business at 225 Broadway, Ste. 1500, San Diego, CA 92101,
and Healthwell.com, a division of Penton Media, Inc. ("CLIENT"), a Delaware
corporation with offices at 1401 Pearl Street, Suite 200, Boulder,
Colorado 80302.
RECITALS
CAYENTA is a total service provider engaged in the business of licensing
certain software applications ("Licensed Software"), providing enterprise
application outsourcing services ("Outsourcing Services"), providing hosting
services and providing its clients with services related to the evaluation of
client enterprise application needs, and the design and installation of
computer systems as necessary and desirable for its clients to take full
advantage of the Outsourcing Services of Licensed Software, and Client
desires to retain Cayenta to perform certain of such services on Client's
behalf.
NOW THEREFORE, in consideration of the mutual covenants and obligations
set forth herein, the parties hereby agree as follows:
AGREEMENT
1. DEFINITIONS. For purposes of this Agreement:
1.1 "ACCEPTANCE" means the time, after complete installation and
integration of the Deliverable, when the Deliverable has successfully
completed the Acceptance Tests and such other criteria as set forth in the
Statement of Work.
1.2 "ACCEPTANCE TEST" means a series of functional tests developed from
mutually developed criteria and specifications regarding Deliverables in
accordance with the Statement of Work that are constructed to exercise the
products or materials for the purpose of discovering operational deficiencies.
1.3 "CAYENTA TECHNOLOGY" means Cayenta's proprietary information,
data, technology, know how, methods and methodologies, Templates (as
hereafter defined), software code (including the Licensed Software),
Documentation (as hereafter defined), Tools, interfaces, trade secrets,
methods and methodologies, algorithms, libraries, design flows, processes,
databases, mechanical and electronic hardware, electronic components,
computers and their parts, computer languages, programs and their
documentation, encoding techniques, articles, writings, compositions, works
of authorship, and other proprietary materials that are used, conceived or
reduced to practice by Cayenta in connection with performance of the
Professional Services, including, without limitation, any and all Innovations.
<PAGE>
1.4 "CLIENT-PROVIDED MATERIALS" means the materials and technology
owned, licensed or otherwise controlled by Client that Cayenta reasonably
requires to perform the Professional Services including, without limitation,
those items described as Client-Provided Materials in the Statement of Work,
including, but not limited to, the Customized Applications.
1.5 "CONFIDENTIAL INFORMATION" means any non-public information or
trade secret written or otherwise disclosed in any medium by one party to the
other under this Agreement and marked or otherwise designated as
"Confidential" or is clearly by its nature confidential. However,
Confidential Information shall not include any information that: (a) is or
becomes a part of the public domain through no act or omission of the other
party or otherwise available to the public other than by breach of this
Agreement; or (b) was in the other party's lawful possession prior to the
disclosure and had not been obtained by the other party either directly or
indirectly from the disclosing party; or (c) is lawfully disclosed to the
other party by a third party without restriction on disclosure; or (d) is
independantly developed by the other party without access to the Confidential
Information.
1.6 "DEFICIENCY" means any failure of any feature of any of the
Deliverables to operate in accordance with the applicable Documentation and
the Statement of Work.
1.7 "DELIVERABLES" means any tangible items described in the Statement
of Work to be delivered by Cayenta to Client.
1.8 "DOCUMENTATION" means any and all technical, engineering and user
documentation, and all training manuals, operating procedures, support
materials and tools, and all other written materials provided, whether in
printed or electronic form, proprietary to Cayenta and provided by Cayenta to
Client regarding the Deliverables or otherwise related to the Professional
Services.
1.9 "FEES" means those fees as set forth on the payment Schedule in the
Statement of Work.
1.10 "HEALTHWELL MARKET" means the alternative healthcare and natural
products industry.
1.11 "HOSTING SERVICES" means those services to be performed by Cayenta
with respect to hosting the Web Site, as more fully described in Section 2.2
of this Agreement.
1.12 "INNOVATIONS" means any improvement, invention, development or
innovation to, or related or arising from, the Cayenta Technology that is
conceived or developed solely by Cayenta or its employees in the performance
of the Professional Services under this Agreement.
1.13 "IP RIGHTS" means all intangible, intellectual, proprietary and
industrial property rights, including but not limited to: (i) all trademarks,
trade names, service marks or logos, including all registrations and
applications therefor; (ii) all copyrights, moral rights, and other rights in
works of authorship including all registrations and applications therefor;
(iii) all mask works and other rights pertaining to semiconductors including
cell libraries, microcode, tapes, tape-outs and netlists rights, including
all registrations and applications therefor; (iv) all patents and patent
applications, patentable ideas, inventions and innovations; (v) all know-how
and trade secrets; and (vi) all other rights covering intangible property
recognized in any jurisdiction.
2
<PAGE>
1.14 "PAYMENT SCHEDULE" means the payment schedule set out in the
Statement of Work.
1.15 "PRODUCTION SYSTEM" means a computer system configured to enable
Client to receive Outsourcing Services.
1.16 "PROFESSIONAL SERVICES" means those services, other than Hosting
Services, to be provided by Cayenta to Client regarding the Healthwell
Exchange, pursuant to the terms of this Agreement, as more fully described on
the Statement of Work, as may be modified or supplemented from time to time,
which include, but are not limited to designing, developing, programming,
operating, updating, maintaining, and testing for quality assurance the Web
Site.
1.17 "PROJECT SCHEDULE" means the timetable relating to the
performance of the Professional Services and delivery of Deliverables that is
set out in the Statement of Work.
1.18 "STATEMENT OF WORK" means the description of the Professional
Services and Deliverables to be provided hereunder and attached hereto as
EXHIBIT A.
1.19 "TEMPLATE" means the source code and object code versions of a
particular software application, including all Upgrades thereto, which is
comprised of any combination of Tools, technology, code, system settings, and
Documentation that is pre-existing and owned by or licensable by Cayenta
prior to the Consulting Effective Date and that may be used as a basis for,
and underlies, any Deliverable.
1.20 "THIRD PARTY COMPONENTS" means those items of hardware or
software comprising the Production System that are proprietary to or
manufactured by third parties, whether or not Client obtains such items, or
Cayenta obtains such items on Client's behalf.
1.21 "TOOLS" means certain tool kits and re-useable building blocks
that may be useful in connection with the operation, modification, and
customization of the Template.
1.22 "WEB SITE" means the web site owned by Client and found on the
World Wide Web portion of the Internet at the URL http://www.healthwell.com,
featuring Client content and geared towards alternative healthcare and
natural products and containing on-line business transaction functions,
including the Healthwell Exchange.
2. PROFESSIONAL SERVICES.
2.1 PROVISION OF SERVICES. Provided that Client pays Cayenta in
accordance with the terms of Article 4, Cayenta will provide to Client the
Professional Services and Deliverables in accordance with the Statement of
Work. The Deliverables shall be accepted in accordance with the criteria set
forth in Article 3.
2.2 WEB SITE HOSTING SERVICES. Cayenta and Client agree to negotiate in
good faith for the provision by Cayenta to Client of Hosting Services with
respect to the Web Site, which may include such things as the provision of
infrastructure (hardware, operating systems, application software, databases
and internet hosting), 7x24 operations support, maintenance, database
administration, backup, catalog implementation support services and help desk
services. The
3
<PAGE>
obligations, relationships and arrangements of the parties with respect to
Hosting Services will arise and be governed only under and pursuant to the
terms and conditions of a definitive statement of work with respect to such
Hosting Services. If Cayenta and Client do not agree on such a statement of
work for Hosting Services, then Client may host the Web Site on its own or a
third-party's servers. Cayenta agrees that it will deliver to Client all
materials, and that Client has the rights hereunder, reasonably necessary to
so host the Web Site including the Deliverables.
2.3 PERFORMANCE. Cayenta shall use best efforts to provide the
Professional Services and obligations described hereunder. Cayenta
acknowledges and agrees that it stands in a position of trust and confidence
to Client as the provider of such services that are critical to Client's
business and the Web Site.
2.4 CHANGE ORDERS. The Statement of Work may be modified from time to
time by supplementary change orders in accordance with APPENDIX A, attached
hereto. Thereafter, the Professional Services and Deliverables shall be
deemed to include the services and deliverables, if any, described in such
change orders.
2.5 MANNER AND MEANS. The manner and means used by Cayenta to perform
the Professional Services are in the sole discretion and control of Cayenta;
provided, however, that the scope and direction of such Professional Services
will be based on a collaborative effort between the Project Managers of both
parties. Depending on the tasks(s) to be performed, work may be performed at
Cayenta's designated facilities or at Client's site. Cayenta shall ensure
that all Cayenta personnel involved in the performance of the Professional
Services on Client's premises comply with Client's security procedures and
other workplace regulations. The Professional Services shall be performed in
a manner calculated to minimize interference with Client's business.
2.6 ITEMS PROVIDED BY CLIENT.
2.6.1 Mandatory Licenses. Prior to the commencement of the Professional
Services, Client agrees to obtain and install on its relevant computer
system(s) those items of third party software set forth on EXHIBIT B. Client
understands and agrees that commencement of the Professional Services will
not take place unless and until such software is acquired and installed.
2.6.2 Third Party Components. Client understands and agrees that
Client will be solely responsible for obtaining all Third Party Components;
provided, however, that is so specified in the Statement of Work, Cayenta may
obtain all or some of the Third Party Components on Client's behalf, subject
to Client's payment to Cayenta therefor.
2.6.3 Client-Provided Materials, Facilities, Data, Systems. Client
agrees to provide Cayenta with the Client-Provided Materials, as well as
suitable working space and facilities, network connection, and such other
items as may be set forth on the Statement of Work or reasonably requested by
Cayenta from time-to-time in the course of providing the Professional
Services. Client shall provide to Cayenta on a timely basis during Client's
normal business hours access to Client's data, systems and facilities as may
be reasonably required by Cayenta to perform the Professional Services.
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2.6.4 Client Personnel. Client shall make available to Cayenta those
of its personnel, as set forth on and described in greater detail in the
Statement of Work, which may be changed from time-to-time. Client shall
appoint a qualified project manager ("Project Manager") who shall serve as
Client's primary liaison to Cayenta throughout the course of the Professional
Services. The Project Manager shall be authorized by Client to answer all
questions posed by Cayenta and convey all decisions made by Client during the
course of the Professional Services and Cayenta shall be entitled to rely on
such information as conveyed by the Project Manager. Client's appointed
Project Manager is set forth in the Statement of Work. The parties will
resolve any personnel-related issues in good faith.
2.7 PROJECT SCHEDULE. Cayenta shall use its best efforts to comply
with the Project Schedule, and Client agrees to cooperate in good faith to
allow Cayenta to achieve completion of the Professional Services in a timely
and professional manner. Client understands and agrees that Cayenta's
provision of the Professional Services may depend on certain obligations of
Client such as timely decision-making, completion of certain tasks by Client,
or availability of Client personnel. Consequently, the Project Schedule, time
of performance, and Professional Services may require adjustments in the
event such Client obligations have not been fulfilled. Cayenta shall have no
liability for delays in performance to the extent based on the
non-fulfillment of such Client obligations or Force Majeure.
3. TESTING AND ACCEPTANCE.
3.1 TESTING.
3.1.1 Establishing Acceptance Test. When applicable with respect to
Deliverables, on a project-by-project basis, Cayenta shall develop customary
Acceptance Tests, subject to the approval of Client.
3.1.2 Commencement of Acceptance Test. After installation (and
integration if applicable), Client shall commence, at the time specified in
the Statement of Work, the Acceptance Tests for each particular Deliverable.
Client will have a period of ten (10) days from the completion of the
Acceptance Test within which to notify Cayenta of any Deficiencies in the
Deliverable. Each Acceptance Test procedure will include the right of Client
to "sign-off" before a Deliverable is put into live production use. Client
shall be entitled as part of the Acceptance Test to use the Deliverables in
production use for purposes of determining whether the Deliverables contain
any Deficiencies. Cayenta shall correct such Deficiencies found in acceptance
testing at its expense. After correction of all such Deficiencies, and after
successful completion of the Acceptance Test, Customer shall accept or be
deemed to have accepted the particular Deliverables being tested.
3.1.3 Rejection and Re-Work. Within a period of time which is
reasonable in each case under the circumstances and subject to the Acceptance
Tests, Client shall either accept the Deliverable or notify Cayenta that it
rejects the Deliverable, stating in detail the Deficiencies that are its
grounds for rejection. Cayenta shall provide additional services and re-work
to correct the rejected Deliverable, and then deliver it again to Client for
acceptance. Client shall promptly review all corrections and modifications to
the Deliverables made by Cayenta, and if any Deficiencies remain in the
Deliverable, Cayenta will correct the same within ten (10) days from the date
of notice. Such services and re-work will be at Cayenta's sole expense. The
10-day
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acceptance period in SECTION 3.1.2 will be extended as required for Client to
perform Acceptance Tests on Cayenta's re-worked Deliverables.
3.1.4 Rejection. If Cayenta cannot satisfy the Acceptance Tests and
cause a Deliverable to meet the requirements of this Agreement in all
material respects within a reasonable number of iterations, Client may
reject the Deliverable and exercise its other available remedies.
4. SERVICES FEES AND EXPENSES.
4.1 FEES. For the Professional Services provided by Cayenta, Client
agrees to pay the Fees. Unless otherwise specified in the Statement of Work,
Client will be billed on a monthly basis with respect to time and materials
incurred in the previous month; Client shall make payment for all undisputed
invoices within thirty (30) days after the date of invoice.
4.2 ITEMIZED INVOICES. All invoices must be accompanied by itemization
reasonably sufficient for Client to verify the amounts due. At Client's
request, Cayenta shall provide reasonable documentation and cost-tracking
capabilities, including time reports, receipts, and back-up for out-of-pocket
expenses, to support any invoice issued by Cayenta.
4.3 EXPENSES. Client shall reimburse Cayenta for approved expenses
incurred in connection with the provision of the Professional Services and
Deliverables. Expenses shall be billed to Client on a monthly basis and
payment shall be made within thirty (30) days after the date of invoice.
4.4 TAXES. The amounts payable to Cayenta pursuant to this Agreement are
exclusive of any sales or use or other taxes or governmental charges. Client
shall be responsible for payment of all such taxes or charges, except for any
taxes based solely on Cayenta's net income.
4.5 LATE PAYMENTS. All payments not timely made pursuant to this Article 4,
shall bear interest at [...***...]
4.6 NO PAYMENT OBLIGATION. If Cayenta fails to deliver, demonstrate and
operate a fully operational version of the Deliverables for the Healthwell
Exchange in accordance with the Statement of Work, then Client may terminate
this Agreement immediately and shall not be obligated to make any payments
under this Agreement.
5. INTELLECTUAL PROPERTY RIGHTS.
5.1 RETAINED OWNERSHIP RIGHTS. Except as explicitly set forth herein,
neither this Agreement, nor the provision of Professional Services hereunder,
shall give either Cayenta or Client any ownership interest in or rights to
the IP Rights of the other party. All IP Rights that are owned or controlled
by a party at the commencement of this Agreement shall remain under the
ownership or control of such party throughout the term of this Agreement and
thereafter.
5.2 RIGHTS OF CAYENTA. Cayenta shall retain all right, title and
interest in and to any and all Cayenta Technology, Templates and Innovations
and IP Rights arising therefrom. To the extent Client retains as a matter of
law any rights to the Cayenta Technology, Templates and
* Confidential Treatment Requested
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Innovations ("Retained Rights") except as may be expressly licensed hereunder,
Client hereby irrevocably assigns to Cayenta any and all such Retained
Rights, including IP Rights.
5.3 RIGHTS OF CLIENT. The Client-Provided Materials, the Web Site, and
any and all software products, business models, documentation, or other
materials developed or prepared by Client ("Work Product") are the sole and
exclusive property of Client, and all rights, title, and interest therein,
including all IP Rights are to be owned exclusively and vest solely in
Client, and Cayenta hereby acknowledges that it has no right, title, or
interest to such Work Product or IP Rights therein. To the extent that title
to any such Work Product may not, by operation of law or of this Agreement,
vest solely in Client, then Cayenta hereby irrevocably assigns to Client any
and all rights, title, and interest including all IP Rights therein.
5.4 COOPERATION. Each party agrees to cooperate fully with the other
party, at such other party's reasonable request and expense, in connection
with all intellectual property protection in accordance with this Article 5.
6. LICENSE OF TECHNOLOGY.
6.1 LICENSE.
6.1.1 Subject to compliance with the terms and conditions hereof,
Cayenta grants to Client a worldwide, non-exclusive, irrevocable, perpetual
fully paid up right and license, without rights to sublicense, to use,
reproduce, display, perform and transmit the Deliverables and the Cayenta
Technology, Templates, and Innovations incorporated into the Deliverables
(collectively, the "Licensed Materials") as part of any web site owned or
co-branded by Client solely in connection with the Client's business purposes.
6.1.2 Notwithstanding Section 6.1.1, in and with respect to the
Healthwell Market, and subject to restrictions applicable to Cayenta under
its agreements with respect to software provided by third parties, the
license granted in Section 6.1.1 includes object and source code, files, and
system and technical documentation for the Licensed Materials (and any other
information or materials reasonably necessary to maintain, support and modify
the Licensed Materials) and includes the right to modify the Licensed
Materials, solely in connection with the Client's business purposes.
6.1.3 No license is granted to the Cayenta Technology or the Templates
separate from the Deliverables. Cayenta shall advise Client of the software
and technology being used to provide the services hereunder and the third
parties from which they are licensed. Cayenta shall collaborate with Client to
obtain third-party licenses in a manner that will provide for the maximum
flexibility of Client but without increasing Cayenta's cost of performance
hereunder.
6.2 CLIENT-PROVIDED MATERIALS. Client hereby grants Cayenta a fully
paid, royalty-free, non-exclusive limited right and license to use the
Client-Provided Materials, solely in order for Cayenta to perform the
Professional Services and develop and prepare the Deliverables hereunder.
6.3 RIGHTS RESERVED. All rights not specifically granted to Client in
Section 6.1 are retained by Cayenta. Except as permitted under Section 6.2,
Client may not reproduce, manufacture, have manufactured, modify, make
derivative works of, license, sublicense, sell,
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offer to sell, transfer, import or otherwise distribute any Cayenta
Technology, Innovations or Cayenta IP Rights.
6.4 NO REVERSE ENGINEERING. Client may not (a) reverse engineer,
decompile, or disassemble the Cayenta Technology or the Innovations, (b)
attempt to derive the source code of any Cayenta Technology or the
Innovations of Cayenta (c) permit or encourage any third party to do any of
the foregoing, except to the extent permitted by applicable law in order to
render software interoperable with other software.
6.5 ADDITIONAL RIGHTS UPON EXPIRATION. Notwithstanding the limitations
set forth above, upon the expiration or earlier termination of this
Agreement, Client shall have the right to make derivative works of the
Cayenta Technology and Innovations incorporated into the Deliverables solely
in connection with the Client's use of the Deliverables for its Web Site and
in connection with Client's business purposes. Client shall have the right to
sublicense such right to third party contractors engaged by Client, provided
that each such contractor is made subject to a written agreement that is
consistent with and no less protective of Cayenta's intellectual and
industrial property rights and other proprietary rights than the terms of
this Agreement. Client understands and agrees that (a) any such contractor
may only use the Cayenta Technology and Innovations on Client's behalf and
not on behalf of such contractor or any other third party and (b) Client
shall remain fully liable for any misuse or unauthorized use of the Cayenta
Technology and Innovations by any such contractor.
7. WARRANTIES AND LIMITATION OF LIABILITY.
7.1 DELIVERABLE WARRANTY. Cayenta warrants that (a) the Deliverables
will substantially perform to the specifications referenced herein at the
time of delivery and for the term hereof, (b) the Deliverables will be free
from all Deficiencies at the time of delivery and for a period of [...***...]
days thereafter, and (c) the Deliverables will not infringe any patent,
copyright, trademark, or trade secret, of any third party, arising or
enforceable, under the laws of the United States.
7.2 PROFESSIONAL SERVICES WARRANTY. Cayenta warrants that (a) it has
the authority to enter into this Agreement, and (b) the Professional Services
provided hereunder will be performed in a professional manner consistent with
both industry standards and the quality of Cayenta's performance of services
under similar types of engagements.
7.3 REMEDY. Client's remedy in the event of a breach of the warranty
of Sections 7.1 or 7.2 of a Deliverable is, at Client's sole discretion, the
reperformance of the Professional Services, or the correction or replacement
of the Deficiency of the Deliverable, a refund of the fees already paid for
the nonconforming Deliverable, or any other of its available remedies.
7.4 TECHNOLOGY OWNERSHIP. Cayenta warrants that it is the sole and
exclusive owner of the IP Rights in, or has received valid licenses for, the
Cayenta Technology, the Templates, and the Deliverables, in each case free and
clear of any and all liens or encumbrances and without violation of the IP
Rights or other rights of any third party. Client warrants that it is the
sole and exclusive owner of the IP Rights in, or has received valid licenses
for, the Client Provided Materials, in each case free and clear of any and
all liens or encumbrances and without violation of the IP Rights or other
rights of any third party.
* Confidential Treatment Requested
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7.5 THIRD PARTY RIGHTS. Each party warrants, to the extent that it is
responsible for obtaining third-party licenses, sub-licenses, data, software,
hardware, information, or other Third Party Components ("Third Party
Materials") under this Agreement, that each party responsible for obtaining
such Third Party Materials shall obtain all necessary permissions, licenses,
and consents, without violation of the IP Rights or other rights of such
third parties.
7.6 DISCLAIMER OF WARRANTIES. THE WARRANTIES SET FORTH ABOVE ARE
EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES, WHETHER EXPRESS, IMPLIED OR
STATUTORY, INCLUDING ANY IMPLIED WARRANTIES CONCERNING THE PROFESSIONAL
SERVICES OR THE DELIVERABLES INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, IMPLIED WARRANTIES ARISING
OUT OF COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE WHICH ARE
EXPRESSLY DISCLAIMED TO THE FULLEST EXTENT PERMISSIBLE BY LAW, CAYENTA DOES
NOT WARRANT THAT THE SERVICES WILL BE PROVIDED ERROR-FREE, UNINTERRUPTED,
SECURE, OR VIRUS-FREE. WITHOUT LIMITING THE FOREGOING, CAYENTA MAKES NO
REPRESENTATION OR WARRANTIES OF ANY KIND WITH RESPECT TO THE THIRD PARTY
COMPONENTS AND CLIENT AGREES THAT CLIENT SHALL LOOK SOLELY TO THE THIRD PARTY
LICENSORS OR MANUFACTURERS OF SUCH COMPONENTS IN THE EVENT OF ANY DEFECT OR
FAILURE TO PERFORM. TO THE EXTENT CAYENTA MAY NOT AS A MATTER OF LAW DISCLAIM
ANY WARRANTY, THE PARTIES AGREE THAT THE SCOPE AND DURATION OF ANY SUCH
WARRANTY SHALL BE THE MINIMUM PERMITTED UNDER APPLICABLE LAW.
7.7 LIMITATION OF LIABILITY. EXCEPT FOR INDEMNIFIED CLAIMS SET FORTH
IN ARTICLE 8 AND FOR CLAIMS BASED ON OR ARISING FROM GROSS NEGLIGENCE AND
WILLFUL MISCONDUCT, NEITHER PARTY SHALL BE LIABLE UNDER THIS AGREEMENT FOR
(A) ANY DIRECT DAMAGES IN EXCESS OF THE FEES PAID HEREUNDER AND (B) ANY
SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES INCLUDING, WITHOUT
LIMITATION, LOST PROFITS, DATA OR REVENUE, OR THE COST OF PROCUREMENT OF
SUBSTITUTE GOODS OR SERVICES, HOWEVER CAUSED, AND UNDER ANY THEORY OF
LIABILITY INCLUDING BREACH OF WARRANTY OR CONTRACT, TORT (INCLUDING
NEGLIGENCE, STRICT LIABILITY AND PRODUCT LIABILITY) OR OTHERWISE, EVEN IF
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
8. INDEMNIFICATION.
8.1 BY CAYENTA. Subject to the provisions of Section 8.3, Cayenta
hereby agrees to indemnify, defend and hold Client harmless from and against
any and all liabilities, losses, damages, costs, fees (including reasonable
attorneys' fees) and expenses ("losses") resulting from any suit or action
brought against Client relating to (a) any injuries suffered by Cayenta
employees, except for injuries caused by the gross negligence or intentional
misconduct of Client or its employees or agents; (b) infringement or
misappropriation of any third-party IP Right, or other proprietary right
based on the Cayenta Technology, Innovations or Deliverables as
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provided to Client; (c) breach of this Agreement by Cayenta; (d) breach of
any of the representations and warranties of Cayenta stated in this
Agreement; and (e) any act or omission of Cayenta or others acting on its
behalf in relation to Cayenta's obligations hereunder. Cayenta shall not be
obligated to defend or be liable for Losses to the extent any infringement
claim arises out of: (i) Cayenta's compliance with Client's specifications or
requirements requiring modifications to the Cayenta Technology; or (ii) any
addition to or modification to the Cayenta Technology not made by or
authorized by Cayenta, its agents, employees, or sub-contractors.
Notwithstanding the foregoing, should any Cayenta Technology or Deliverables
become, or in Cayenta's opinion be likely to become, the subject of any such
suit or action for infringement, Cayenta shall, at Cayenta's option and
expense, (1) procure for Client the right to continue using such Cayenta
Technology and Deliverables, or (2) replace or modify such Cayenta Technology
and Deliverables so that it becomes non-infringing.
8.2 BY CLIENT. Subject to the provisions of Section 8.3, Client hereby
agrees to indemnify, defend and hold Cayenta, its affiliates, and their
respective officers, directors, employees, and agents ("Cayenta Indemnities")
harmless from and against any and all Losses resulting from any suit or
action brought against any of the Cayenta Indemnities due to (a) any injuries
suffered by Client employees during Cayenta's performance of the Professional
Services, except for injuries caused by gross negligence or intentional
misconduct of Cayenta or its employees or agents, (b) infringement of any IP
Right due to the use or practice by the Cayenta Indemnities of the
Client-Provided Materials or the IP Rights of Client claiming or covering the
Client-Provided Materials; and (c) breach of any of the representations and
warranties of Client stated in this Agreement, and (d) breach of this
agreement by Client and (e) any act or omission of Client or others acting on
its behalf in relation to Client's obligations hereunder.
8.3 PROCEDURE. If any claim or action (a "Claim") is commenced against
a party entitled to indemnification for Losses under this Article resulting
from such Claim, such party shall give written notice to the other party
within ten (10) days of notice of such Claim. If such party receiving notice
is obligated under this Article to defend the party against such Claim, then
the indemnifying party shall take control of the defense (and any related
settlement negotiations) and investigation of the Claim. The indemnified
party shall cooperate in all reasonable respects in such investigation and
defense (and any related settlement negotiations); provided, that such party
may participate with counsel of its choosing, at its own expense. The
indemnifying party shall not enter into the settlement of any Claim without
the prior written consent of the indemnified party, which consent shall not
be unreasonably withheld or delayed.
8.4 SOLE REMEDY. The foregoing states the parties' sole and exclusive
remedies with respect to claims of infringement of third-party proprietary
rights of any kind.
9. CONFIDENTIALITY.
9.1 CONFIDENTIALITY BETWEEN THE PARTIES. By virtue of this Agreement,
each party hereto may disclose to the other party information that is
Confidential Information. Such Confidential Information shall be governed by
the terms of this Article 9. Each party agrees to use the Confidential
Information of the other party solely to the extent necessary to fulfill its
obligations or exercise its right hereunder, and not for any other purpose.
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9.2 CONFIDENTIAL INFORMATION. Each party agrees, for the term of this
Agreement and five (5) years after its expiration or termination, to hold the
other party's Confidential Information in confidence, not to disclose such
Confidential Information to third parties not authorized by the disclosing
party to receive such Confidential Information, and to disclose such
Confidential Information only to its employees and contractors with a need to
know such Confidential Information and who have the obligations of
confidentiality not to use such Confidential Information for any purpose
except as expressly permitted hereunder. Each party agrees to use at least
the same degree of care that it uses to protect its own Confidential
Information, but no less than reasonable care, to protect the other party's
Confidential Information to ensure that such Confidential Information is not
disclosed, distributed or used in violation of the provisions of this
Agreement. The foregoing prohibition on disclosure of Confidential Information
shall not apply to the extent certain Confidential Information is required to
be disclosed by the receiving party by order of a court or as a matter of
law, including, without limitation, any voluntary filing under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
provided that the receiving party uses reasonable efforts to provide the
disclosing party with prior notice of such obligation to disclose and either
reasonably assists in obtaining a protective order therefor or reasonably
considers any requests for confidential treatment of such Confidential
Information by the disclosing party.
9.3 RETURN OR DESTRUCTION. Within fifteen (15) days after the party's
receipt of the other party's written request for the return of Confidential
Information, or the completion of the Professional Services hereunder, all of
the other party's Confidential Information and all copies thereof in such
party's possession or control shall be returned to the other party or
destroyed by such party at the other party's instruction. The party shall
then certify the same in writing and that no copies have been retained by the
party, its employees or agents.
9.4 INJUNCTION. Each party acknowledges that unauthorized disclosure
or use of the Confidential Information may cause irreparable harm to the
other party for which recovery of money damages would be inadequate, and the
other party shall therefore be entitled to obtain timely injunctive relief to
protect its rights under this Agreement, in addition to any and all remedies
available at law.
10. RIGHT TO PERFORM SIMILAR SERVICES. Nothing in this Agreement shall
restrict or limit Cayenta from performing any consulting, Outsourcing
Services or other services on behalf of any other entity; provided, however,
Cayenta shall not engage in providing Professional Services or Hosting
Services substantially similar to those outlined in this Agreement to or on
behalf of entities owning web sites focused primarily on the Healthwell
Market, during the term of this Agreement, or any agreement between the
parties providing for services with respect to the Web Site or any other
owned or co-branded website of Client in such market, and for a period of
three (3) years thereafter. To the extent that Cayenta provides services to
participants in the Web Site or any other website referred to in the
preceding sentence, Cayenta will use reasonable best efforts to coordinate
such activities with Healthwell.com.
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11. TERM AND TERMINATION.
11.1 DURATION OF TERM. This Agreement commences on the Consulting
Effective Date and, unless terminated earlier pursuant to the terms of this
Agreement, shall continue in force until completion of the Professional
Services.
11.2 TERMINATION FOR BREACH. This Agreement may be terminated by
either party upon [...***...] days prior written notice if the other party
materially breaches or fails to perform any material term hereof and the
breaching party fails to cure such breach within such [...***...] day period.
11.3 TERMINATION FOR CONVENIENCE. Client may terminate this Agreement
at any time for its convenience by providing [...***...] days advance written
notice to Cayenta.
11.4 Effect of Termination.
11.4.1 Licenses Survive. All licenses granted to Client hereunder shall
survive any termination of this Agreement.
11.4.2 Transition Services Upon Termination. Upon any termination of
this Agreement in accordance with Article 11, Cayenta shall provide to Client
reasonable transition services of the Web Site and any related domain names
to servers other than Cayenta servers. A detailed description of these
services will be negotiated by the parties in good faith, and Cayenta shall
provide such services for period of time sufficient for an effective
transition in accordance with Section 6.5 of this Agreement.
11.4.3 Final Payment Obligations. Within thirty (30) days after
termination of this Agreement for any reason, Cayenta shall submit to Client
an itemized invoice for any fees or expenses accrued and unpaid under this
Agreement and client shall have [...***...] days after receipt of such
invoice to pay such fees to Cayenta. Thereafter, except as set forth in
Section 12.1, neither party shall have any further obligation to the other
party.
12. MISCELLANEOUS.
12.1 INDEPENDENT CONTRACTORS. Cayenta shall perform the Services as an
independent contractor, and nothing contained in this Agreement shall be
construed to create or imply a joint venture, partnership, principal-agent or
employment relationship between the parties. Neither party shall take any
action or permit any action to be taken on its behalf which purports to be
done in the name of or on behalf of the other party and shall have no power
or authority to bind the other party or to assume or create any obligation or
responsibility, express or implied, on the other party's behalf or in its
name, nor shall such party represent to anyone that it has such power or
authority.
12.2 COMPLIANCE WITH LAWS. Each party represents and warrants that it
will comply with all applicable federal, state, and local laws and
regulations, and communications common carrier tariffs. Each party reserves
the right to take all actions, including termination of Professional
Services, which it believes necessary to comply with applicable laws,
regulations, and tariffs.
* Confidential Treatment Requested
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12.3 NON-SOLICITATION. Each party hereby agrees not to make any
offer of employment to, nor enter into a consulting relationship with, any
person who is employed by the other party during the term of this Agreement
or for a year thereafter if such person was employed by the other party
within six (6) months of the party's offer of employment.
12.4 GOVERNING LAW AND JURISDICTION. This Agreement shall be
governed by the laws of the State of Ohio as applied to agreements made,
entered into and performed entirely in Ohio and solely by Ohio residents. Any
disputes arising under this Agreement shall be brought, exclusively, in the
state courts and Federal courts located in Cuyahoga County, Ohio, and the
parties hereby irrevocably consent to the personal jurisdiction and venue of
such courts for such purpose.
12.5 NOTICES. Notices to be given or submitted by either party to
other pursuant to this Agreement shall be in writing and directed to the
addresses above.
12.6 TITLES AND HEADINGS. Titles and headings of Sections of this
Agreement are for convenience of reference only and shall not affect the
construction of any provision of this Agreement.
12.7 SEVERABILITY. If any term or provision of this Agreement is
determined to be invalid or unenforceable for any reason, it shall be
adjusted rather than voided, if possible, to achieve the intent of the
parties to the extent possible. In any event, all other terms and provisions
shall be deemed valid and enforceable to the maximum extent possible.
12.8 FORCE MAJEURE. Neither party will be liable to the other for
any delay or failure to perform any part of this Agreement to the extent such
delay or failure is due to explosion, accident, war, strike, embargo,
governmental action, civil or military authority, act of God, or any other
causes beyond its reasonable control ("Force Majeure"). Performance times
will be considered extended for a period of time equivalent to the time lost
because of any such delay. If the Parties are unable to agree upon an
alternative schedule, or if the delay continues for a period of 60 days or
more, this Agreement may be terminated by Client and neither party will be
liable to the other for such termination provided Client pays Cayenta for all
services rendered and expenses incurred prior to the date of termination
hereunder, and further provided that the Deliverables will be promptly
tendered and delivered by Cayenta to Client in the condition in which they
exist on the effective date of such termination.
12.9 ASSIGNMENT. Neither party shall assign, delegate, or
subcontract any portion of its rights, duties, or obligations under this
Agreement without the prior written consent of the other party and any
attempt to do so shall be void and of no legal effect.
12.10 MODIFICATION. This Agreement may be modified only by a written
instrument duly executed by an authorized representative of Cayenta and
Client. Client agrees that any terms and conditions of any purchase order or
other instrument issued by Client in connection with the Agreement that are
in addition to or inconsistent with the terms and conditions of this
Agreement shall be of no force or effect.
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12.11 NO WAIVER. The failure of a party to enforce any provision of
this Agreement shall not constitute a waiver of such provision or the right
of such party to enforce such provision or any other provision.
12.12 SURVIVAL. Sections 5,6,7,8,9,10, and 11.4,12.3,12.4, and 12.12
survive any termination of this agreement.
12.13 COMPLETE AGREEMENT. This Agreement, including the attached
Statement of Work and other Exhibits, is the complete and exclusive statement
of the agreement between the parties regarding the subject matter hereof, and
supersedes all prior and contemporaneous agreements, negotiations or
proposals, oral or written, and all other communications between the parties
relating to such subject matter. In the event of any conflict between this
Agreement and the Statement of Work, the terms of the Statement of Work shall
control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
Consulting Effective Date.
PENTON MEDIA, INC.
By: /s/ Joseph G. NeCastro
------------------------------------
Name: Joseph G. NeCastro
----------------------------------
Title: Chief Financial Officer
---------------------------------
Date: March 30, 2000
----------------------------------
CAYENTA, INC.
By: /s/ Edward M. Lake
------------------------------------
Name: Edward M. Lake
----------------------------------
Title: Chief Financial Officer
---------------------------------
Date: March 30, 2000
----------------------------------
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EXHIBIT A
STATEMENT OF WORK
- -------------------------------------------------------------------------------
PREPARED FOR
NEW HOPE NATURAL MEDIA
- -------------------------------------------------------------------------------
The information contained herein is confidential and proprietary. The
information contained herein shall not be disclosed, in whole or part, to any
third party.
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STATEMENT OF WORK
- -------------------------------------------------------------------------------
--------------------------
STATEMENT OF WORK OVERVIEW
--------------------------
This statement of work defines the scope of work to be accomplished by
Cayenta in order to help New Hope Natural Media achieve three goals:
1. To announce and demonstrate components of the Healthwell Exchange
at targeted conventions throughout the year 2000, specifically
the Expo West Show on March 24, 2000.
2. To create a successful business-to-business product and
information exchange that evolves to serve the entire supply
chain of the alternative health products industry.
3. To create a business-to-consumer branded storefront application
service provider capability that New Hope Natural Media can
offer industry partners.
The tasks to be performed by Cayenta are defined and a schedule is provided.
Recognizing that some changes to the scope of the project may require
accommodation, a formal change control procedure is described in Appendix A.
The statement of work comprises the following sections:
- - Project Scope
- - Technical Approach
- - Cayenta Responsibilities
- - New Hope Natural Media Responsibilities
- - Estimated Schedule
- - Charges and Fees
- - Appendix A: Change Control Procedure
STATEMENT OF WORK
- -------------------------------------------------------------------------------
2
<PAGE>
- -------------------------------------------------------------------------------
PROJECT SCOPE
- -------------------------------------------------------------------------------
New Hope Natural Media requires a Business-to-Business Exchange (B2B) and the
ability to sell Business-to-Consumer Branded Storefront Services (B2C) to
members of the exchange. Each capability is to be accompanied with tailored
"Exchange Performance Dashboards" that provide information for each customer
on exchange performance metrics and industry trends. The capabilities will be
sequentially announced at industry conventions with demonstrations of the
systems and followed on schedule with operational production systems. New
Hope Natural Media has set the following phasing and schedule:
1. Phase 1: B2B Catalog, Extended Listing, and Dashboards
[...***...]
[...***...]
2. Phase 2: B2B Auctions, Request For Proposals, and Dashboards
[...***...]
[...***...]
[...***...]
3. Phase 3: B2C Service Provider for Private Brand Storefronts
and Dashboards
[...***...]
[...***...]
This proposal focuses primarily on Phase 1, providing task, schedule and
pricing details. Tentative schedules are offered for Phase 2 and 3 with
suggested dates for proposals. This allows for further refinement of
requirements for those phases, and, thus, more accurate schedule and pricing
details.
STATEMENT OF WORK
- -------------------------------------------------------------------------------
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<PAGE>
- -------------------------------------------------------------------------------
PROJECT SCOPE (CONTINUED)
- -------------------------------------------------------------------------------
The Phase 1 solution must integrate and extend to the later phase functions,
so a complete architecture for the entire exchange must be part of Phase 1.
The architecture must be designed with a long-term view, so that any
redevelopment and associated costs are minimized. Current investments in
industry leading solutions will be utilized and future need to modify the
marketing, content, and exchange functions as business needs dictate must be
taken into account in the design decisions.
Desirable user interface features as well as feedback from the Expo West
demonstration should be integrated into the subsequent operational system.
The Phase 1 Healthwell Exchange Production System must begin Internet
operations within [...***...] of the demonstration at Expo West. It must
provide for multi-vendor, multi-product listings, subscription sale of
extended listings; on line catalog sales; and tailored dashboards.
The B2B Catalog sales function will operate as follows:
- - Seller subscribes to the exchange
- - Seller posts product catalog with price by volume
- - Buyer searches by product and gets a listing by selected attribute(s)
- - Buyer fills shopping cart
- - Buyer checks out
- - Purchase order(s)(PO) are sent to Seller(s)
- - Seller(s) PO acceptance is verified
- - A bill for the exchange (% of purchase price) is sent to the Seller
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STATEMENT OF WORK
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROJECT SCOPE (CONTINUED)
- -------------------------------------------------------------------------------
Buyers and Sellers registered in the exchange will be provided with a
tailored dashboard that displays key metrics regarding their purchases and
sales through the exchange. For varying levels of subscription fees, members
of the exchange may also receive various levels of detail or content in
displays of industry trends and alerts (e.g. consumer buying trends). New
Hope Natural Media will be provided a dashboard that displays the key metrics
of the exchange as well as multidimensional on-line analytical processing
tools for data analysis.
The scope of the project is identified to include the following:
Demonstration and Implementation Phase 1 Project
[...***...]
The scope may also be expanded to include the following [...***...]:
Cayenta Total Service Provider Services
[...***...]
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<PAGE>
STATEMENT OF WORK
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TECHNICAL APPROACH
- -------------------------------------------------------------------------------
As with the SNAP conducted with New Hope staff on February 2 and 3, 2000, the
project will use facilitated group, individual meetings and outside expertise
as specified by New Hope management to refine detailed requirements for the
system and to better understand the business processes to be supported.
This process will result in documents that detail the requirements for the
system use, dashboard formats, and metrics calculations. Cayenta will ask for
careful review and approval of these documents, as they will guide the
development and testing of the system.
All software programs will be unit tested as well as integration tested to
assure freedom from errors or bugs. The entire system will be tested prior to
implementation. During implementation, additional production tests will be
conducted to assure the system is operating properly.
Design Principles/Long Term Architectural View
The following principles will be applied to design of the Healthwell Exchange
architecture in order to assure a robust, scalable, extensible, maintainable
system that will span the evolutions of hardware and operating systems:
1. [...***...]
2. [...***...] that are [...***...]
3. [...***...] to [...***...] and [...***...] of [...***...]
4. [...***...] to [...***...] the [...***...] in an [...***...]
STATEMENT OF WORK
- -------------------------------------------------------------------------------
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<PAGE>
- -------------------------------------------------------------------------------
TECHNICAL APPROACH (CONTINUED)
- -------------------------------------------------------------------------------
5. [...***...]
6. [...***...]
7. [...***...] of [...***...] and [...***...] for [...***...] and
[...***...]
8. [...***...] that [...***...]
9. [...***...] of [...***...] and [...***...]
10. [...***...] of [...***...] to [...***...] and [...***...] as [...***...]
as [...***...] of [...***...] and [...***...]
11. [...***...] for [...***...]
12. [...***...] with [...***...] for [...***...] and [...***...]
These principles combined with considerations of the [...***...] will be
applied to design of a Healthwell Exchange Architecture that will minimize
redevelopment in the
future.
Figure 2 below presents a high logical view of the components of the
architecture that will be addressed. A key task in this phase will be to turn
this logical architecture into a detailed architecture that will serve as the
technical roadmap for all phases of the B2H exchange and B2C services.
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<PAGE>
HEALTHWELL EXCHANGE LOGICAL ARCHITECTURE
[CHART]
8
<PAGE>
STATEMENT OF WORK
______________________________________________________________________________
---------------------------------------
CAYENTA RESPONSIBILITIES (TASK #1)
---------------------------------------
The tasks to be performed by Cayenta are described below:
TASK #1: DESIGN, DEVELOP AND SUPPORT EXPO WEST
DEMONSTRATION OF HEALTHWELL EXCHANGE B2B CATALOG
Task Description:
- -----------------
The objectives of this task are to:
1. [...***...] a [...***...] for [...***...]
2. [...***...] and [...***...]
3. [...***...]
4. [...***...] and [...***...]
5. [...***...] and [...***...]
6. [...***...]
7. [...***...] from [...***...] and [...***...] to [...***...]
Deliverable Materials:
- ----------------------
The following item(s) will be delivered as
a result of this task:
1. A document describing the Cayenta and New Hope responsibilities for Expo
logistics.
2. A requirements document for the demonstration system.
3. An on-site demonstration of the Healthwell Exchange B2B Catalog.
4. A document summarizing the feedback on the system obtained from Expo
participants.
COMPLETION CRITERIA:
- --------------------
THIS TASK WILL BE COMPLETED WHEN:
1. THE ABOVE DOCUMENTS ARE DELIVERED TO NEW HOPE NATURAL MEDIA,
2. NEW HOPE NATUARAL MEDIA HAS SIGNED AGREEMENT WITH THE REQUIREMENTS,
3. NEW HOPE NATURAL MEDIA SIGNS AN AGREEMENT THAT THE ACCEPTANCE CRITERIA
AS SET FORTH IN ARTICLE 3 OF THIS AGREEMENT HAS BEEN MET, AND
4. THE EXPO WEST TRADE SHOW IS CONCLUDED.
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<PAGE>
STATEMENT OF WORK
______________________________________________________________________________
---------------------------------------
CAYENTA RESPONSIBILITIES (TASK #2)
---------------------------------------
Task #2: Design the Healthwell Exchange Architecture
Task Description:
- -----------------
The objective of this task is to:
1. [...***...] to [...***...] and [...***...]
2. [...***...] to [...***...] and [...***...]
3. [...***...] and [...***...] the [...***...] that [...***...] and [...***...]
and [...***...]
4. [...***...] an [...***...]
Deliverable Materials:
- ----------------------
The following item(s) will be delivered as a result of this task:
* A document describing the Healthwell Exchange Architecture.
COMPLETION CRITERIA:
THIS TASK WILL BE COMPLETED WHEN NEW HOPE NATURAL MEDIA APPROVES THE
PROPOSED ARCHITECTURE. THIS APPROVAL MUST BE PROVIDED WITHIN THREE (3)
BUSINESS DAYS AFTER RECEIPT TO AVOID SCHEDULE AND COST SLIPPAGE.
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<PAGE>
STATEMENT OF WORK
- -------------------------------------------------------------------------------
-----------------------------------------------
CAYENTA RESPONSIBILITIES (Task #3)
-----------------------------------------------
TASK #3: DETERMINE B2B CATALOG DETAILED REQUIREMENTS
TASK DESCRIPTION:
The objectives of this task are to:
1. [...***...] the [...***...] of the [...***...]
in the [...***...]
2. [...***...] of [...***...] to [...***...] and
[...***...]
3. [...***...]
DELIVERABLE MATERIALS:
The following item(s) will be delivered as a result
of this task:
1. A document describing the supported business processes and
requirements, including the manner in which users will
interact with the system, the metrics and drill-down displays
of tailored dashboards, and the formulas used to calculate
desired metrics.
COMPLETION CRITERIA:
THIS TASK WILL BE COMPLETE WHEN THE ABOVE DOCUMENT
IS DELIVERED TO NEW HOPE MEDIA FOR APPROVAL/REVISION
AND SIGNED BY NEW HOPE MEDIA.
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<PAGE>
STATEMENT OF WORK
- -------------------------------------------------------------------------------
-----------------------------------------------
CAYENTA RESPONSIBILITIES (Task #4)
-----------------------------------------------
TASK #4: DESIGN, CONFIGURE, DEVELOP AND TEST THE B2B
CATALOG AND EXTENDED LISTING APPLICATIONS
TASK DESCRIPTION:
The objective of this task is to:
1. [...***...] and [...***...] to [...***...] in
the [...***...]
2. [...***...] and [...***...]
3. [...***...] and [...***...]
4. [...***...]
5. [...***...] and [...***...] the [...***...] and
[...***...]
DELIVERABLE MATERIALS:
The following item(s) will be delivered as a result
of this task:
- Demo of Graphical User Interface
COMPLETION CRITERIA:
THIS TASK WILL BE COMPLETE WHEN THE INTEGRATION
TESTS OF THE APPLICATIONS AND DATABASE AT THE
CAYENTA LABORATORY ARE SUCCESSFUL IN DEMONSTRATING ALL
REQUIRED FUNCTIONS WITHOUT ERROR DUE TO THE DESIGN
OR SOFTWARE.
* Confidential Treatment Requested
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<PAGE>
STATEMENT OF WORK
______________________________________________________________________________
----------------------------------
CAYENTA RESPONSIBILITIES (TASK #5)
----------------------------------
Task #5: DESIGN, DEVELOP AND TEST TAILORED DASHBOARD REPORTING COMPONENTS
Task Description:
-----------------
The objectives of this task are:
- [...***...] the [...***...] for [...***...] as [...***...]are
[...***...] to the [...***...]
- [...***...] and [...***...] the [...***...] that will [...***...] to
[...***...] and [...***...] and [...***...]
Deliverable Materials:
----------------------
The following item(s) will be delivered as a result of this task:
- Demo of dashboard design
COMPLETION CRITERIA:
--------------------
THIS TASK WILL BE COMPLETED WHEN THE INTEGRATION TESTS OF THE DASHBOARD
PROGRAM AND THE DATABASE AT THE CAYENTA LABORATORY ARE SUCCESSFUL IN
DEMONSTRATING ALL REQUIRED FUNCTIONS WITHOUT ERROR DUE TO THE DESIGN
OR SOFTWARE.
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<PAGE>
STATEMENT OF WORK
______________________________________________________________________________
----------------------------------
CAYENTA RESPONSIBILITIES (TASK #6)
----------------------------------
TASK #6: INSTALL AND TEST SYSTEM AT HOSTING FACILITIES AND TRAIN USERS
Task Desciption:
----------------
The objectives of this task are to:
1. [...***...] and [...***...]
2. [...***...] and [...***...] the [...***...] at the [...***...]
3. [...***...] the [...***...]
Deliverable Materials:
----------------------
The following item(s) will be delivered as a result of this task:
1. Database loaded with initial catalogs.
2. Implementation of the extended listing function.
3. Implementation of the B2B catalog function.
4. Implementation of the tailored Dashboards function.
5. User documentation.
COMPLETION CRITERIA:
--------------------
THIS TASK WILL BE COMPLETED WHEN THE ABOVE DELIVERABLES ARE IMPLEMENTED
AND PROPERLY FUNCTIONING ON-SITE AT HOSTING FACILITIES, WHEN ACCEPTANCE
CRITERIA AS SET FORTH IN ARTICLE 3 OF THIS AGREEMENT HAS BEEN MET AND TWO
DAYS OF EXCHANGE STAFF TRAINING ARE COMPLETED.
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<PAGE>
STATEMENT OF WORK
______________________________________________________________________________
-------------------------------
NEW HOPE MEDIA RESPONSIBILITIES
-------------------------------
New Hope will provide working space and
telephone access as needed at no charge to
CAYENTA for the duration of the Phase 1
project.
New Hope will provide dedicated staff to
support the logistics of getting the
Demonstration System to the trade show as
well as pay all expenses for shipment and
other incidentals as required for set up
at the trade show.
New Hope will facilitate the provision of
any interface specifications to selected
manufacturers that are required for the
Production System. CAYENTA will not be
responsible for any slip in schedules due
to lack of cooperation by any of the
participating parties.
During the requirements' analysis and
training tasks, personnel from Healthwell
Exchange must be available for
participation during the timeframes
anticipated in the schedule.
Written approval/correction of the
documents delivered during the above tasks
must be delivered to Cayenta within 2
working days of receipt.
Feedback on the demonstrations of Graphic
User Interfaces must be finalized on the
day of demonstration.
15
<PAGE>
ESTIMATED SCHEDULE
______________________________________________________________________________
The following table summarizes the high-level tasks proposed by Cayenta with
the estimated start and completion dates.
PHASE 1
<TABLE>
<CAPTION>
TASK NAME START DATE END DATE
<S> <C> <C>
PHASE 1- B2B CATALOG AND DASHBOARDS [...***...] [...***...]
DEMONSTRATION SYSTEM [...***...] [...***...]
Detailed Requirements [...***...] [...***...]
Design Iterations [...***...] [...***...]
Development and unit tests [...***...] [...***...]
Integration Test and Refinement [...***...] [...***...]
Booth demo staff training [...***...] [...***...]
Setup and Operate on-site March Show [...***...] [...***...]
Integrate Feedback to Impl Team [...***...] [...***...]
PRODUCTION SYSTEM DEVELOPMENT [...***...] [...***...]
Detailed Requirements and GUI design [...***...] [...***...]
System Design and Review [...***...] [...***...]
Data admin. & partner data coordination [...***...] [...***...]
Test Planning [...***...] [...***...]
Configuration, Development and unit tests [...***...] [...***...]
Operations Manual Documentation [...***...] [...***...]
Data Load [...***...] [...***...]
Integration Test and Refinement [...***...] [...***...]
Production Testing and tuning [...***...] [...***...]
Training [...***...] [...***...]
Production Implementation [...***...] [...***...]
Post-production Tuning [...***...] [...***...]
Infrastructure, Production [...***...] [...***...]
Operations, Business Process
Support and Maintenance
</TABLE>
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<PAGE>
CHARGES AND FEES
______________________________________________________________________________
-----------------------------------
SUMMARY
-----------------------------------
B2B Catalog Demonstration and DevelopmentCayenta is proposing a "Time Boxed"
contract for system development and implementation. This means the following:
- Cayenta will deliver the intended system in the time frames identified
in this document for the level of effort and price identified.
- However, details of all desired features and functions are not known
at this time. Some of those details can possibly result in significant
impacts to schedule and level of effort/price.
- Cayenta and New Hope Natural Media agree to "fix" or "box" the target
delivery dates and level of effort/price.
- Cayenta and New Hope Natural Media agree to work together cooperatively
to adjust features and functions in order to meet the target delivery
dates at the agreed upon level of effort/price.
Cayenta is proposing meeting the target dates of [...***...] for the Expo
West demonstration and [...***...] for bringing the production system on
line, with a level of effort of [...***...] hours at a blended rate of
$[...***...] per hour. This brings the total for the demonstration,
development, and implementation component to $[...***...], with an additional
estimated travel budget of $[...***...]. Travel costs will be billed monthly
based on actual costs plus [...***...]% adminstrative fee. Cayenta is
proposing that [...***...]% of the primary fee be paid in [...***...] with
the remaining [...***...]% paid in [...***...] beginning [...***...].
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<PAGE>
CHARGES AND FEES
______________________________________________________________________________
---------------------------------
SUMMARY
---------------------------------
Financial Recap
Phase 1 B2B Catalog System
- Development/Design
- Demonstration Capability [...***...]
- Production Ready [...***...]
Payments as follows
[...***...]
TOTAL [...***...]
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<PAGE>
APPENDIX A
- -----------------------------------------------------------------------------
PROJECT CHANGE CONTROL PROCEDURE
- -----------------------------------------------------------------------------
The following provides the process that will be followed if a change to this
Statement of Work is required.
- - A Project Change Proposal (PCP) will be the vehicle for communicating
change. The PCP must describe the change, the rationale for the change, and
the effect the change will have on the project.
- - The designated Project Manager of the requesting party will review the
proposed change and determine whether to submit the request to the other
party.
- - Both Project Managers will review the proposed change and approve it for
further investigation or reject it. Cayenta will specify any charges for such
investigation. If the investigation is authorized, the New Hope Natural
Media Project Manager will sign the PCP, which will constitute approval
for the investigation of the change.
- - The investigation will determine the effect that the implementation of the
PCP will have on price, schedule, and terms and conditions of the contract.
- - A Project Change Request must be signed by both parties to authorize
implementation of the investigated changes.
19
<PAGE>
EXHIBIT B
MANDATORY LICENSES
INTENTIONALLY LEFT BLANK.
20
<PAGE>
- --------------------------------------------------------------------------------
PACIFIC CORPORATE CENTER
OFFICE LEASE
BETWEEN
TIPAC-I, LP,
A CALIFORNIA LIMITED PARTNERSHIP
(LANDLORD)
AND
CAYENTA, INC.,
A DELAWARE CORPORATION
(TENANT)
DATE: JANUARY 14, 2000
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SUBJECT MATTER PAGE
<S> <C> <C>
Article 1 PROJECT, BUILDINGS, AND PREMISES 1
Article 2 SUBSTITUTION OF OTHER PREMISES 2
Article 3 LEASE TERM 2
Article 4 BASIC RENT 3
Article 5 ADDITIONAL RENT 4
Article 6 SECURITY DEPOSIT 7
Article 7 USE 7
Article 8 COMPLIANCE WITH LAWS 8
Article 9 HAZARDOUS MATERIAL 8
Article 10 UTILITIES AND SERVICES 9
Article 11 REPAIRS AND MAINTENANCE 10
Article 12 ALTERATIONS AND ADDITIONS 11
Article 13 COVENANT AGAINST LIENS 12
Article 14 EXCULPATION, INDEMNIFICATION, AND INSURANCE 12
Article 15 DAMAGE AND DESTRUCTION 15
Article 16 CONDEMNATION 16
Article 17 ASSIGNMENT AND SUBLEASING 18
Article 18 SURRENDER OF PREMISES 20
Article 19 HOLDING OVER 20
Article 20 ESTOPPEL CERTIFICATES 20
Article 21 SUBORDINATION, NONDISTURBANCE, AND ATTORNMENT 20
Article 22 DEFAULTS AND REMEDIES 22
Article 23 LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS 23
Article 24 LATE PAYMENTS 23
Article 25 NONWAIVER 23
Article 26 WAIVER OF RIGHT TO JURY TRIAL 24
Article 27 ATTORNEY FEES AND COSTS 24
Article 28 LANDLORD'S ACCESS TO PREMISES 24
Article 29 SIGNS 24
Article 30 TENANT PARKING 25
Article 31 MISCELLANEOUS 25
Exhibit A DIAGRAM OF PREMISES
Exhibit B SITE PLAN OF PROJECT
Exhibit C TENANT IMPROVEMENT AGREEMENT
Exhibit D NOTICE OF BASIC LEASE INFORMATION
Exhibit E RULES AND REGULATIONS
Exhibit F ESTOPPEL CERTIFICATE
Exhibit G GUARANTY OF LEASE
</TABLE>
<PAGE>
Part I
SUMMARY OF BASIC LEASE INFORMATION
The basic terms of this Lease are:
1. Date of Lease: January 14, 2000
-------------------------------------------------------------
2. Landlord: TIPAC-I, LP, a California limited partnership
------------------------------------------------------------------
3. Tenant: Cayenta, Inc., a Delaware corporation
--------------------------------------------------------------------
4. Premises and Building:
(a) Building Address (Section 1.1): 5910 Pacific Center Boulevard,
San Diego, CA
-----------------------------------
(b) Number of Rentable Square Feet in Building (Section 1.1): 49,704
-------------
(c) Premises (Section 1.1): The entire first floor of the Building
(excluding main lobby of the building and elevator shafts) containing
approximately 15,191 Rentable Square Feet (14,757 Useable Square Feet)
of space, the entire second floor of the Building (excluding elevator
shafts) containing approximately 17,255 Rentable Square Feet (16,762
Useable Square Feet) of space, and a portion of the third floor of the
Building containing approximately 12,582 Rentable Square Feet (10,467
Useable Square Feet) of space, for a total of 45,028 Rentable Square
Feet (41,986 Useable Square Feet) all as depicted on EXHIBITS A-1
THROUGH A-3.
5. Lease Term:
(a) Duration (Section 3.1): Seven(7) years and zero(0) months:
-------------- --------------
(b) Lease Commencement Date (Section 3.1): The earlier of (1) the date on
which Tenant occupies all or part of the Premises (other than in
connection with the construction of the Premises or installation of
Tenant's trade fixtures and equipment) and (2) the date on which the
Tenant Improvements are Substantially Complete subject to acceleration
due to Tenant Delays. The target Lease Commencement Date is
February 1, 2000;
(c) Lease Expiration Date (Section 3.1): The last day of the month in
which the Seventh (7TH) anniversary of the Lease Commencement Date
-------------------
occurs;
(d) Option term extensions (See Section 3.5): Two(2) options to extend for
five (5) years each.
6. Basic Rent (Section 4.1):
<TABLE>
<CAPTION>
MONTHLY BASIC RENT PER
LEASE YEAR MONTHLY BASIC RENT RSF/MO.
---------- ------------------ -------
<S> <C> <C>
1 $72,044.80 $1.60
2 $74,296.20 $1.65
3 $76,547.60 $1.70
4 $78,799.00 $1.75
5 $81,050.40 $1.80
6 $83,301.80 $1.85
7 $85,553.20 $1.90
</TABLE>
Basic Rent Rebate (Section 4.5): Sixty-five Thousand Dollars ($65,000.00)
------------------------------------------------
7. Additional Rent (Article 5):
(a) Base Year (Subsection 5.2.1): The calender year of 2000
--------------------
(b) Tenant's Share of Direct Expenses (Subsection 5.2.6):
Approximately 91%
---------------------------------------------------------
8. Security Deposit (Section 6.1): $72,044.80
--------------------------------------------
9. Permitted Use (Section 7.1): General office and administrative uses
-----------------------------------------------
including a data center, call center, and training center
---------------------------------------------------------------------------
10. Parking (Section 30.1): Tenant shall be entitled to the use of its Tenant's
Share of available parking at the Project based on a ratio of 4 parking
spaces per 1,000 Usable Square Feet within the Premises.
Page 1 of 2
<PAGE>
Part II
LEASE PROVISIONS
Article 1
PROJECT, BUILDING, AND PREMISES
1.1. LEASE OF PREMISES. Landlord leases to Tenant and Tenant leases
from Landlord the premises described in Summary of Basic Lease Information
Section 4 (c) ("Premises"), which are located in the building described in
Summary Section 4 (a) ("Building"), reserving to Landlord the rights described
in Lease Section 1.3. The outline of the Premises is set forth in EXHIBITS A-1
THROUGH A-3. The Rentable Area and Usable Area of the Premises and the Rentable
Area of the Building are set forth in Summary Sections 4 (b) and 4 (c). The
Building and the land on which the Building is located (as shown on the site
plan attached to this Lease as EXHIBIT B) are sometimes collectively referred
to as the "Project". Tenant acknowledges that Landlord has made no
representation or warranty regarding the condition of the Premises, Building
and/or Project except as specifically stated in this Lease.
1.2. APPURTENANT RIGHTS. Tenant is granted the right at all times
during the Lease Term to the nonexclusive use of the main lobby of the
Building, common corridors and hallways, stairwells, elevators, restrooms,
sidewalks and other public or common areas located on the Project. Landlord,
however, has the sole discretion to determine the manner in which those public
and common areas are maintained and operated, and the use of those areas shall
be subject to the Rules and Regulations as defined in Section 7.1.
1.3. LANDLORD'S RESERVATION OF RIGHTS. The following rights are
reserved to Landlord: (a) the right to all of the Building, except for the
space within the Premises; (b) the right to change all elements of the Project;
(c) the rights reserved to Landlord by provisions of this Lease or by operation
of law; (d) the exclusive right to consent to the use or occupancy of the
Premises by anyone other than Tenant; and (e) all rights in the economic value
of the leasehold estate in the Premises, as stated in Articles 16 and 17.
1.4. PREPARATION OF PREMISES: ACCEPTANCE. The rights and obligations
of the parties regarding the construction of the Premises before the
commencement of the Lease Term are stated in the Tenant Improvement Agreement
attached to this Lease as EXHIBIT C. If this Lease conflicts with the Tenant
Improvement Agreement, the Tenant Improvement Agreement shall prevail.
1.5. RENTABLE AREA AND USABLE AREA.
1.5.1. STANDARD OF CALCULATION. For purposes of this Lease,
"Rentable Area", "Rentable Square Feet", "Rentable Square Footage", "Usable
Area", Usable Square Feet", and "Usable Square Footage" shall be calculated
under the American National Standard Method for Measuring Floor Area in Office
Buildings, ANSI 7.65.1C1996 (revised and adopted June 7, 1996) or successor
standard(s), adopted by the Building Owners and Managers Association
International (BOMA).
1.5.2. VERIFICATION OF RENTABLE AREA OF PREMISES AND BUILDING.
The Rentable Area of the Premises and the Building is subject to verification
from time to time by Landlord's space planner or architect. That verification
shall be made in accordance with this Section 1.5, Tenant's space planner or
architect may consult with Landlord's space planner or architect regarding that
verification. The determination of Landlord's space planner or architect,
however, shall be conclusive and binding on the parties.
1.5.3. ADJUSTMENT OF RENT. If Landlord's space planner or
architect determines that the Rentable Area of the Premises or the Building is
different from that stated in this Lease, all Rent that is based on that
incorrect amount shall be modified in accordance with that determination. If
that determination is made, Landlord and Tenant shall confirm it in writing.
1.6. MUST-TAKE SPACE. Tenant agrees to add to the Premises the
approximately 4,676 Rentable Square Feet (approximately 4,138 Useable Square
Feet) of space contiguous to the Premises presently known as Suite 301 of the
Building (the "Must-Take Space"). The Must-Take Space is depicted on EXHIBIT
A-3 attached to this Lease. Landlord shall deliver the Must-Take Space to
Tenant, and Tenant shall accept tender thereof from Landlord, in its then
"as-is" condition and at such time as the existing occupant vacates the
Must-Take Space whether due to the scheduled expiration or earlier termination
of such occupant's lease with Landlord (the "Delivery Date"). Beginning on the
Delivery Date and continuing for the balance of the Lease Term (including any
extensions): (a) the Must-Take Space shall be part of the Premises under this
Lease (so that the term "Premises" in this Lease shall refer to the space in
the Premises immediately before the Delivery Date plus the Must-Take Space),
and (b) Tenant's Share of Direct Expenses shall be adjusted, in accordance with
Subsection 5.2.6 of this Lease, to reflect the increased Rentable Area of the
Premises. Tenant's lease of the Must-Take Space shall be on the same terms and
conditions as affect the Premises provided, however, that upon taking possession
of the Must-Take Space, Tenant shall be entitled to an allowance from Landlord
in an amount equal to Five Dollars ($5.00) per square foot of Useable Area
within the Must-Take Space for use by Tenant in refurbishing the Must-Take Space
(the "Refurbishment Allowance"). The Refurbishment Allowance may only be used
for general cleaning and repairs, installation of new carpet, paint and wall
coverings, and other permanent improvements to the Must-Take Space and must be
used by Tenant, if at all, within one hundred and eighty (180) days following
the Delivery Date. Tenant's failure to use the Refurbishment Allowance within
such one hundred and eighty (180) day period shall constitute Tenant's waiver of
its right to the Refurbishment Allowance. Basic Rent and Tenant's Share of
Direct Expenses shall start to accrue with respect to
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the Must-Take Space on the Delivery Date. Landlord shall provide written notice
(the "Must-Take Notice") to Tenant at least ten (10) days before the Delivery
Date. The Must-Take Notice shall indicate the anticipated date of Landlord's
delivery of the Must-Take Space to Tenant. After Landlord delivers the
Must-Take Space to Tenant, Landlord and Tenant shall enter into an amendment to
this Lease specifying that the Must-Take Space is a part of the Premises under
this Lease, that for purposes of calculating the Rentable Area and Useable Area
of the Premises and the Building, the Third floor corridor shall be deemed a
part of the Premises, and containing other appropriate terms and provisions
relating to the Must-Take Space.
Article 2
SUBSTITUTION OF OTHER PREMISES
[Intentionally Omitted]
Article 3
LEASE TERM
3.1. LEASE TERM. The provisions of this Lease shall be effective as
of the date of this Lease. The term of this Lease ("Lease Term") shall be the
period stated in Summary of Basic Lease Information Section 5 (a). The Lease
Term shall commence on the date ("Lease Commencement Date") stated in Summary
Section 5 (b) and shall expire on the date ("Lease Expiration Date") stated in
Summary Section 5 (c) unless this Lease is sooner terminated as provided in
this Lease. The target Lease Commencement Date ("Target Lease Commencement
Date") is also stated in Summary Section 5 (b). Landlord and Tenant agree that,
to the extent reasonably possible, Landlord and Tenant shall cooperate with
each other to accommodate Tenant's installation of Tenant's trade fixtures and
equipment prior to Tenant's taking possession of the Premises.
3.2. CONFIRMATION OF LEASE INFORMATION. At any time during the Lease
Term, Landlord may deliver to Tenant a notice in the form set forth in EXHIBIT
D, attached to this Lease, which Tenant shall execute and return to Landlord
within ten (10) days after receipt.
3.3. LEASE YEAR. For purposes of this Lease, the term "Lease Year"
means each consecutive twelve month (12 month) period during the Lease Term as
long as: (a) the first Lease Year commences on the Lease Commencement Date and
ends on the last day of the eleventh (11th) calendar month thereafter; (b) the
second (2nd) and each succeeding Lease Year commences on the first day of the
next calendar month; and (c) the last Lease Year ends on the Lease Expiration
Date or earlier date of termination.
3.4. DELAY IN DELIVERY OF PREMISES. Landlord shall exercise
commercially reasonable efforts to Substantially Complete the Tenant
Improvements described in the Tenant Improvement Agreement attached to this
Lease as EXHIBIT C and to deliver possession of the Premises to Tenant on or
before the Target Lease Commencement Date. If, however, Landlord is unable to
deliver possession of the Premises to Tenant on or before the Target Lease
Commencement Date, Landlord shall not be subject to any liability for its
failure to do so. This failure shall not affect the validity of this Lease or
the obligations of Tenant under it, but the Lease Term shall commence on the
date on which Landlord delivers possession of the Premises to Tenant.
3.5. OPTION TO EXTEND LEASE TERM. Landlord grants to Tenant the
option to extend the initial Lease Term (the "Extension Option"), subject to
the conditions described in this Section 3.5 for two (2) successive periods of
five (5) years each (the "Option Term"), i.e., from the first day following
expiration of the initial Lease Term and continuing until the last day of the
sixtieth (60th) month thereafter (the "First Option Term") and from the first
day following expiration of the First Option Term until the last day of the
sixtieth (60th) month of the First Option Term (the "Second Option Term").
Tenant shall have no right to extend the initial Lease Term beyond the Second
Option Term.
3.5.1. CONDITIONS OF OPTION. The Extension Option shall be
subject to the following conditions: (a) the Extension Option may be exercised
only by written notice delivered by Tenant to Landlord as provided in
Subsection 3.5.3 below and only if, as of the date of delivery of the notice or
thereafter until commencement of the Option Term. Tenant is not in material
default under this Lease after the expiration of any applicable cure periods;
(b) the rights contained in this Subsection 3.5.1 may be exercised by the
originally named Tenant or by any assignee of Tenant's interest in this Lease
if the assignment has been approved by Landlord under Article 17 or is
otherwise permitted under Article 17; and (c) if Tenant properly exercised the
Extension Option, the Lease Term, as it applies to the entire Premises then
leased by Tenant, shall be extended by the applicable Option Term.
3.5.2. OPTION RENT. The Rent payable during the Option Term
("Option Rent") shall be equal to the "Fair Market Rental Value" of the
Premises as of commencement of the applicable Option Term. For purposes of this
Subsection 3.5.2, Fair Market Rental Value of the Premises shall be the rental
rate, determined in accordance with this Section 3.5, at which tenants lease
comparable space as of the commencement of the applicable Option Term. For this
purpose, "comparable space" shall be office space that is not subleased; not
subject to another tenant's expansion rights, comparable in size, location, and
quality to the Premises; leased for a term comparable to the applicable Option
Term; and located in comparable buildings to the Building. In determining the
rental rate of comparable space, the parties shall include all escalations and
take into account rental abatement concessions, if any, being granted to tenants
in connection with the comparable space and tenant improvements or allowances
provided or to be provided for the comparable space, taking into account the
value of the existing improvements in the Premises, based on the age, quality,
and layout of the improvements. If in determining the Fair Market Rental Value
the parties determine that the economic terms of leases of comparable space
include a tenant improvement allowance, Landlord may, at Landlord's option,
elect to grant some or
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all of the value of the tenant improvement allowance as an allowance for the
refurbishment of the Premises and reduce the basic rent component of the Fair
Market Rental Value to be an effective rental rate that takes into
consideration the total dollar value of that portion of the tenant improvement
allowance that Landlord has elected not to grant to Tenant (in which case that
portion of the tenant improvement allowance evidenced in the effective rental
rate shall be granted to Tenant).
3.5.3. EXERCISE OF OPTION. The Extension Option must be
exercised, if at all, only at the time and in the manner provided in this
Subsection 3.5.3. If Tenant wishes to exercise the Extension Option, Tenant
shall deliver written notice ("Interest Notice") to Landlord no less than eight
(8) months before expiration of the initial Lease Term or First Option Term, as
the case may be. After receipt of Tenant's Interest Notice, Landlord shall
deliver notice ("Option Rent Notice") to Tenant no less than seven (7) months
before expiration of the initial Lease Term or First Option Term, as the case
may be, stating the Option Rent, based on Landlord's determination of the Fair
Market Rental value of the Premises as of the commencement of the First Option
Term or Second Option Term, as the case may be. If Tenant wishes to exercise
the Extension Option, Tenant must, on or before the earlier of (a) the date
occurring six (6) months before the expiration of the initial Lease Term or
First Option Term, as the case may be, or (b) the date occurring thirty (30)
days after Tenant's receipt of the Option Rent Notice, exercise the Extension
Option by delivering written notice ("Exercise Notice") to Landlord. If Tenant
wishes to contest the Option Rent stated in Landlord's Option Rent Notice,
Tenant must provide, with the Exercise Notice, written notice to Landlord that
Tenant objects to the stated Option Rent.
3.5.4. RESOLVING DISAGREEMENT OVER FAIR MARKET RENTAL VALUE. If
Tenant timely and effectively objects to Landlord's determination of Fair
Market Rental Value under Subsection 3.5.3, the disagreement shall be resolved
under this Section 3.5.4. Landlord and Tenant shall diligently attempt in good
faith to agree on the Fair Market Rental Value on or before the tenth (10th)
day after Tenant's objection to the Fair Market Rental Value ("Outside
Agreement Date"). If Landlord and Tenant fail to reach agreement on or before
the Outside Agreement Date, Tenant may rescind Tenant's Exercise Notice by
delivering written notice thereof ("Rescission Notice") to Landlord within five
(5) days after the Outside Agreement Date, in which case the Lease Term shall
expire on the Rescission Notice to Landlord, the initial Lease Term or First
Option Term, as the case may be. If Tenant fails to timely and effectively
deliver the Rescission Notice to Landlord, the initial Lease Term or First
Option Term, as the case may be, shall be deemed extended by the Option Term in
question and the Option Rent shall be determined as follows. Landlord and
Tenant shall mutually appoint a certified M.A.I. appraiser that has at least
five (5) years full-time commercial appraisal experience and shall each submit
their separate determination of the Fair Market Rental Value to the appraiser.
If Landlord and Tenant are unable to agree on an appraiser, either of the
parties to this Lease, after giving five (5) days prior written notice to the
other party, may apply to the then President of the San Diego Board of Realtors
for the selection of an appraiser who meets the foregoing qualifications, which
selection shall be made within three (3) days. The appraiser selected by the
President of the Board of Realtors shall be a person who has not previously
acted in any capacity for either party. The appraiser shall, within fifteen
(15) days of his or her appointment, review the Landlord's determination and
the Tenant's determination of the Fair Market Rental Value and such other
information as he or she shall deem necessary and determine which of the two is
closer to the actual Fair Market Rental Value. The appraiser shall be
instructed, in deciding whether the Landlord's determination or Tenant's
determination of the Fair Market Rental Value is closer to the actual Fair
Market Rental Value, to use the criteria as to Fair Market Rental Value set
forth in this Section 3.5. The appraiser shall not establish his or her own
Fair Market Rental Value, and must select either Landlord's or Tenant's
determination and shall immediately notify the parties of his selection. The
Fair Market Rental Value determined by Landlord or Tenant and selected as the
one closer to the actual Fair Market Rental Value by the appraiser shall be the
Fair Market Rental Value used to determine the Rent payable for the Option Term
in question. Each of the parties shall bear one-half the cost of the appraiser.
If the Fair Market Rental Value shall not have been determined by the
commencement of the Option Term, Tenant shall continue to pay the Rent payable
as of the month immediately preceding such commencement until the Fair Market
Rental Value is established at which time there shall be an adjustment between
the parties so that the Rent established for the Option Term using the Fair
Market Rental Value shall be retroactive to the commencement of the Option Term.
Landlord and Tenant agree that notwithstanding anything contained to
the contrary in this Section 3.5, in no event shall the Basic Rent for any
Option Term be less than the Basic Rent payable by Tenant during the calendar
month immediately preceding the commencement of such Option Term.
Article 4
BASIC RENT
4.1. DEFINITION OF "BASIC RENT": NO SET OFF. Tenant shall pay to
Landlord basic rent ("Basic Rent") in equal monthly installments as set forth
in Summary of Basic Lease Information Section 6 in advance on or before the
first day of every calendar month during the Lease Term, without any set-off or
deduction. Payment must be in United States dollars and shall be made at the
management office of the Building or at any other place that Landlord may from
time to time designate in writing.
4.2. INITIAL PAYMENT; PRORATION. The Basic Rent for the first full
calendar month of the Lease Term shall be paid when Tenant executes this Lease.
If any payment date (including the Lease Commencement Date) for "Rent", as
defined in Section 5.1 falls on a day other than the first day of that calendar
month, or if any Rent payment is for a period shorter than one calendar month,
the Rent for that fractional calendar month shall accrue on a daily basis for
each day of that fractional month at a daily rate equal to 1/365 of the total
annual Rent. All other payments or adjustments that are required to be made
under the terms of this Lease and that require proration on a time basis shall
be prorated on the same basis.
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4.3. APPLICATION OF PAYMENTS. All payments received by Landlord from
Tenant shall be applied to the oldest payment obligation owed by Tenant to
Landlord. No designation by Tenant, either in a separate writing or on a check
or money order, shall modify this clause or have any force or effect.
4.4. CERTIFIED FUNDS. If any non-cash payment made by the bank or other
institution on which it is drawn does not pay Tenant, Landlord shall have the
right, exercised by notice to Tenant, to require that Tenant make all future
payments by certified funds or cashier's check.
4.5. BASIC RENT REBATE. Provided Tenant is not in material default
under this Lease after the expiration of any applicable cure periods, Tenant
shall be entitled to and shall receive a one-time rent rebate ("Rent Rebate")
in the amount of Sixty-five Thousand and 00/100 Dollars ($65,000.00) upon the
earlier to occur of (i) the sale or other conveyance of the Building by Landlord
to any third party entity other than a "Landlord Affiliate" or (ii) the
expiration of the initial Lease Term. A "Landlord Affiliate" means any entity
that controls, is controlled by, or is under common control with Landlord.
"Control" means the direct or indirect ownership of more than fifty percent
(50%) of the voting securities of any entity or possession of the right to vote
more than fifty percent (50%) of the voting interest in the ordinary direction
of the entity's affairs. The Rent Rebate shall be paid, in cash, on closing of
the escrow in any such sale or other conveyance from the seller's proceeds by
the escrow holder or within thirty (30) days following expiration of the initial
Lease Term, whichever shall first occur.
Article 5
ADDITIONAL RENT
5.1. ADDITIONAL RENT; RENT. In addition to paying the Basic Rent
specified in Article 4, Tenant shall pay as additional rent Tenant's Share of
the annual Direct Expenses (as defined in subsections 5.2.2 and 5.2.6) that are
in excess of the amount of Direct Expenses applicable to the Base Year (as
defined in Subsection 5.2.1). That additional rent, together with other amounts
of any kind (other than Basic Rent) payable by Tenant to Landlord under the
terms of this Lease, shall be collectively referred to in this Lease as
"Additional Rent". Basic Rent and Additional Rent are collectively referred to
in this Lease as "Rent". All amounts due under this Article 5 as Additional Rent
are payable for the same periods and in the same manner, time, and place as the
Basic Rent. Without limitation on other obligations of Tenant that survive the
expiration of the Lease Term, Tenant's obligations to pay the Additional Rent
provided for in this Article 5 survive the expiration of the Lease Term.
5.2. DEFINITIONS. The following definitions apply in this Article 5:
5.2.1. BASE YEAR. "Base Year" means the period stated in Summary
of Basic Lease Information Section 7(a).
5.2.2. DIRECT EXPENSES. "Direct Expenses" mean Operating Expenses
plus Tax Expenses.
5.3.3. EXPENSE YEAR. "Expense Year" means each calendar year in
which any portion of the Lease Term falls through and including the calendar
year in which the Lease Term expires.
5.2.4. OPERATING EXPENSES. "Operating Expenses" means all
expenses, costs, and amounts of every kind that Landlord pays or incurs during
any Expense Year because of or in connection with the ownership, operation,
management, maintenance, or repair of the Common Areas of the Building and the
Project. Operating Expenses includes an allocable percentage of Direct Expenses
Landlord pays or incurs in operating, maintaining and repairing those portions
of the Project other than the Building including any owner's association or
similar fees, assessments or dues presently or hereafter established for the
Project.
5.2.4.1. EXAMPLES OF OPERATING EXPENSES. The definition of
"Operating Expenses" includes but shall not be limited to any amounts paid or
incurred for: (a) the cost of supplying any utilities to the Common Areas of the
Building and the Project, (b) the cost of operating, managing, maintaining, and
repairing the following systems: utility, mechanical, sanitary, storm drainage,
escalator, and elevator, (c) the cost of supplies and tools and of equipment,
maintenance, and service contracts in connection with those systems, (d) the
cost of licenses, certificates, permits, and inspections, (e) the cost of
contesting the validity or applicability of any government enactments that may
affect the Operating Expenses, (f) the costs incurred in connection with the
implementation and operation of a parking or transportation management program
or similar program, (g) the cost of insurance carried by Landlord in amounts
reasonably determined by Landlord, (h) fees, charges, and other costs including
management fees (or amounts in lieu of such fees), consulting fees, legal fees,
and accounting fees of all persons engaged by Landlord or otherwise reasonably
incurred by Landlord in connection with the operation, management, maintenance,
and repair of the Building and the Project, (i) the cost of parking area
maintenance, repair, and restoration, including resurfacing, repainting,
restriping, and cleaning, (j) wages, salaries, and other compensation and
benefits of all persons engaged in the operation, maintenance, or security of
the Building and the Project plus employer's Social Security taxes, unemployment
taxes, insurance, and any other taxes imposed on Landlord that may be levied on
those wages, salaries, and other compensation and benefits. If any of Landlord's
employees provide services for more than one project of Landlord, only the
prorated portion of those employees' wages, salaries, other compensation and
benefits, and taxes reflecting the percentage of their working time devoted to
the Project shall be included in Operating Expenses, (k) payments under any
easement, license, operating agreement, declaration, restrictive covenant, or
instrument relating to the sharing of costs by the Building or the Project,
(l) amortization (including interest on the unamortized cost at a rate equal to
the floating commercial loan rate
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announced from time to time by Bank of America as its prime rate plus two (2)
percentage points per annum) of the cost of acquiring or renting personal
property used in the maintenance, repair, and operation of the Building and the
Project, (m) the cost of capital improvements or other costs incurred in
connection with the Building or the Project that (1) are intended as a labor
saving device or to effect other economies in the maintenance or operation of
all or part of the Building or Project or (2) are required under any
governmental law or regulation, other than the Americans With Disabilities Act
("ADA"), but that were not required in connection with the Building or the
Project when permits for the construction of the Building or the Project were
obtained. All permitted capital expenditures shall be amortized (including
interest on the unamortized cost at the rate stated in Subparagraph (l) over
their useful life, as reasonably determined by Landlord.
5.2.4.2. ADJUSTMENT OF OPERATING EXPENSES. Operating Expenses shall be
adjusted as follows:
5.2.4.2.1. GROSS UP ADJUSTMENT WHEN BUILDING IS LESS
THAN FULLY OCCUPIED. If the occupancy of the Building during any part of any
Expense Year (including the Base Year) is less than 95%, Landlord shall make an
appropriate adjustment of the variable components of Operating Expenses for that
Expense Year, as reasonably determined by Landlord using sound accounting and
management principles, to determine the amount of Operating Expenses that would
have been incurred had the Building been 95% occupied. This amount shall be
considered to have been the amount of Operating Expenses for that Expense Year.
For purposes of this Subsection 5.2.4.2.1. "variable components" include only
those component expenses that are affected by variations in occupancy levels.
5.2.4.2.2. ADJUSTMENT WHEN LANDLORD DOES NOT FURNISH
A SERVICE TO ALL TENANTS. If, during any part of any Expense Year (including the
Base Year), Landlord is not furnishing a particular service or work (the cost of
which, if furnished, Landlord, would be included in Operating Expenses) to a
tenant (other than Tenant) that has undertaken to perform such service or work
in lieu of receiving it from Landlord, Operating Expenses for that Expense Year
shall be considered to be increased by an amount equal to the additional
Operating Expenses that Landlord would reasonably have incurred during this
period if Landlord had furnished such service or work to that tenant.
5.2.4.3. EXCLUSIONS FROM OPERATING EXPENSES. Despite
any other provision of Subsection 5.2.4, Operating Expenses shall not include:
(a) depreciation, interest, and amortization on mortgages or ground lease
payments, except as otherwise stated in this Section 5.2, (b) legal fees
incurred in negotiating and enforcing tenant leases, (c) real estate brokers'
leasing commissions, (d) initial improvements or alterations to tenant spaces,
(e) the cost of providing any service directly to and paid directly by any
tenant, (f) any costs expressly excluded from Operating Expenses elsewhere in
this Lease, (g) costs of any items for which Landlord receives reimbursement
from insurance proceeds or a third party. Insurance proceeds shall be excluded
from Operating Expenses in the year in which they are received, except that any
deductible amount under any insurance policy shall be included within Operating
Expenses, (h) costs of capital improvements, except as otherwise stated in this
Section 5.2.
5.2.5. TAX EXPENSES. "Tax Expenses" means all federal, state,
county, or local government or municipal taxes, fees, charges, or other
impositions of every kind (whether general, special, ordinary, or extraordinary)
that are paid or incurred by Landlord during any Expense Year (without regard to
any different fiscal year used by any government or municipal authority) because
of or in connection with the ownership, leasing, and operation of the Building
and the Project. These expenses include taxes, fees, and charges such as real
property taxes, general and special assessments, transit taxes, leasehold taxes,
and taxes based on the receipt of rent (including gross receipts or sales taxes
applicable to the receipt of rent, unless required to be paid by Tenant);
personal property taxes imposed on the fixtures, machinery, equipment,
apparatus, systems, and equipment, appurtenances, furniture; and other personal
property used in connection with the Building and the Project.
5.2.5.1. ADJUSTMENT OF TAXES. For purposes of this
Lease, Tax Expenses shall be calculated as if the tenant improvements in the
Building were fully constructed and the Project, the Building, and all tenant
improvements in the Building were fully assessed for real estate tax purposes.
Landlord specifically agrees that the gross receipts component of Tax Expenses
for the Base Year and each subsequent year shall be calculated as if the
Building were one hundred percent (100%) occupied with rent paying tenants.
Accordingly, during the portion of any Expense Year occurring after the Base
Year, Tax Expenses shall be considered to be increased appropriately.
5.2.5.2. INCLUDED TAX EXPENSES. Tax Expenses shall
include: (a) any assessment, tax, fee, levy, or charge in addition to, or in
partial or total substitution of, any assessment, tax, fee, levy, or charge
previously included within the definition of "real property tax". Tenant and
Landlord acknowledge that Proposition 13 was adopted by the voters of the State
of California in June 1978 and that assessments, taxes, fees, levies, and
charges may be imposed by government agencies for services such as fire
protection; street, sidewalk, and road maintenance; conservation; refuse
removal; and other government services formerly provided without charge to
property owners or occupants. In further recognition of the decrease in the
level and quality of government services and amenities as a result of
Proposition 13 (or as a result of any other restriction on real property taxes
whether by law or by choice of the applicable legislative or assessing body),
Tax Expenses shall also include any government or private assessments (or the
Building's or Project's contribution toward a government or private cost sharing
agreement) for the purpose of augmenting or improving the quality of services
and amenities normally provided by government agencies. Tenant and Landlord
intend that all new and increased assessments, taxes, fees, levies, and charges
and all similar assessments, taxes, fees, levies, and charges be included within
the definition of "Tax Expenses" for purposes of the Lease, (b) any assessment,
tax, fee, levy, or charge allocable to, or measured by, the area of the Premises
or the rent payable under this Lease, including any gross income tax with
respect to the receipt
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of that rent, or on or relating to the possession, leasing, operating,
management, maintenance, alteration, repair, use, or occupancy by Tenant of the
Premises or any portion of the Premises, (c) any assessment, tax, fee, levy, or
charge on this transaction or any document to which Tenant is a party, creating
or transferring an interest or an estate in the Premises, (d) any possessory
taxes charged or levied in place of real property taxes.
5.2.5.3. CONTEST COSTS; REFUNDS. Any expenses incurred
by Landlord in attempting to protest, reduce, or minimize Tax Expenses shall be
included in Tax Expenses in the Expense Year in which those expenses are paid.
Except for tax refunds resulting from a Proposition & reduction under Subsection
5.2.5.6, tax refunds shall be deducted from Tax Expenses. Such tax refunds shall
be deducted form Tax Expenses in the Expense Year in which Landlord receives
them.
5.2.5.4. EXCLUDED TAXES. Despite any other provision of
Subsection 5.2.5 (except as provided in Subsection 5.2.5.2 or levied entirely or
partially in lieu of Tax Expenses), the following shall be excluded from Tax
Expenses: (a) all excess profits taxes, franchise taxes, gift taxes, capital
stock taxes, inheritance and succession taxes, estate taxes, federal and state
income taxes, and other taxes applied or measured by Landlord's general or net
income (as opposed to rents, receipts, or income attributable to operations at
the Building): (b) any items included as Operating Expenses; and (c) any items
paid by Tenant under Section 5.5.
5.2.6. TENANT'S SHARE. "Tenant's Share" means the percentage
stated in Summary of Basic Lease Information Section 7 (b). Tenant's Share is
calculated by multiplying the number of Rentable Square Feet of the Premises by
100 and dividing the product by the total Rentable Square Feet in the Building.
If either the Premises or the Building are expanded or reduced, Tenant's Share
shall be appropriately adjusted. Tenant's Share for the Expense Year in which
that change occurs shall be determined on the basis of the number of days during
the Expense Year in which each such Tenant's Share was in effect.
5.3. CALCULATION AND PAYMENT OF ADDITIONAL RENT. Tenant's Share of any
Direct Expenses for any Expense Year shall be calculated and paid as follows:
5.3.1. CALCULATION OF EXCESS. If Tenant's Share of Direct Expenses
for any Expense Year ending or beginning within the Lease Term exceeds Tenant's
Share of the amount of Direct Expenses applicable to the Base Year, Tenant shall
pay as Additional Rent to Landlord an amount equal to that excess ("Excess"), in
the manner stated in Subsection 5.3.2.
5.3.2. STATEMENT OF ACTUAL DIRECT EXPENSES AND PAYMENT BY TENANT.
Landlord shall endeavor to give to Tenant on or before the first day of April
following the end of each Expense Year a statement ("Statement") stating the
Direct Expenses incurred or accrued for that preceding Expense Year and
indicating the amount, if any, of any Excess. On receipt of the Statement for
each Expense Year ending during the Lease Term for which an Excess exists,
Tenant shall pay, with its next installment of Basic Rent due, the full amount
of that Excess, less the amounts (if any) paid during the Expense Year as
Estimated Excess (as defined in Subsection 5.3.3). Landlord's failure to furnish
the Statement for any Expense Year in a timely manner shall not prejudice
Landlord from enforcing its rights under this Article 5. Even if the Lease Term
has expired and Tenant has vacated the Premises, if an Excess exists when the
final determination is made of Tenant's Share of the Direct Expenses for the
Expense Year in which this Lease terminates, Tenant shall immediately pay to
Landlord the amount calculated under Subsection 5.3.1. The provisions of this
Subsection 5.3.2 shall survive the expiration or earlier termination of the
Lease Term.
5.3.3. STATEMENT OF ESTIMATED DIRECT EXPENSES. Landlord shall give
Tenant a yearly expense estimate statement ("Estimate Statement") stating: (a)
Landlord's reasonable estimate ("Estimate") of the total amount of Direct
Expenses for the then current Expense Year; and (b) the estimated excess
("Estimated Excess"). The Estimated Excess shall be calculated by comparing
estimated Direct Expenses (which shall be based on the Estimate) to the amount
of Direct Expenses applicable to the Base Year. Landlord's failure to furnish
the Estimate Statement for any Expense Year in a timely manner shall not
preclude Landlord from enforcing its rights to collect any Estimated Excess
under this Article 5. If an Estimated Excess is calculated for the then current
Expense Year, Tenant shall pay, with its next installment of Basic Rent due, a
fraction of that Estimated Excess for the then current Expense Year (reduced by
any amounts paid as provided in the last sentence of this Subsection 5.3.3). The
numerator of that fraction shall be the number of moths that have elapsed in
that current Expense Year (including the month of the payment), and the
denominator shall be twelve (12). Until a new Estimate Statement is furnished,
Tenant shall pay monthly, along with the monthly Basic Rent installments, an
amount equal to one twelfth (1/12th) of the total Estimated Excess stated in the
previous Estimate Statement delivered by Landlord to Tenant.
5.3.4. REFUND OF OVERPAYMENT EXCESS. If the Statement shows that
the Excess for any Expense Year ending or beginning within the Lease Term is
less than the Estimated Excess actually paid by Tenant for that Expense Year,
Landlord shall credit Tenant's next payment of Basic Rent and Estimated Excess
with the amount by which Tenant's payments of Estimated Excess exceed the actual
Excess due for the Expense Year. If that Statement is provided to Tenant after
the end of the Lease Term, Landlord shall include with the Statement a refund in
the amount by which Tenant's payments of Estimated Excess exceed the actual
Excess due for that Expense Year.
5.4. ALLOCATION OF DIRECT EXPENSES. Despite any other provision of this
Article 5, in the calculation of Direct Expenses for the Base Year: (a) Direct
Expenses shall not include any increase in Tax Expenses attributable to (1)
special assessments, charges, costs, or fees; or (2) modifications or changes in
government laws or regulations, including institution of a split tax roll, and
(b) Operating Expenses shall exclude (1) market wide labor rate increases
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arising from extraordinary circumstances (such as boycotts and strikes) and
(2) utility rate increases arising from extraordinary circumstances (such as
conservation surcharges, boycotts, embargoes, or other shortages).
5.5 TAXES AND OTHER CHARGES FOR WHICH TENANT IS DIRECTLY
RESPONSIBLE. Tenant shall reimburse Landlord, on demand, as Additional Rent
for any taxes required to be paid by Landlord that are not already included
in Tax Expenses, excluding state, local, and federal personal or corporate
income taxes measured by the net income of Landlord from all sources and
estate and inheritance taxes, regardless of whether such taxes are now
customary or within the contemplation of the parties to this Lease, when
those taxes are: (a) measured by or reasonably attributable to: (1) the
cost or value of Tenant's equipment, furniture, fixtures, and other personal
property located in the Premises; or (2) the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant (to the extent that
the cost or value of those leasehold improvements exceeds the cost or value
of a building standard build out, as determined by Landlord, regardless of
whether title to those improvements is vested in Tenant or Landlord); (b)
assessed on or related to the possession, leasing, operation, management,
maintenance, alteration, repair, use, or occupancy by Tenant of: (1) the
Premises; (2) any portion of the Project; or (3) the parking facility used by
Tenant in connection with this lease; or (c) assessed either on this
transaction or on any document to which Tenant is a party that creates or
transfers an interest or estate in the Premises.
5.6 LANDLORD'S BOOKS AND RECORDS. If Tenant disputes the amount of
Additional Rent stated in the Statement, Tenant may designate, within thirty
(30) days after receipt of that Statement, an independent certified public
accountant to inspect Landlord's records which inspection shall be at
Tenant's sole cost and expense. Tenant is not entitled to request the
inspection, however, if Tenant is then in default under this Lease. The
accountant must be a member of a nationally recognized accounting firm and
must not charge a fee based on the amount of Additional Rent that the
accountant is able to save Tenant by the inspection. Tenant must give
reasonable notice to Landlord of the request for inspection, and the
inspection must be conducted in Landlord's offices at a reasonable time or
times. If, after that inspection, Tenant still disputes the Additional Rent,
a certification of the proper amount shall be made, at Tenant's expense, by
Landlord's independent certified public accountant. That certification shall
be final and conclusive.
Article 6
SECURITY DEPOSIT
6.1. SECURITY DEPOSIT. Concurrently, with Tenant's execution of
this Lease, Tenant shall deposit with Landlord a cash sum in the amount
stated in Summary of Basic Lease Information Section X ("Security Deposit").
Landlord shall hold the Security Deposit as security for the performance of
Tenant's obligations under this Lease. If Tenant defaults on any provision
of this Lease, Landlord may, without prejudice to any other remedy it has,
apply all or part of the Security Deposit to: (a) any Rent or other sum in
default; (b) any amount that Landlord may spend or become obligated to spend
in exercising Landlord's rights under Article 23; or (c) any expense, loss,
or damage that Landlord may suffer because of Tenant's default. Tenant
waives the provisions of California Civil Code Section 1950.7, and all other
provisions of law now in force or that become in force after the date of
execution of this Lease, that provide that Landlord may claim from a security
deposit only those sums reasonably necessary to remedy defaults in the
payment of Rent, to repair damage caused by Tenant, or to clear the Premises.
Landlord and Tenant agree that Landlord may, in addition, claim those sums
reasonably necessary to compensate Landlord for any other foreseeable or
unforseeable loss or damage caused by the act or omission of Tenant or
Tenant's officers, agents, employees, independent contractors, or invitees.
If Landlord disposes of its interest in the Premises, Landlord may deliver or
credit the Security Deposit to Landlord's successor in interest in the
Premises and thereupon be relieved of further responsibility with respect to
the Security Deposit. Tenant may not assign or encumber the Security Deposit
without the consent of Landlord. Any attempt to do so shall be void and
shall not be binding on Landlord. If Landlord applies any portion of the
Security Deposit, Tenant shall, within thirty (30) days after demand by
Landlord, deposit with Landlord an amount sufficient to restore the Security
Deposit to its original amount. Tenant is not entitled to any interest on
the Security Deposit. If Tenant performs every provision of this Lease to be
performed by Tenant, the unused portion of the Security Deposit shall be
returned to Tenant or the last assignee of Tenant's interest under this Lease
within thirty (30) days following the expiration or termination of the Lease
Term.
Article 7
USE
7.1. PERMITTED USE. Tenant shall use the Premises solely for the
"Permitted Use" as defined in Summary of Basic Lease Information Section 9.
Tenant shall not use or permit the Premises to be used for any other purpose
without Landlord's prior written consent, which may be granted or withheld in
Landlord's sole discretion. Tenant shall comply with the rules attached to
this Lease as EXHIBIT E and any amendments or additions promulgated by
Landlord from time to time for the safety, care, and cleanliness of the
Premises, Building, and Project or for the preservation of good order (Rules
and Regulations). Landlord shall not be responsible to Tenant for the
failure of any other tenants or occupants of the Building to comply with the
Rules and Regulations. In addition to complying with other provisions of
this Lease concerning the use of the Premises: (a) Tenant shall not use or
allow any person to use the Premises for any purpose that is contrary to the
Rules and Regulations, that violates any Laws and Orders, that constitutes
waste or nuisance, or that would unreasonably annoy other occupants of the
Building or the owners or occupants of buildings adjacent to the Building;
and (b) Tenant shall comply with all recorded covenants, conditions, and
restrictions that now or later affect the Project. Landlord hereby discloses
to Tenant that the area located on the second floor of the building above the
main entry to the Building and designated on EXHIBIT A-2 attached to this
Lease as the "Load Restricted Area" is not designed to handle floor loading
in excess of standard
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office furniture (i.e. not for use as a file or heavy storage area). Tenant
covenants and agrees not to use Load Restricted Area for file storage or
other heavy load purpose.
Article 8
COMPLIANCE WITH LAWS
8.1. DEFINITION OF "LAWS AND ORDERS". For purposes of this Article
8, the term "Laws and Orders" includes all federal, state, county, city, or
government agency laws, statutes, ordinances, standards, rules, requirements,
or orders now in force or hereafter enacted, promulgated, or issued. The
term also includes government measures regulating or enforcing public access,
occupational, health, or safety standards for employers, employees,
landlords, or tenants.
8.2. REPAIRS, REPLACEMENTS, ALTERATIONS, AND IMPROVEMENTS. Tenant
shall continuously and without exception repair and maintain the Premises,
including tenant improvements, Alterations, fixtures, and furnishings, in an
order and condition in compliance with all Laws and Orders. Tenant, at
Tenant's sole expense, shall promptly make all repairs, replacements,
alterations, or improvements needed to comply with all Laws and Orders to the
extent that the Laws and Orders relate to or are triggered by (a) Tenant's
particular use of the Premises, (b) the tenant improvements located in the
Premises, or (c) any Alterations located in the Premises. Landlord shall
promptly make all repairs, replacements, alterations, or improvements
needed to comply with all Laws and Orders to the extent that the Laws and
Orders relate to the Base Building. The cost of all such repairs,
replacements, alterations, or improvements shall, to the extent permitted by
Article 5 of this Lease, be reimbursed to Landlord as an Operating Expense.
8.3. COLLATERAL ESTOPPEL. The judgment of any court of competent
jurisdiction, or the admission of Tenant in any judicial or administrative
action or proceeding that Tenant has violated any Laws and Orders shall be
conclusive, between Landlord and Tenant, of that fact, whether or not Landlord
is a party to that action or proceeding.
Article 9
HAZARDOUS MATERIAL
9.1. USE OF HAZARDOUS MATERIAL. Tenant shall not cause or permit
any Hazardous Material, as defined in Section 9.6, to be generated, brought
onto, used, stored, or disposed of in or about the Premises or the Building
by Tenant or its agents, employees, contractors, subtenants, or invitees,
except for limited quantities of standard office and janitorial supplies
containing chemicals categorized as Hazardous Material. Tenant shall: (a)
Use, store, and dispose of all such Hazardous Material in strict complicance
with all applicable statutes, ordinances, and regulations in effect during
the Lease Term that relate to public health and safety and protection of the
environment (Environmental Laws), including those Environmental Laws
identified in Section 9.6, and (b) Comply at all times during the Lease Term
with all Environmental Laws.
9.2. NOTICE OF RELEASE OR INVESTIGATION. If, during the Lease Term
(including any extensions), Tenant becomes aware of (a) any actual or
threatened release of any Hazardous Material on, under, or about the Premises
or the Building or (b) any inquiry, investigation, proceeding, or claim by
any government agency or other person regarding the presence of Hazardous
Material on, under, or about the Premises or the Building. Tenant shall give
Landlord written notice of the release or investigation within five (5) days
after learning of it and shall simultaneously furnish to Landlord copies of
any claims, notices of violation, reports, or other writings received by
Tenant that concern the release or investigation.
9.3. INDEMNIFICATION. Tenant shall, at Tenant's sole expense and
with counsel reasonably acceptable to Landlord, indemnify, defend, and hold
harmless Landlord and Landlord's shareholders, directors, officers,
employees, partners, affiliates, and agents with respect to all losses
arising out of or resulting from the release of any Hazardous Material in or
about the Premises or the Building, or the violation of any Environmental
Law, by Tenant or Tenant's agents, contractors, or invitees. This
indemnification includes: (a) losses attributable to diminution in the value
of the Premises or the Building; (b) loss or restriction of use of rentable
space in the Building; (c) adverse effect on the marketing of any space in
the Building; and (d) all other liabilities, obligations, penalties, fines,
claims, actions (including remedial or enforcement actions of any kind and
administrative or judicial proceedings, orders, or judgments), damages
(including consequential and punitive damages), and costs (including
attorney, consultant, and expert fees and expenses) resulting from the
release or violation. This indemnification shall survive the expiration or
termination of this Lease.
9.4. REMEDIATION OBLIGATIONS. If the presence of any Hazardous
Material brought onto the Premises or the Building by Tenant or Tenant's
employees, agents, contractors, or invitees results in contamination of the
Building, Tenant shall promptly take all necessary actions, at Tenant's sole
expense, to return the Premises or the Building to the condition that existed
before the introduction of such Hazardous Material. Tenant shall first obtain
Landlord's approval of the proposed remedial action. This provision does not
limit the indemnification obligation set forth in Section 9.3.
9.5. DEFINITION OF "HAZARDOUS MATERIAL". As used in this Article 9,
the term "Hazardous Material" shall mean any hazardous or toxic
substance, material, or waste that is or becomes regulated by the United
States, the State of California, or any local government authority having
jurisdiction over the Building. Hazardous Material includes: (a) any
"hazardous substance", as that term is defined in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) (42
United States Code Sections 9601-9675); (b) "Hazardous
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waste", as that term is defined in the Resource Conservation and Recovery Act
of 1976 (RCRA) (42 United States Code Sections 6901-6992k); (c) any
pollutant, contaminant, or hazardous, dangerous, or toxic chemical, material,
or substance, within the meaning of any other applicable federal, state, or
local law, regulation, ordinance, or requirement (including consent decrees
and administrative orders imposing liablity or standards of conduct
concerning any hazardous, dangerous, or toxic waste, substance, or material,
now or hereafter in effect); (d) petroleum products; (e) radioactive
material, including any source, special nuclear, or byproduct material as
defined in 42 United States Code Sections 2011-2297gB4; (f) Asbestos in any
form or condition; and (g) Polychlorinated biphenyls (PCBs) and substances or
compounds containing PCBs.
Article 10
UTILITIES AND SERVICES
10.1. STANDARD TENANT UTILIITES AND SERVICES. Subject to applicable
government rules, regulations, and guidelines, and the rules or actions of
the public utility furnishing the service, Landlord shall provide the
following utilities and services on all days during the Lease Term, unless
otherwise stated in the Lease:
10.1.1. HEATING AND AIR CONDITIONING. Landlord shall
provide heating and air conditioning when necessary for normal comfort for
normal office use in the Premises, as reasonably determined by Landlord, on
Mondays through Fridays from 7 a.m. through 6 p.m. and on Saturdays from 9
a.m. through 1 p.m. ("Building Hours") except for the dates of observation of
New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
Christmas Day, and other locally or nationally recognized holidays
("Holidays") Notwithstanding the foregoing, subject to Tenant's acceptance of
the provisions of Section 10.2 below regarding Over-standard Tenant Use,
Landlord acknowledges that Tenant intends to use a portion of the Premises on
a twenty-four-hour (24-hour), seven-day (7-day) day per week basis.
10.2.2. ELECTRICITY. Landlord shall provide electricity
for lighting and power as required for the comfortable use and occupancy of
the Premises as reasonably determined by Landlord. Landlord shall replace
lamps, starters, and ballasts for Building standard lighting fixtures within
the Premises on Tenant's request as a part of Operating Expenses. Tenant
shall replace lamps, starters, and ballasts for non-Building standard
lighting fixtures within the Premises at Tenant's expense. If Tenant's
electrical consumption in the Premises is separately metered, Tenant shall
pay for such costs directly to the public utility company. If Tenant's
electrical consumption in the Premises is not seperately metered, Tenant
shall pay (i) Tenant's Share of the electrical consumption of the Building
(exluding Common Areas) as estimated by Landlord in Landlord's good faith
judgment and billed by Landlord to Tenant monthly (payment due within ten
(10) days of Tenant's receipt of an invoice therfor from Landlord), and (ii)
Tenant's Share of electrical consumption for the Common Areas which will be
billed to Tenant as a part of Operating Expenses.
10.1.3. WATER. Landlord shall provide city water from
the regular Building outlets for drinking, lavatory, and toilet purposes.
10.1.4. JANITORIAL SERVICES. Landlord shall provide five
(5) days per week janitorial services in and about the Premises. Landlord
shall not be required to provide janitorial services to above standard
improvements installed in the Premises such as kitchens and shower facilities.
10.2. OVER-STANDARD TENANT USE. Tenant shall not, without
Landlord's prior written consent, use heat generating machines, machines
other than normal fractional horsepower office machines, or equipment or
lighting other than building standard lights in the Premises that may
materially and adversely affect the temperature otherwise maintained by the
air conditioning system or that may materially increase the water normally
furnished to the Premises by Landlord under Section 10.1. If such consent is
given, Landlord shall have the right to install supplementary air
conditioning units or other facilities in the Premises, including
supplementary or additional metering devices. On billing by Landlord, Tenant
shall pay the cost for such supplementary facilities, including the cost of
(a) installation, operation, and maintenance; (b) increased wear and tear on
existing equipment; and (c) other similar charges. If Tenant uses water,
electricity, heat, or air conditioning in excess of that required to be
supplied by Landlord under Section 10.1, Tenant shall pay to Landlord, on
billing, the cost of (a) the excess service; (b) installation, operation, and
maintenance of equipment installed to supply the excess service; and (c)
increased wear and tear on existing equipment caused by Tenant's excess
consumption. Landlord may install devices to separately meter any increased
use. On demand, Tenant shall pay the increased cost directly to Landlord,
including the cost of the additional metering devices. Tenant's use of
electricity shall never exceed the capacity of the feeders serving the
Building and Premises or the risers or wiring installation. If Tenant wishes
to use heat, ventilation, or air conditioning during hours other than those
for which Landlord is obligated to supply such utilities under Section 10.1,
Tenant shall give Landlord such prior notice as Landlord shall from time to
time establish as appropriate, and Landlord shall supply such utilities to
Tenant at an hourly cost to Tenant as Landlord shall from time to time
establish. Amounts payable by Tenant to Landlord under this Section 10.2 for
use of additional utilities shall be considered Additional Rent under this
Lease and shall be billed on a monthly basis.
10.3. INTERRUPTION OF UTILITIES. Tenant agrees that Landlord shall
not be liable for damages, by abatement of Rent or otherwise, for failure to
furnish or delay in furnishing any service (including telephone and
telecommunication services) or for diminution in the quality of quantity of
any service when the failure, delay, or diminution is entirely or partially
caused by: (a) breakage, repairs, replacements, or improvements; (b) strike,
lockout, or other labor trouble; (c) inability to secure electricity, gas,
water, or other fuel at the Building after reasonable effort to do so; (d)
accident or casualty; (e) act or default of Tenant or other parties; or (f)
any other cause
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beyond Landlord's reasonable control. Such failure, delay, or diminution
shall not be considered to constitute an eviction or a disturbance of
Tenant's use and possession of the Premises or relieve Tenant from paying
Rent or performing any of its obligations under this Lease. Landlord shall
not be liable under any circumstances for a loss of or injury to property or
for injury to or interference with Tenant's business, including loss of
profits through, in connection with, or incidental to a failure to furnish
any of the utilities or services under this Article 10. Landlord may comply
with mandatory or voluntary controls or guidelines promulgated by any
government entity relating to the use or conservation of energy, water, gas,
light, or electricity or the reduction of automobile or other emissions
without creating any liability of Landlord to Tenant under this Lease as long
as compliance with voluntary controls or guidelines does not materially and
unreasonably interfere with Tenant's use of the Premises.
Article 11
REPAIRS AND MAINTENANCE
11.1 TENANT'S REPAIR AND MAINTENANCE OBLIGATIONS. Tenant shall, at
Tenant's sole expense and in accordance with the terms of this Lease
(including Article 12) keep the Premises (including all Tenant Improvements,
Alterations, fixtures, and furnishings) in good order, repair, and condition
at all times during the Lease Term. Under Landlord's supervision, subject to
Landlord's prior approval, and within any reasonable period specified by
Landlord, Tenant shall, at Tenant's sole expense and in accordance with the
terms of this Lease (including Article 12) promptly and adequately repair all
damage to the Premises and replace or repair all damaged or broken fixtures
and appurtenances. At Landlord's option or if Tenant fails to make such
repairs, Landlord may, but need not, make the repairs and replacements. On
receipt of an invoice from Landlord, Tenant shall pay Landlord Landlord's out
of pocket costs incurred in connection with such repairs and replacements
plus a percentage of such costs, to be uniformly established for the
Building, sufficient to reimburse Landlord for all overhead, general
conditions, fees, and other costs and expenses arising from Landlord's
involvement with such repairs and replacements. Tenant waives and releases
its rights, including its right to make repairs at Landlord's expense, under
California Civil Code Sections 1941-1942 or any similar law, statute, or
ordinance now or hereafter in effect. Landlord and Tenant acknowledge and
agree that Tenant intends to install (i) an emergency backup generator
("Generator") outside the Building in an area reasonably acceptable to
Landlord and (ii) a Building security system ("Security System"). Tenant shall
be solely responsible for all maintenance and repair of the Generator and
Security System and shall, unless Landlord and Tenant agree otherwise, remove
the Generator and Security System upon the expiration or earlier termination
of this Lease and shall make any repairs to the Project occasioned thereby.
Tenant shall provide Landlord with any and all keys, codes, etc. to operate
the Security System in case of emergency and shall cooperate with any tenants
of the Building to ensure access thereto during Building Hours.
11.2 LANDLORD'S REPAIR AND MAINTENANCE OBLIGATIONS. Subject to Articles
15 and 16, Landlord shall, as part of the Operating Expenses (to the extent
permitted by Article 5), repair and maintain in good order and condition
(reasonable wear and tear excepted): (a) the structural portions of the
Premises; (b) the Base Building, (c) the Basic Building Systems located
outside the Premises; (d) the exterior portions of the Building and Project,
and (e) all other common areas located in the Building, or in or on the
Project, including the parking facilities serving the Building. Repairs shall
be made promptly when appropriate to keep the applicable portion of the
Premises, Building, Project, and other items in the condition described in
this clause. Landlord shall not be in default of its repair and maintenance
obligations under this Section 11.2 if Landlord performs the repairs and
maintenance within thirty (30) days after written notice by Tenant to
Landlord of the need for such repairs and maintenance. If, due to the nature
of the particular repair or maintenance obligation, more than thirty (30)
days are reasonably required to complete it, Landlord shall not be in default
under this Section 11.2 if Landlord begins work within this thirty-day
(30-day) period and diligently prosecutes this work to completion. Except as
provided in Section 11.3, no abatement of rent and no liability of Landlord
shall result for any injury to or interference with Tenant's business arising
from the making of or failure to make any repairs, replacements, alterations,
or improvements in or to any portion of the Premises, Building, Project,
fixtures, appurtenances, or equipment. Except as provided in Section 11.3,
Tenant waives and releases its rights, including its right to make repairs at
Landlord's expense, under California Civil Code Sections 1941-1942 or any
similar law, statute, or ordinance now or hereafter in effect.
11.3 TENANT'S RIGHT TO MAKE REPAIRS AND DEDUCT COSTS. If Tenant provides
notice to Landlord of an event or circumstance that requires the action of
Landlord with respect to the repairs or maintenance to the Premises or Base
Building Systems servicing the Premises as set forth in Section 11.2, and
Landlord fails to provide such action as required by the terms of this Lease
within the period specified in Section 11.2, Tenant may take the required
action if, (a) Tenant delivers to Landlord an additional written notice
advising Landlord that Tenant intends to take the required action if Landlord
does not begin the required repair or maintenance within ten (10) days after
written notice, and (b) Landlord fails to begin the required work within the
ten-day (10) period.
If within thirty (30) days after receipt of Tenant's written demand for
payment of Tenant's costs incurred in taking such action on Landlord's
behalf (including a reasonably particularized statement), Landlord has not
paid the invoice or delivered to Tenant a detailed written objection to it,
Tenant may deduct from Rent payable by Tenant under this Lease the amount set
forth in the invoice. Tenant shall not be entitled to this deduction from
Rent, however, if, within thirty (30) days after receipt of Tenant's invoice,
Landlord in good faith delivers to Tenant written objection to its payment,
setting forth with reasonable particularity Landlord's reasons for its claim
that Landlord did not have to take this action under the terms of this Lease
or that the charges are excessive (in which case Landlord shall pay the
amount it contends would not have been excessive). If Landlord and Tenant are
unable to resolve this disagreement, Tenant's sole remedy shall be to
institute legal proceedings against Landlord to collect the amount set forth
in Tenant's invoice.
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Article 12
ALTERATIONS AND ADDITIONS
12.1. LANDLORD'S CONSENT TO ALTERATIONS. Tenant may not make any
improvements, alterations, additions, or changes to the Premises
("Alterations") without obtaining Landlord's prior written consent.
12.1.1. CONSENT PROCEDURE: CONDITIONS. Tenant shall request such
consent by written notice to Landlord, which must be accompanied by detailed
and complete plans and specifications for the proposed work. As a condition
of its consent to Alterations, Landlord may impose any requirements that
Landlord considers desirable, including a requirement that Tenant provide
Landlord with a surety bond, a letter of credit, or other financial assurance
that the cost of the Alterations will be paid when due.
12.1.2. REASONABLE CONSENT. Landlord shall not unreasonably
withhold its consent to proposed Alterations. The Alterations for which
Landlord may reasonably withhold consent include those that would or could:
(a) affect the structure of the Building or any portion of the Building other
than the interior of the Premises; (b) affect the Base Building Systems of
the Premises or Building; (c) result in Landlord's being required under Laws
and Orders (other than the ADA) to perform any work that Landlord could
otherwise avoid or defer ("Additional Required Work"); (d) result in an
increase in the demand for utilities or services that Landlord is required to
provide; or (e) cause an increase in the premiums for hazard or liability
insurance carried by Landlord. "Base Building Systems" means all systems and
equipment (including plumbing; heating, ventilation and air conditioning,
electrical; fire/life safety; and elevator but excluding Tenant's Security
System and Generator) that serve all or part of the Building.
12.1.3. COST OF REVIEW. Tenant shall reimburse Landlord for the
reasonable fees and costs of any architects, engineers, or other consultants
retained by Landlord to review the proposed Alterations.
12.2. COMPLIANCE OF ALTERATIONS WITH LAWS AND INSURANCE REQUIREMENTS.
Tenant shall cause all Alterations to comply with the following: (a)
applicable Laws and Orders; (b) applicable requirements of a fire rating
bureau; or (c) applicable requirements of Landlord's hazard insurance carrier
to the extent that Tenant is informed of them. Tenant shall also comply with
those requirements in the course of constructing the Alterations. Before
beginning construction of any Alteration, Tenant shall obtain a valid
building permit and any other permits required by any government entity
having jurisdiction over the Premises. Tenant shall provide copies of those
permits to Landlord before the work begins. Tenant shall, at Tenant's sole
expense, perform any Additional Required Work in the Premises, which shall be
subject to the same requirements as any Alteration. If any Additional
Required Work must be performed outside the Premises, Landlord may elect to
perform that work at Tenant's expense. No consent by Landlord to any proposed
work shall constitute a waiver of Tenant's obligations under this Section
12.2.
12.3. MANNER OF CONSTRUCTION. Tenant shall build Alterations entirely
within the Premises and in conformance with Landlord's construction rules and
regulations, using only contractors and subcontractors approved in writing by
Landlord. All work relating to any Alterations shall be done in a good and
workmanlike manner, using new materials equivalent in quality to those used
in the construction of the initial improvements to the Premises. All work
shall be diligently prosecuted to completion. Tenant shall ensure that all
work is performed in a manner that does not obstruct access to or through the
Building or its common areas and that does not interfere either with other
tenants' use of their premises or with any other work being undertaken in the
Building. Tenant shall take all measures necessary to ensure that labor
peace is maintained at all times. Within twenty (20) days after completion of
any Alterations, Tenant shall deliver to Landlord a reproducible copy of the
drawings of Alterations as built.
12.4. PAYMENT FOR IMPROVEMENTS. Tenant shall promptly pay all charges
and costs incurred in connection with any Alteration, as and when required by
the terms of any agreements with contractors, designers, or suppliers. At
least seven (7) days before beginning construction of any Alteration, Tenant
shall give Landlord written notice of the expected commencement date of that
construction to permit Landlord to post and record a notice of
non-responsibility. On completion of any Alteration, Tenant shall: (a) cause a
timely notice of completion to be recorded in the office of the recorder of
the county in which the Building is located, in accordance with Civil Code
Section 3093 or any successor statute, and (b) deliver to Landlord evidence of
full payment and unconditional final waivers of all liens for labor, services,
or materials.
12.5. CONSTRUCTION INSURANCE. Before construction begins, Tenant shall
deliver to Landlord reasonable evidence that damage to, or destruction of,
the Alterations during construction will be covered either by the policies
that Tenant is required to carry under Article 14 or by a policy of builder's
all risk insurance in an amount approved by Landlord. If Landlord requires
Tenant to provide builder's all risk insurance for the proposed Alterations,
Tenant shall provide a copy of the policy, any endorsements, and an original
certificate of insurance that complies with Subsection 14.8.2. Tenant shall
cause each contractor and subcontractor to maintain all workers' compensation
insurance required by law and liability insurance (including property damage)
in amounts reasonably required by Landlord. Tenant shall provide evidence of
that insurance to Landlord before construction begins.
12.6. LANDLORD'S PROPERTY. All Alterations, signs, fixtures, or
equipment that may be installed or placed in or about the Premises from time
to time shall be and become the property of Landlord on installation. Tenant
may remove any trade fixtures or freestanding kitchen or office equipment
that Tenant can substantiate to Landlord has not been paid for with any
tenant improvement allowance funds provided to Tenant by Landlord. Tenant must
repair any damage to the Premises and Buildings caused by that removal.
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the Premises or Building, including the violation of or failure to comply
with any applicable laws, statutes, ordinances, standards, rules,
regulations, orders, decrees, or judgments in existence on the Lease
Commencement Date or enacted, promulgated, or issued after the date of this
Lease, except to the extent that compliance with such legal requirements is
expressly made the responsibility of Landlord in Article 8, 11 of 15; and (c)
any breach or default in performance of any obligation on Tenant's part to be
performed under this Lease.
14.2.2. DEFINITION OF CLAIMS. For purposes of this Lease, "Claims"
means any and all claims, losses, costs, damage, expenses, liabilities,
liens, actions, causes of action (whether in tort or contract, law or equity,
or otherwise), charges, assessments, fines, and penalties of any kind
(including consultant and expert expenses, court costs, and attorney fees
actually incurred).
14.2.3. TYPE OF INJURY OR LOSS. This indemnification extends to and
includes Claims for: (a) injury to any persons (including death at any time
resulting from that injury); (b) loss of, injury or damage to, or destruction
of property (including all loss of use resulting from that loss, injury,
damage, or destruction); and (c) all economic losses and consequential or
resulting damage but only to the extent incurred by Landlord in connection
with (1) a holdover of the Premises by Tenant after the expiration or earlier
termination of this Lease or (2) any repair, physical construction, or work
of improvement performed by or on behalf of Tenant in the Building.
14.2.4. ACTIVE OR PASSIVE NEGLIGENCE; STRICT LIABILITY. Tenant's
indemnification in Subsection 14.2.1 shall not apply to any Claim caused by
or arising out of the active or passive negligence of Landlord Parties or to
the extent that a Claim against Landlord Parties actually or allegedly arises
out of the willful misconduct of Landlord Parties, except for damage to the
Tenant Improvements or Tenant's personal property, fixtures, furniture, and
equipment in the Premises to the extent that such damage is covered by
insurance that Tenant is required to carry under this Lease (or would have
been covered had Tenant carried the insurance required under this Lease).
Except as provided in this Subsection 14.2.4, nothing in this Lease shall
impose any obligation on Landlord to be responsible for or liable for, and
Tenant releases Landlord from all liability for consequential damages
suffered by Tenant and nothing in this Lease imposes any obligation on Tenant
to be responsible for or liable for, and Landlord releases Tenant from all
liability for, consequential damages suffered by Landlord.
14.2.5. INDEMNIFICATION INDEPENDENT OF INSURANCE OBLIGATIONS. The
indemnification provided in this Article 14 may not be construed or
interpreted as in any way restricting, limiting, or modifying Tenant's
insurance or other obligations under this Lease and is independent of
Tenant's insurance and other obligations. Tenant's compliance with the
insurance requirements and other obligations under this Lease shall not in
any way restrict, limit, or modify Tenant's indemnification obligations
under this Lease.
14.2.6. ATTORNEY FEES. The prevailing party shall be entitled to
recover its actual attorney fees and court costs incurred in enforcing the
indemnification clauses set forth in this Section 14.2.
14.2.7. SURVIVAL OF INDEMNIFICATION. The clauses of this Section
14.2 shall survive the expiration or earlier termination of this Lease until
all claims against Landlord Parties involving any of the indemnified matters
are fully, finally, and absolutely barred by the applicable statutes of
limitations.
14.2.8. LANDLORD'S INDEMNIFICATION OF TENANT. Landlord shall, with
counsel reasonably acceptable to Tenant, indemnify, defend, and hold harmless
Tenant Parties from and against all Claims resulting from the negligent acts,
omission, or willful misconduct of Landlord Parties in connection with
Landlord Parties' activities in, on, or about the Real property or Building,
except to the extent that such Claim is for damage to the Tenant Improvements
and Tenant's personal property, fixtures, furniture, and equipment in the
Premises and is covered by insurance that Tenant is required to obtain under
this Lease (or would have been covered had Tenant carried the insurance
required under this Lease).
14.3 COMPLIANCE WITH INSURER REQUIREMENTS. Tenant shall, at Tenant's
sole expense, comply with all commercially reasonable requirements,
guidelines, rules, orders, and similar mandates and directives pertaining to
the use of the Premises and the Building, whether imposed by Tenant's
insurers, Landlord's insurers, or both. If Tenant's business operations,
conduct, or use of the Premises or the Building cause any incease in premium
for any insurance policies carried by Landlord, Tenant shall, within ten (10)
business days after receipt of written notice from Landlord, reimburse
Landlord for the increase. Tenant shall, at Tenant's sole expense, comply
with all rules, orders, regulations, or requirements of the American
Insurance Association (formerly the National Board of Fire Underwriters) and
of any similar body.
14.4. TENANT'S LIABILITY COVERAGE. Tenant shall, at Tenant's sole
expense, maintain the coverages set forth in this Section 14.4.
14.4.1. COMMERCIAL GENERAL LIABILITY INSURANCE. Tenant shall obtain
commercial general liability insurance written on an "occurrence" policy form,
covering bodily injury, property damage, personal injury, and advertising
injury arising out of or relating (directly or indirectly) to Tenant's
business operations, conduct, assumed liabilities, or use or occupancy of the
Premises or the Building.
14.4.2. BROAD FORM COVERAGE. Tenant's liability coverage shall
include all the coverages typically provided by the Broad Form Comprehensive
General Liability Endorsement, including broad form property damage coverage
(which shall include coverage for completed operations). Tenant's liability
coverage shall further include premises operations coverage, products
completed operations coverage, owners and contractors protective coverage
(when reasonably required by landlord), and the broadest available form of
contractual liability coverage. It is the
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(when reasonably required by landlord), and the broadest available form of
contractual liability coverage. It is the parties' intent that Tenant's
contractual liability coverage provide coverage to the maximum extent possible
of Tenant's indemnification obligations under this Lease.
14.4.3. PRIMARY INSURED. Tenant shall be the first or primary
named insured.
14.4.4. ADDITIONAL INSURED. Landlord Parties and any lender of
Landlord shall be named by endorsement as additional Insured under Tenant's
general liability coverage. The additional insured endorsement must be on ISO
Form CG 20 11 11 85 or an equivalent acceptable to Landlord, with such
modifications as Landlord may require.
14.4.5. CROSS LIABILITY; SEVERABILITY OF INTERESTS. Tenant's
general liability policies shall be endorsed as needed to provide cross
liability coverage for Tenant, Landlord, and any lender of Landlord and to
provide severability of interests.
14.4.6. PRIMARY INSURANCE ENDORSEMENTS FOR ADDITIONAL INSUREDS.
Tenant's general liability policies shall be endorsed as needed to provide that
the insurance afforded by those policies to the additional insured is primary
and that all insurance carried by Landlord Parties is strictly excess and
secondary and shall not contribute with Tenant's liability insurance.
14.4.7. SCOPE OF COVERAGE FOR ADDITIONAL INSUREDS. The coverage
afforded to Landlord and any lender of Landlord must be at least as broad as
that afforded to Tenant and may not contain any terms, conditions, exclusions,
or limitations applicable to Landlord or any lender of Landlord that do not
apply to Tenant.
14.4.8. DELIVERY OF CERTIFICATE, POLICY, AND ENDORSEMENTS. Before
the Lease Commencement Date, Tenant shall deliver to Landlord the endorsements
referred to in this Section 14.4 as well as an original certificate of
insurance, executed by an authorized agent of the insurer or insurers,
evidencing compliance with the liability insurance requirements. The
certificate shall provide for no less than ten (10) days' advance written
notice to Landlord from the insurer or insurers of any cancellation,
non-renewal, or material change in coverage or available limits of liability and
shall confirm compliance with the liability insurance requirements in this
Lease. The "endeavor to" and "failure to mail such notice shall impose no
obligation or liability of any kind upon the Company" language and any similar
language shall be stricken from the certificate.
14.4.9. CONCURRENCY OF PRIMARY, EXCESS, AND UMBRELLA POLICIES.
Tenant's liability insurance coverage may be provided by a combination of
primary, excess, and umbrella policies, but those policies must be absolutely
concurrent in all respects regarding the coverage afforded by the policies.
The coverage of any excess or umbrella policy must be at least as broad as the
coverage of the primary policy.
14.4.10. LIABILITY LIMITS. The minimum acceptable limit of
liability for Tenant's liability insurance is two million dollars ($2,000,000)
(general aggregate other than products and completed operations).
14.4.11. "PER LOCATION" ENDORSEMENT. Tenant shall, at Tenant's sole
expense, procure a "per location" endorsement or equivalent reasonably
acceptable to Landlord so that the general aggregate and other limits apply
separately and specifically to the Premises.
14.5. TENANT'S WORKERS' COMPENSATION AND EMPLOYER LIABILITY COVERAGE.
Tenant shall procure and maintain workers' compensation insurance as required by
law and employer's liability insurance with the limits of no less than one
million dollars ($1,000,000).
14.6. TENANT'S FIRST PARTY INSURANCE. Tenant shall, at Tenant's sole
expense, procure and maintain the first party insurance coverages described in
this Section 14.6.
14.6.1. TENANT'S PROPERTY INSURANCE. Tenant shall procure and
maintain property insurance coverage for all office furniture, trade fixtures,
office equipment, merchandise, and all other items of Tenant's property in, on,
at, or about the Premises and the Building, including property installed by,
for, or at the expense of Tenant but excluding Tenant Improvements, as defined
in the Tenant Improvement Agreement and all other improvements, betterment's,
alterations, and additions to the Premises. Tenant's property insurance must
fulfill the following requirements: (a) it must be written on the broadest
available "all risk" (special causes of loss) policy form or an equivalent form
acceptable to Landlord; (b) it must include an agreed amount endorsement for no
less than one hundred percent (100%) of the full replacement cost (new without
deduction for depreciation) of the covered items and property; and (c) the
amounts of coverage must meet any coinsurance requirements of the policy or
policies. It is the parties' intent that Tenant shall structure its property
insurance program so that no coinsurance penalty shall be imposed and there
shall be no valuation shortfalls or disputes with any insurer or with Landlord.
The property insurance coverage shall include vandalism and malicious mischief
coverage, sprinkler leakage coverage, and earthquake sprinkler leakage coverage.
Landlord shall maintain property insurance coverage for the Tenant Improvements,
as defined in the Tenant Improvement Agreement, and for all other improvements,
betterments, alterations, and additions to the Premises.
14.6.2. BUSINESS INCOME AND EXTRA EXPENSE COVERAGE. Tenant shall
further procure and maintain business income (business interruption) insurance
and extra expense coverage with coverage amounts that shall reimburse Tenant
for all direct or indirect loss of income and charges and costs incurred
arising out of all perils
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insured against by Tenant's property insurance coverage, including prevention
of, or denial of use of or access to, all or part of the Premises or the
Building, as a result of those perils. The business income and extra expense
coverage shall provide coverage for no less than three (3) months of the loss
of income, charges, and costs contemplated under the Lease and shall be carried
in amounts necessary to avoid any coinsurance penalty that could apply. The
insurer that issues Tenant's other first party coverage shall issue the business
income and extra expense coverage.
14.7. OTHER TENANT INSURANCE COVERAGE. Tenant shall, at Tenant's own
expense, procure and maintain any other and further insurance coverages that
Landlord or Landlord's lender may reasonably require. Tenant shall not,
however, be required to procure or maintain other and further coverages that
are beyond those typically maintained by similarly situated tenants leasing
reasonably similar amounts and types of space for similar use in comparable
buildings in the same sub-market or not available at commercially reasonable
rates.
14.8. FORM OF POLICIES AND ADDITIONAL REQUIREMENTS.
14.8.1. INSURANCE INDEPENDENT OF EXCULPATION AND INDEMNIFICATION.
The insurance requirements set forth in Sections 14.4-14.9 are independent of
Tenant's exculpation, indemnification, and other obligations under this Lease
and shall not be construed or interpreted in any way to restrict, limit, or
modify Tenant's exculpation, indemnification, and other obligations or to limit
Tenant's liability under this Lease.
14.8.2. FORM OF POLICIES. In addition to the requirements set
forth in Subsection 14.4.8, the insurance required of Tenant under this Article
14 must: (a) name Landlord and any other party Landlord specifies by endorsement
as an additional insured; (b) be issued by an insurance company with a rating of
no less than ABVIII in the current Best's Insurance Guide, or that is otherwise
reasonably acceptable to Landlord, and admitted to engage in the business of
insurance in the State of California; (c) be primary insurance for all claims
under it and provide that any insurance carried by Landlord Parties and
Landlord lenders is strictly excess, secondary, and noncontributing with any
insurance carried by Tenant; and (d) provide that insurance may not be
canceled, non-renewed, or the subject of material change in coverage or
available limits of coverage, except on ten (10) days' prior written notice to
Landlord and Landlord's lenders.
14.8.3. TENANT'S DELIVERY OF POLICY, ENDORSEMENTS, AND
CERTIFICATES. Tenant shall deliver the certificates required by this Article
14, to Landlord: (a) on or before the Lease Commencement Date, (b) at least
thirty (30) days before the expiration date of any policy, and (c) on renewal
of any policy.
14.8.4. DEDUCTIBLE AND SELF INSURED RETENTION'S. All deductibles
and self-insured retention's under Tenant's policies shall be generally
consistent with those typically maintained by similarly situated tenants leasing
reasonably similar amounts and types of space for similar use in comparable
buildings in the same sub-market.
14.9. WAIVER OF SUBROGATION. Landlord and Tenant agree to cause the
insurance companies issuing their respective property (first party) insurance to
waive any subrogation rights that those companies may have against Tenant or
Landlord, respectively, as long as the waiver does not invalidate the insurance.
If the waivers of subrogation are contained in their respective insurance
policies, Landlord and Tenant waive any right that either may have against the
other on account of any loss or damage to their respective property to the
extent that the loss or damage is insured under their respective insurance
policies.
Article 15
DAMAGE AND DESTRUCTION
15.1. REPAIR OF DAMAGE BY LANDLORD. Tenant agrees to notify Landlord in
writing promptly of any damage to the Premises resulting from fire, earthquake,
or any other identifiable event of a sudden, unexpected, or unusual nature
("Casualty"). If the Premises are damaged by a Casualty or any common areas of
the Building providing access to the Premises are damaged to the extent that
Tenant does not have reasonable access to the Premises and if neither Landlord
nor Tenant has elected to terminate this Lease under Section 15.3 or 15.4,
Landlord shall promptly and diligently restore such common areas, the Base
Building of the Premises, and the Tenant Improvements originally constructed by
Landlord to substantially the same condition as existed before the Casualty,
except for modifications required by building codes and other laws and except
for any other modifications to the common areas considered desirable by
Landlord. In making these modifications, Landlord shall not materially impair
Tenant's access to the Premises. Landlord's obligation to restore is subject
to reasonable delays for insurance adjustment and other matters beyond
Landlord's reasonable control and subject to the other clauses of this Article
15. If Tenant requests that Landlord modify the Tenant Improvements in
connection with the rebuilding, Landlord may condition its consent to those
modifications on: (a) Tenant's payment to Landlord before construction is begun
of any sums in excess of the amount of insurance proceeds received by Landlord
that are needed to complete the Tenant Improvements; and (b) Confirmation by
Landlord's architect or contractor that the modifications will not increase the
scope of work or the time necessary to complete the Tenant Improvements.
15.2. REPAIR PERIOD NOTICE. Landlord shall, within the later of (a) sixty
(60) days after the date on which Landlord determines the full extent of the
damage caused by the Casualty or (b) thirty (30) days after Landlord has
determined the extent of the insurance proceeds available to effectuate repairs,
provide written notice to Tenant indicating the anticipated period for
repairing the Casualty ("Repair Period Notice"). The Repair Period Notice shall
also state, if applicable, Landlord's election either to repair or to terminate
the Lease under Section 15.3.
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15.3. LANDLORD'S OPTION TO TERMINATE OR REPAIR. Landlord may elect either
to terminate this Lease or to effectuate repairs if: (a) the Repair Period
Notice estimates that the period for repairing the Casualty exceeds two hundred
and ten (210) days from the date of the commencement of the repair; (b) the
estimated repair cost exceeds the insurance proceeds, if any, available for
such repair (not including the deductible, if any, on Landlord's property
insurance), plus any amount that Tenant is obligated or elects to pay for such
repair; (c) the estimated repair cost of the Premises or the Building, even
though covered by insurance, exceeds fifty percent (50%) of the full
replacement cost; or (d) the Building cannot be restored except in a
substantially different structural or architectural form than existed before
the Casualty. Landlord's election shall be stated in the Repair Period Notice.
15.4. TENANT'S OPTION TO TERMINATE. If the Repair Period Notice provided
by Landlord indicates that the anticipated period for repairing the Casualty
exceeds two hundred and ten (210) days, Tenant may elect to terminate this Lease
by providing written notice (Tenant's Termination Notice) to Landlord within ten
(10) days after receiving the Repair Period Notice. If Tenant does not elect to
terminate within this ten-day (10 day) period, Tenant shall be considered to
have waived the option to terminate.
15.5. RENT ABATEMENT DUE TO CASUALTY. Landlord and Tenant agree that, if
the Casualty was not the result of negligence or willful misconduct of Tenant or
Tenant's employees, contractors, licensees, or invitees, Tenant shall be
provided with a proportionate abatement of Rent based on the Rentable Square
Footage of the Premises rendered unusable (due to physical damage to the
Premises or Base Building Systems or the unavailability of access to the
Premises) and not used by Tenant, but only to the extent that Landlord is
reimbursed from the proceeds of rental interruption insurance purchased by
Landlord as a part of Operating Expenses. That proportional abatement, if any,
shall be provided during the period beginning on the later of (a) the date of
the Casualty or (b) the date on which Tenant ceases to occupy the Premises and
ending on the date of Substantial Completion of Landlord's restoration
obligations as provided in this Article 15. Subject to Section 15.4. the Rent
abatement provided in this Section 15.5 is Tenant's sole remedy due to the
occurrence of the Casualty. Landlord shall not be liable to Tenant or any
other person or entity for any direct, indirect, or consequential damage
(including but not limited to lost profits of Tenant or loss of or interference
with Tenant's business), whether or not caused by the negligence of Landlord or
Landlord's employees, contractors, licensees, or invitees, due to, arising out
of, or as a result of the Casualty (including but not limited to the
termination of the Lease in connection with the Casualty). Tenant agrees to
maintain business interruption insurance in amounts and with coverage no less
than that required by Subsection 14.7.2 to provide coverage regarding such
matters.
15.6. DAMAGE NEAR END OF TERM. Despite any other provisions of this
Article 15, if the Premises or the Building is destroyed or damaged by a
Casualty during the last eighteen (18) months of the Lease Term, Landlord shall
have the option to terminate this Lease by giving written notice to Tenant of
the exercise of that option within thirty (30) days after that damage or
destruction.
15.7. EFFECTIVE DATE OF TERMINATION; RENT APPORTIONMENT. If Landlord or
Tenant elects to terminate this Lease under this Article 15 in connection with a
Casualty, this termination shall be effective thirty (30) days after delivery of
notice of such election. Tenant shall pay Rent, properly apportioned up to the
date of the Casualty. After the effective date of this termination, Landlord
and Tenant shall be discharged of all future obligations under this Lease,
except for those provisions that, by their terms, survive the expiration or
earlier termination of the Lease.
15.8. WAIVER OF STATUTORY PROVISIONS. The provisions of this Lease,
including those in this Article 15, constitute an express agreement between
Landlord and Tenant that applies in the event of any Casualty, to the Premises,
Building, or Project. Tenant, therefore, fully waives the provisions of any
statute or regulation, including California Civil Code Sections 1932(2) and
1933(4), for any rights or obligations concerning a Casualty.
Article 16
CONDEMNATION
16.1. DEFINITION OF "CONDEMNATION". As used in this Lease, the term
"Condemnation" means a permanent taking through (a) the exercise of any
government power (by legal proceedings or otherwise) by any public or quasi
public authority or by any other party having the right of eminent domain
("Condemnor") or (b) a voluntary sale or transfer by Landlord to any Condemnor,
either under threat of exercise of eminent domain by a Condemnor or while legal
proceedings for condemnation are pending.
16.2. EFFECT ON RIGHTS AND OBLIGATIONS. If, during the Lease Term or the
period between the date of execution of this Lease and the date on which the
Lease Term begins, there is any Condemnation of all or part of the Premises,
Building, or Project on which the Premises and Building are constructed, the
rights and obligations of the parties shall be determined under this Article 16,
and Rent shall not be affected or abated except as expressly provided in this
Article. Landlord shall notify Tenant in writing of any Condemnation within
thirty (30) days after the later of (a) the filing of a complaint by Condemnor
or (b) the final agreement and determination by Landlord and Condemnor of the
extent of the taking ("Condemnation Notice").
16.3. TERMINATION OF LEASE.
16.3.1. DEFINITION OF "TERMINATION DATE". The "Termination Date"
shall be the earliest of: (a) the date on which Condemnor takes possession of
the property subject to the Condemnation; (b) the date on which title to the
property that is subject to the Condemnation is vested in Condemnor; (c) if
Landlord has elected to terminate, the date on which Landlord requires
possession of the property in connection with the Condemnation, as
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specified in written notice delivered to Tenant no less than thirty (30) days
before that date, or (d) if Tenant has elected to terminate, thirty (30) days
after Landlord's receipt of written notice of termination from Tenant. If both
Landlord and Tenant have elected to terminate under this Article 16, the
Termination Date shall be the earliest of the dates described in (a) - (c)
above.
16.3.2. AUTOMATIC TERMINATION. If the Premises are totally
taken by Condemnation, this Lease shall terminate as of the Termination Date,
and the Condemnation Award shall be allocated between Landlord and Tenant in
accordance with Section 16.5.
16.3.3. LANDLORD'S RIGHT TO TERMINATE. Landlord shall have
the option to terminate this Lease if: (a) ten percent (10%) or more of the
Rentable Square Feet of the Building or the Premises is taken through
Condemnation; (b) any portion of the Building or Project necessary for
Landlord to operate the Building efficiently is taken through Condemnation;
or (c) any other areas providing access to the Premises or Building are taken
through Condemnation. To elect to terminate the Lease under this Subsection
16.3.3. Landlord must provide written notice of its election ("Landlord's
Taking Termination Notice") to Tenant within thirty (30) days after the later
of (a) the filing of a complaint by Condemnor or (b) the final agreement and
determination by Landlord and Condemnor of the extent of the taking. In that
event, this Lease shall be terminated on the Termination Date, and all Rent
shall be prorated to that date. If Landlord does not elect to terminate under
this Subsection 16.3.3. Landlord shall, subject to Subsection 16.3.4. be
obligated to the extent of severance damages received by Landlord to
reasonably restore (to the extent feasible) the Premises or access to the
Premises, subject to Landlord's obtaining all necessary approvals, permits,
and authorizations relating to such work.
16.3.4. TENANT'S RIGHT TO TERMINATE.
16.3.4.1. GROUNDS; TERMINATION NOTICE. Tenant
shall have the option to terminate this Lease by providing thirty (30) days'
written notice to Landlord if one or both of the following are taken through
Condemnation: (a) twenty five percent (25%) or more of the Usable Square Feet
of the Premises; or (b) any portion of the Building that provides Tenant with
its access to the Premises and that, if taken, would eliminate Tenant's
access to the Premises. Tenant's notice must be given within thirty (30) days
after Tenant's receipt of the Condemnation Notice required by Section 16.2.
16.3.4.2. LANDLORD'S RESTORATION NOTICE. Despite
Tenant's termination right, this Lease shall continue in full force and
effect if Landlord gives Tenant written notice ("Restoration Notice") within
thirty (30) days after the date on which the nature and extent of the
Condemnation are finally determined, stating that: (a) Landlord shall, at
Landlord's sole expense, reconfigure the remaining Premises or provide
alternative, reasonable access to Tenant so that the area of the Premises
shall be substantially the same after the Condemnation and Tenant shall have
reasonable access to the Premises after the Condemnation; (b) Landlord shall
begin the restoration as soon as reasonably practicable; and (c) Landlord has
reasonably determined that such restoration can be completed within ninety
(90) days after the date of the notice.
16.3.5. TENANT'S WAIVER. Tenant agrees that its rights to
terminate this Lease due to partial Condemnation are governed by this Article
16. Tenant waives all rights it may have under California Code of Civil
Procedure Section 1265.130, or otherwise, to terminate this Lease based on a
partial Condemnation.
16.3.6. PRORATION OF RENT. If this Lease is terminated
under this Article 16, the termination shall be effective on the Termination
Date, and Landlord shall prorate Rent to that date. Tenant shall be obligated
to pay Rent for the period up to, but not including, the Termination Date as
prorated by Landlord. Landlord shall return to Tenant prepaid Rent allocable
to any period on or after the Termination Date.
16.4. EFFECT OF CONDEMNATION IF LEASE IS NOT TERMINATED If any part
of the Premises is taken by Condemnation and this Lease is not terminated.
Rent shall be proportionately reduced based on the Rentable Square Footage of
the Premises taken. Landlord and Tenant agree to enter into an amendment to
this Lease within thirty (30) days after the partial taking, confirming the
reduction in Rentable Square Footage of the Premises and the reduction in
Rent. If Landlord gives Tenant a timely Restoration Notice under Subsection
16.3.4.2. this Lease shall continue in full force and effect without any
reduction of Rent (unless the Premises as restored are smaller than the
existing Premises, in which case Rent shall be proportionally reduced based
on the reduced Rentable Square Footage), except that Rent shall be abated for
the portion of the Premises not usable by Tenant until Landlord completes the
restoration as provided in the Restoration Notice.
16.5 ALLOCATION OF AWARD.
16.5.1. LANDLORD'S RIGHT TO AWARD. Except as provided in
Subsection 16.5.2 in connection with a Condemnation: (a) Landlord shall be
entitled to receive all compensation and anything of value awarded, paid, or
received in settlement or otherwise ("Award"); and (b) Tenant irrevocably
assigns and transfers to Landlord all rights to and interests in the Award
and fully releases and relinquishes any claim to, right to make a claim on,
or interest in the Award, including any amount attributable to any excess of
the market value of the Premises for the remainder of the Lease Term over the
present value as of the Termination Date of the Rent payable for the
remainder of the Term (commonly referred to as the "bonus value" of the
Lease).
16.5.2. TENANT'S RIGHT TO COMPENSATION. Despite 16.5.1. Tenant
shall have the right to make a separate claim in the Condemnation proceeding, as
long as the Award payable to Landlord is not reduced
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thereby, for: (a) the taking of the unamortized or under appreciated value of
any leasehold improvements owned by Tenant that Tenant has the right to
remove at the end of the Lease Term and that Tenant elects not to remove; (b)
reasonable removal and relocation costs for any leasehold improvements that
Tenant has the right to remove and elects to remove (if Condemnor approves of
the removal); and (c) relocation costs under Government Code Section 7262,
the claim for which Tenant may pursue by separate action independent of this
Lease.
16.6. TEMPORARY TAKING. If a temporary taking of part of the
Premises occurs through (a) the exercise of any government power (by legal
proceedings or otherwise) by Condemnor or (b) a voluntary sale or transfer by
Landlord to any Condemnor, either under threat of exercise or eminent domain
by a Condemnor or while legal proceedings for condemnation are pending. Rent
shall abate during the time of such taking in proportion to the portion of
the Premises taken. The entire Award relating to the temporary taking shall
be and remain the property of Landlord. Tenant irrevocably assigns and
transfers to Landlord all rights to and interest in the Award and fully
releases and relinquishes any claim to, right to make a claim on, and any
other interest in the Award.
Article 17
ASSIGNMENT AND SUBLEASING
17.1. RESTRICTED TRANSFERS.
17.1.1. CONSENT REQUIRED; DEFINITION OF "TRANSFER". Except as
otherwise provided in this Article 17, Tenant shall obtain Landlord's written
consent before entering into or permitting any Transfer. A "Transfer" consists
of any of the following, whether voluntary or involuntary and whether effected
by death, operation of law, or otherwise, (a) any assignment, mortgage, pledge,
encumbrance, or other transfer of any interest in this Lease; (b) any sublease
or occupancy of any portion of the Premises by any persons other than Tenant and
its employees; and (c) any of the changes (e.g., a change of ownership or
reorganization) included in the definition of Transfer in Section 17.7. Any
person to whom any Transfer is made or sought to be made is a "Transferee".
17.1.2. LANDLORD'S REMEDIES. If a Transfer fails to comply
with this Article 17, Landlord may, at its option, do either or both of the
following: (a) void the Transfer or (b) declare Tenant in material and incurable
default under Section 22.1 notwithstanding any cure period specified in Section
22.1.
17.2. TRANSFER PROCEDURE. Before entering into or permitting any
transfer, Tenant shall provide to Landlord a written "Transfer Notice" at
least forty-five (45) days before the proposed effective date of the
Transfer. The Transfer Notice shall include all of the following: (a)
information regarding the proposed Transferee, including the name, address,
and ownership of Transferee; the nature of Transferee's business;
Transferee's character and reputation; and Transferee's current financial
statements (certified by an officer, a partner, or an owner of Transferee);
(b) all the terms of the proposed Transfer, including the consideration
payable by Transferee, the portion of the Premises that is subject to the
Transfer ("Subject Space"): a general description of any planned alterations or
improvements to the Subject Space; the proposed use of the Subject Space: the
effective date of the Transfer; a calculation of the "Transfer Premium", as
defined in Subsection 17.4.1. payable in connection with the Transfer, and a
copy of all documentation concerning the proposed Transfer (c) any other
information or documentation reasonably requested by Landlord: and (d) an
executed estoppel certificate from Tenant in the form attached to this Lease
as EXHIBIT F. As a condition to the effectiveness of the Transfer Notice,
Tenant shall, when providing a Transfer Notice, pay an application fee of
$500.00 toward Landlord's administrative and other costs in reviewing and
processing the Transfer Notice. In addition, within thirty (30) days after
Landlord's written request, Tenant shall pay as Additional Rent any
reasonable legal fees that Landlord incurs in reviewing and processing the
Transfer Notice ("Transfer Fee"). Tenant shall pay the Transfer Fee whether
or not Landlord consents to the Transfer. If Landlord consents to any
Transfer and does not exercise its rights under Section 17.5. the following
limits apply: (a) Landlord does not agree to waive or modify the terms and
conditions of this Lease, (b) Landlord does not consent to any further
Transfer by either Tenant or Transferee, (c) Tenant remains liable under this
Lease, and any guarantor of the Lease remains liable under the guaranty, (d)
Tenant may enter into that Transfer in accordance with this Article 17 if:
(1) the Transfer occurs within six (6) months after Landlord's consent: (2)
the Transfer is on substantially the same terms as specified in the Transfer
Notice; and (2) Tenant delivers to Landlord, promptly after execution, an
original, executed copy of all documentation pertaining to the Transfer in a
form reasonably acceptable to Landlord (including Transferee's agreement to
be subject and subordinate to the Lease and to assume Tenant's obligations
under the Lease to the extent applicable to the Subject Space), (c) if the
Transfer occurs after six (6) months or the terms of the Transfer have
materially changed from those in the Transfer Notice, Tenant shall submit a
new Transfer Notice under this Section 17.2. requesting Landlord's consent,
and the Subject Space shall again be subject to Landlord's rights, if any,
under Section 17.5. A material change is one the terms of which would have
entitled Landlord to refuse to consent to the Transfer initially or would
cause the proposed Transfer to be more favorable to Transferee than the terms
in the original Transfer Notice.
17.3. LANDLORD'S CONSENT.
17.3.1. REASONABLE CONSENT. Landlord may not unreasonably
withhold its consent to any proposed Transfer that complies with this Article
17. Reasonable grounds for denying consent include any of the following: (a)
Transferee's character, reputation, credit history, or business is not
consistent with the character or quality of the Building; (b) Transferee is
either a government agency or an instrumentality of one; (c) Transferee's
intended use of the Premises is inconsistent with the Permitted Use or will
materially and adversely affect Landlord's interest; (d) Transferee's financial
condition is or may be inadequate to support the Lease obligations of Transferee
under the Transfer document; (e) the Transfer would cause Landlord to violate
another lease or agreement to which Landlord
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is a party or would give a Building tenant the right to cancel its lease; (f)
Transferee occupies space in the Building and such space is not contiguous to
the Premises, is negotiating with Landlord to lease space in the Building, or
has negotiated with Landlord during the six (6) months immediately preceding the
Transfer Notice; or (g) Transferee does not intend to occupy the entire Premises
and conduct business there for a substantial portion of the term of the
Transfer.
17.3.2. LANDLORD'S WRITTEN RESPONSE. Within a reasonable time
after receipt of a Transfer Notice that complies with Section 17.2. Landlord
shall approve or disapprove the proposed Transfer in writing.
17.3.3. TENANT'S REMEDIES. If Landlord wrongfully denies or
conditions its consent, Tenant may seek only declaratory and injunctive relief.
Tenant specifically waves any damage claims against Landlord in connection with
the withholding of consent.
17.3.4. TENANT'S INDEMNITY. Tenant shall indemnify, defend,
and hold harmless Landlord from and against all Claims by any third party
(including the proposed Transferee) arising out of or relating (directly or
indirectly) to a proposed Transfer. If a judicial determination is made that any
of the Claims were caused solely by Landlord's breach of this Article 17,
however, Tenant's indemnity obligation shall not extend to those Claims.
17.4. TRANSFER PREMIUM.
17.4.1. TRANSFER PREMIUM. As a reasonable condition to
Landlord's consent to any Transfer, Tenant shall pay to Landlord fifty
percent (50%) of any Transfer Premium, as defined in this Subsection 17.4.1.
"Transfer Premium" means an Basic Rent, additional rent, and other
consideration payable by Transferee to Tenant (including key money and bonus
money and any payment in excess of fair market value for services rendered by
Tenant to Transferee or assets, fixtures, inventory, equipment, or furniture
transferred by Tenant to Transferee in connection with the Transfer
("Transferee Rent")), after deducting the Rent payable by Tenant under this
Lease (excluding the Transfer Premium) for the Subject Space ("Tenant Rent").
If part of the Transfer Premium is payable by Transferee other than in cash,
Landlord's share of that non-cash consideration shall be in a form reasonably
satisfactory to Landlord. Tenant shall pay the Transfer Premium on a monthly
basis, together with its payment of Additional Rent under Article 5. In
calculating the Transfer Premium, Tenant Rent, Transferee Rent, and Quoted
Rent, the parties shall first adjust the rent to the actual effective rent to
be paid, taking into consideration any and all leasehold concessions,
including any rent credit and tenant improvement allowance. For purposes of
calculating the effective rent, all those concessions shall be amortized on a
straight-line basis over the relevant term. On Landlord's request, Tenant
shall furnish a complete statement, certified by an independent certified
public accountant or Tenant's chief financial officer, describing in detail
the computation of any Transfer Premium that Tenant has derived or will
derive from the Transfer. If Landlord's independent certified public
accountant finds that the Transfer Premium for any Transfer has been
understated, Tenant shall, within thirty (30) days after demand, pay the
deficiency and Landlord's costs of that audit. If Tenant has understated the
Transferee Premium by more than ten percent (10%), Landlord may, at it
option, declare Tenant in material and incurable default under Section 22.1
notwithstanding any cure period specified in Section 22.1.
17.5 LANDLORD'S OPTION TO RECAPTURE SPACE.
17.5.1. LANDLORD'S RECAPTURE RIGHT. Despite any other
provision of this Article 17, Landlord has the option by written notice to
Tenant ("Recapture Notice") within thirty (30) days after receiving any
Transfer Notice, to recapture the Subject Space by terminating this Lease for
the Subject Space or taking an assignment of a sublease of the Subject Space
from Tenant. A timely Recapture Notice terminates this Lease or creates an
assignment or a sublease for the Subject Space for the same term as the
proposed Transfer effective as of the date specified in the Transfer Notice.
If Landlord declines or fails timely to deliver a Recapture Notice, Landlord
shall have no further right under this Section 17.5 to the Subject Space
unless it becomes available again after Transfer by Tenant.
17.5.2. CONSEQUENCES OF RECAPTURE. To determine the new
Basic Rent under this Lease if Landlord recaptures the Subject Space, the
original Basic Rent under the Lease shall be multiplied by a fraction, the
numerator of which is the Rentable Square Feet of the Premises retained by
Tenant after Landlord's recapture and the denominator of which is the total
Rentable Square Feet of the Premises before Landlord's recapture. The
Additional Rent, to the extent that it is calculated on the basis of the
Rentable Square Feet within the Premises, shall be reduced to reflect
Tenant's proportionate share based on the Rentable Square Feet of the
Premises retained by Tenant after Landlord's recapture. This Lease as so
amended shall continue thereafter in full force and effect. Either party may
require written confirmation of the amendments to this Lease necessitated by
Landlord's recapture of the Subject Space. If Landlord recaptures the Subject
Space, Landlord shall, at Landlord's sole expense, construct any partitions
required to segregate the Subject Space from the remaining Premises retained
by Tenant. Tenant shall, however, pay for painting, covering, or otherwise
decorating the surfaces of the partitions facing the remaining Premises
retained by Tenant.
17.6. EFFECT OF TRANSFER. If this Lease is assigned, Landlord may
collect Rent directly from Transferee. If all or part of the Premises is
subleased and Tenant defaults, Landlord may collect Rent directly from
Transferee. Landlord may then apply the amount collected from Transferee to
Tenant's monetary obligations under this Lease. Collecting Rent from a
Transferee or applying that Rent to Tenant's monetary obligations does not
waive any provisions of this Article 17.
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17.7. TRANSFERS OF OWNERSHIP INTERESTS AND OTHER ORGANIZATIONAL
CHANGES.
17.7.1. CHANGE OF OWNERSHIP; REORGANIZATION. For purposes of
this Article 17, "Transfer" also includes: (a) if Tenant is a partnership or
limited liability company: (1) a change in ownership effected voluntarily,
involuntarily, or by operation of law within a twelve month (12 month)
period, of twenty five percent (25%) or more of the partners or members or
twenty five percent (25%) or more of the partnership or membership interests;
or (2) the dissolution of the partnership or limited liability company
without its immediate reconstitution, (b) if Tenant is a closely held
corporation (i.e., one whose stock is not publicly held and not traded
through an exchange or over the counter): (1) the sale or other transfer,
within a twelve month (12 month) period, of more than an aggregate of twenty
five percent (25%) of the voting shares of Tenant (other than to immediate
family members by reason of gift or death); (2) the sale, mortgage,
hypothecation, or pledge, within a twelve month (12 month) period, of more
than an aggregate of twenty five percent (25%) of the value of Tenant's
unencumbered assets; or (3) the dissolution, merger, consolidation, or other
reorganization of Tenant.
17.7.2. TRANSFER TO AFFILIATE. Despite any other provision
of this Lease, Landlord's consent is not required for any Transfer to an
Affiliate, as defined in Subsection 17.7.3, as long as the following
conditions are met: (a) at least ten (10) business days before the Transfer,
Landlord receives written notice of the Transfer (as well as any documents or
information reasonably requested by Landlord regarding the Transfer or
Transferee); (b) the Transfer is not a subterfuge by Tenant to avoid its
obligations under the Lease; (c) if the Transfer is an assignment, Transferee
assumes in writing all of Tenant's obligations under this Lease relating to
the Subject Space; and (d) Transferee has a tangible net worth, as evidenced
by financial statements delivered to Landlord and certified by an independent
certified public accountant in accordance with generally accepted accounting
principles that are consistently applied ("Net Worth"), at least equal to
Tenant's Net Worth either immediately before the Transfer or as of the date
of this Lease, whichever is greater.
17.7.3. DEFINITION OF "AFFILIATE". An "Affiliate" means any
entity that controls, is controlled by, or is under common control with
Tenant. "Control" means the direct or indirect ownership of more than fifty
percent (50%) of the voting securities of an entity or possession of the
right to vote more than fifty percent (50%) of the voting interest in the
ordinary direction of the entity's affairs.
Article 18
SURRENDER OF PREMISES
18.1. SURRENDER OF PREMISES. No act of Landlord or its authorized
representatives shall constitute Landlord's acceptance of a surrender of the
Premises by Tenant unless that intent is specifically acknowledged in a
writing signed by Landlord. At the option of Landlord, a surrender and
termination of this Lease shall operate as an assignment to Landlord of all
subleases or sub-tenancies. Landlord shall exercise this option by giving
notice of that assignment to all subtenants within ten (10) days after the
effective date of the surrender and termination.
18.2. REMOVAL OF TENANT PROPERTY BY TENANT. On the expiration or
earlier termination of the Lease Term, Tenant shall quit the Premises and
surrender possession to Landlord in accordance with this Section 18.2. Tenant
shall leave the Premises in as good order and condition as when Tenant took
possession of the Premises except for reasonable wear and tear and repairs
that are specifically made the responsibility of Landlord. On expiration or
termination, Tenant shall, without expense to Landlord, remove or cause to be
removed from the Premises: (a) all debris and rubbish; (b) any items of
furniture, equipment, freestanding cabinet work, and other articles of
personal property owned by Tenant or installed or placed by Tenant at its
expense in the Premises; (c) any similar articles of any other persons
claiming under Tenant that Landlord, in Landlord's sole discretion, requires
to be removed; and (d) any alterations and improvements that Tenant is
required to remove under Article 12. Tenant shall, at Tenant's sole expense,
repair all damage or injury that may occur to the Premises or the Building
caused by Tenant's removal of those items and shall restore the Premises and
Building to their original condition.
Article 19
HOLDING OVER
19.1. HOLDOVER RENT. If Tenant remains in possession of the
Premises after expiration or earlier termination of this Lease with
Landlord's express written consent, Tenant's occupancy shall be a month to
month tenancy at a rent agreed on by Landlord and Tenant but in no event less
than the Basic Rent and Additional Rent payable under this Lease during the
last full month before the date of expiration or earlier termination of this
Lease. The month to month tenancy shall be on the terms and conditions of
this Lease except as provided in (a) the preceeding sentence and (b) the
lease clauses (if any) concerning lease term, expansion rights, purchase
option, and extension rights. Landlord's acceptance of rent after such
holding over with Landlord's written consent shall not result in any other
tenancy or in a renewal of the original term of this Lease. If Tenant remains
in possession of the Premises after expiration or earlier termination of this
Lease without Landlord's consent, Tenant's continued possession shall be on
the basis of a tenancy at sufferance and Tenant shall pay as rent during the
holdover period an amount equal to one hundred and fifty percent (150%) of
the Basic Rent and Additional Rent payable under this Lease for the last full
month before the date of expiration or termination.
19.2. NO CONSENT OR WAIVER IMPLIED. Landlord shall construe nothing
in this Article 19 as implied consent to any holding over by Tenant. Landlord
expressly reserves the right to require Tenant to surrender possession of the
Premises to Landlord as provided in this Lease on expiration or other
termination of this Lease. The provisions of this Article 19 shall not be
considered to limit or constitute a waiver of any other rights or remedies of
Landlord provided in this Lease or at law.
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Article 20
ESTOPPEL CERTIFICATES
20.1. TENANT'S OBLIGATION TO PROVIDE ESTOPPEL CERTIFICATES. Within
ten (10) days after a written request by Landlord, Tenant shall execute and
deliver to Landlord an estoppel certificate, substantially in the form of
EXHIBIT F (or other form required by any existing or prospective lender,
mortgagee, or purchaser of all or part of the Building), indicating in the
certificate any exceptions to the statements in the certificate that may
exist at the time. The certificate shall also contain any other information
reasonably requested by Landlord or any existing or prospective lender,
mortgagee, or purchaser.
20.2. ADDITIONAL REQUESTED DOCUMENTS OR INSTRUMENTS. Within ten
(10) days after a written request by Landlord, Tenant shall execute and
deliver whatever other documents or instruments may be reasonably required
for sale or financing purposes, including (if requested by Landlord) a current
financial statement and financial statements for the two (2) years preceeding
the current financial statement year. Those statements shall be prepared in
accordance with generally accepted accounting principles and shall be audited
by an independent certified public accountant.
20.3. FAILURE TO DELIVER. Tenant's failure to execute or deliver
an estoppel certificate in the required time period shall constitute an
acknowledgment by Tenant that the statements included in the estoppel
certificate are true and correct, without exception. Tenant's failure to
execute or deliver an estoppel certificate or other document or instrument
required under this Article 20 in a timely manner shall be a material breach
of this Lease.
Article 21
SUBORDINATION, NONDISTURBANCE AND ATTORNMENT
21.1. AUTOMATIC SUBORDINATION. This Lease is subject and
subordinate to: (a) the lien of any mortgages, deeds of trust, or other
encumbrances ("Encumbrances") of the Building and Project; (b) all present
and future ground or underlying leases ("Underlying Leases") of the Building
and Project now or hereafter in force against the Building and Project; (c)
all renewals, extensions, modifications, consolidations, and replacements of
the items described in subparagraphs (a) - (b); and (d) all advances made or
hereafter to be made on the security of the Encumbrances. Despite any other
provision of this Article 21, any Encumbrance holder or lessor may elect that
this Lease shall be senior to and have priority over that Encumbrance or
Underlying Lease whether this Lease is dated before or after the date of the
Encumbrance or Underlying Lease. No such subordination shall be effective
unless and until Tenant has received a non disturbance agreement from the
holder of the Encumbrance or the lessor of the Underlying Lease in a
recordable, commercially reasonable form.
21.2. SUBORDINATION AGREEMENT; AGENCY. This subordination is
self-operative, and no further instrument of subordination shall be required
to make it effective. To confirm this subordination, however, Tenant shall,
within five (5) days after Landlord's request, execute any further
instruments or assurances in recordable form that Landlord reasonably
considers necessary to evidence or confirm the subordination or superiority
of this Lease to any such Encumbrances or Underlying Leases. Tenant
irrevocably appoints the President, Managing General Partner or Manager of
Landlord, as Tenant's agent to execute and deliver in the name of Tenant any
such instrument(s) if Tenant fails to do so. This authorization shall in no
way relieve Tenant of the obligation to execute such instrument(s) of
subordination or superiority. Tenant's failure to execute and deliver such
instrument(s) shall constitute a default under this Lease.
21.3. ATTORNMENT. Tenant convenants and agrees to attorn to the
transferee of Landlord's interest in the Building and/or Project by
foreclosure, deed in lieu of foreclosure, exercise of any remedy provided in
any Encumbrance or Underlying Lease, or operation of law (without any
deductions or setoffs), if requested to do so by the transferee, and to
recognize the transferee as the lessor under this Lease. The transferee shall
not be liable for: (a) any acts, omissions, or defaults of Landlord that
occurred before the sale or conveyance; or (b) the return of any security
deposit except for deposits actually paid to the transferee.
21.4. NOTICE OF DEFAULT; RIGHT TO CURE. Tenant agrees to give
written notice of any default by Landlord to the holder of any prior
Encumbrance or Underlying Lease. Tenant agrees that, before it exercises any
rights or remedies under the Lease, the lien-holder or lessor shall have the
right, but not the obligation, to cure the default within the same time, if
any, given to Landlord to cure the default, plus an additional thirty (30)
days. Tenant agrees that this cure period shall be extended by the time
necessary for the lien-holder to begin foreclosure proceedings and to obtain
possession of the Building or Project, as applicable.
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Article 22
DEFAULTS AND REMEDIES
22.1. TENANT'S DEFAULT. The occurrence of any of the following shall
constitute a default by Tenant under this Lease: (a) Tenant's failure to pay
when due any Rent required to be paid under this Lease if the failure
continues for three (3) days after written notice of the failure from
Landlord to Tenant; (b) Tenant's failure to provide any instrument or
assurance as required by Section 21.2 or estoppel certificate as required by
Section 20.1 if the failure continues for five (5) days after written notice
of the failure from Landlord to Tenant; (c) Tenant's failure to perform any
other obligation under this Lease if the failure continues for fifteen (15)
days after written notice of the failure from Landlord to Tenant; (d)
Tenant's abandonment of the Premises while in default of any provision of
this Lease; (e) to the extent permitted by law: (1) a general assignment by
Tenant or any guarantor of the Lease for the benefit of creditors; (2) the
filing by or against Tenant, or any guarantor, of any proceeding under an
insolvency or bankruptcy law, unless (in the case of an involuntary
proceeding) the proceeding is dismissed within sixty (60) days; (3) the
appointment of a trustee or receiver to take possession of all or
substantially all the assets of Tenant or any guarantor, unless possession is
unconditionally restored to Tenant or that guarantor within thirty (30) days
and the trusteeship or receivership is dissolved; (4) any execution or other
judicially authorized seizure of all or substantially all the assets of
Tenant located on the Premises, or of Tenant's interest in this Lease, unless
that seizure is discharged within thirty (30) days; or (f) the committing of
waste on the Premises.
22.2. REPLACEMENT OF STATUTORY NOTICE REQUIREMENTS. When this Lease
requires service of a notice, that notice shall replace rather than
supplement any equivalent or similar statutory notice, including any notices
required by Code of Civil Procedure Section 1161 or any similar or successor
statute. When a statute requires service of a notice in a particular manner,
service of that notice (or a similar notice required by this Lease) in the
manner required by Section 31.11 shall replace and satisfy the statutory
service of notice procedures, including those required by Code of Civil
Procedure Section 1162 or any similar or successor statute.
22.3. LANDLORD'S REMEDIES ON TENANT'S DEFAULT. On the occurrence of
a default by Tenant, Landlord shall have the right to pursue any one or more
of the following remedies in addition to any other remedies now or later
available to Landlord at law or in equity. These remedies are not exclusive
but cumulative.
22.3.1. TERMINATION OF LEASE. Landlord may terminate this
Lease and recover possession of the Premises. Once Landlord has terminated
this Lease, Tenant shall immediately surrender the Premises to Landlord. On
termination of this Lease, Landlord may recover from Tenant all of the
following: (a) the worth at the time of the award of any unpaid Rent that had
been earned at the time of the termination, to be computed by allowing
interest at the rate set forth in Article 24 but in no case greater than the
maximum amount of interest permitted by law; (b) the worth at the time of the
award of the amount by which the unpaid Rent that would have been earned
between the time of the termination and the time of the award exceeds the
amount of unpaid Rent that Tenant proves could reasonably have been avoided,
to be computed by allowing interest at the rate set forth in Article 24 but
in no case greater than the maximum amount of interest permitted by law; (c)
the worth the time of the award of the amount by which the unpaid Rent for
the balance of the Lease Term after the time of the award exceeds the amount
of unpaid Rent that Tenant proves could reasonably have been avoided, to be
computed by discounting that amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of the award plus one percent (1%);
(d) Any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform obligations under this
Lease, including brokerage commissions and advertising expenses, expenses of
remodeling the Premises for a new tenant (whether for the same or a different
use), and any special concessions made to obtain a new tenant; and (e) any
other amounts, in addition to or in lieu of those listed above, that may be
permitted by applicable law.
22.3.2. CONTINUATION OF LEASE IN EFFECT. Landlord shall have
the remedy described in Civil Code Section 1951.4 which provides that, when a
tenant has the right to sublet or assign (subject only to reasonable
limitations), the landlord may continue the lease in effect after the
Tenant's breach and abandonment and recover Rent as it becomes due.
Accordingly, if Landlord does not elect to terminate this Lease on account of
any default by Tenant, Landlord may enforce all of Landlord's rights and
remedies under this Lease, including the right to recover all Rent as it
becomes due.
22.3.3. TENANT'S SUBLEASES. Whether or not Landlord elects
to terminate this Lease on account of any default by Tenant, Landlord may: (a)
terminate any sublease, license, concession, or other consensual arrangement
for possession entered into by Tenant and affecting the Premises, (b) choose
to succeed to Tenant's interest in such an arrangement. If Landlord elects
to succeed to Tenant's interest in such an arrangement, Tenant shall, as of
the date of notice by Landlord of that election, have no further right to, or
interest in, the Rent or other consideration receivable under that arrangement.
22.4. FORM OF PAYMENT AFTER DEFAULT. If Tenant fails to pay any
amount due under this Lease within three (3) days after the due date or if
Tenant draws a check on an account with insufficient funds, Landlord shall
have the right to require that any subsequent amounts paid by Tenant to
Landlord under this Lease (to cure a default or otherwise) by paid in the
form of cash, money order, cashier's or certified check drawn on an
institution acceptable to Landlord, or other form approved by Landlord
despite any prior practice of accepting payments in a different form.
22.5. EFFORTS TO RELET. For purposes of this Article 22, Tenant's
right to possession shall not be considered to have been terminated by
Landlord's efforts to relet the Premises, by Landlord's acts of maintenance or
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preservation with respect to the Premises, or by appointment of a receiver to
protect Landlord's interests under this Lease. This list is merely
illustrative of acts that may be performed by Landlord without terminating
Tenant's right to possession.
22.6. ACCEPTANCE OF RENT WITHOUT WAIVING RIGHTS. Under Article 25,
Landlord may accept Tenant's payments without waiving any rights under this
Lease, including rights under a previously served notice of default. If
Landlord accepts payments after serving a notice of default, Landlord may
nevertheless commence and pursue an action to enforce rights and remedies
under the previously served notice of default without giving Tenant any
further notice or demand.
22.7. TENANT'S REMEDIES ON LANDLORD'S DEFAULT. Tenant waives any right
to terminate this Lease and to vacate the Premises on Landlord's default
under this Lease. Tenant's sole remedy on Landlord's default is an action for
damages or injunctive or declaratory relief.
Article 23
LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS
23.1. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS. All
obligations to be performed by Tenant under this Lease shall be performed by
Tenant at Tenant's expense and without any reduction of Rent. If Tenant's
failure to perform an obligation continues for five (5) days after notice to
Tenant, Landlord may perform the obligation on Tenant's behalf, without
waiving Landlord's rights for Tenant's failure to perform any obligations
under this Lease and without releasing Tenant from such obligations.
23.2. REIMBURSEMENT BY TENANT. Within fifteen (15) days after
receiving a statement from Landlord, Tenant shall pay to Landlord the amount
of expense reasonably incurred by Landlord, under Section 23.1, in performing
Tenant's obligation.
Article 24
LATE PAYMENTS
24.1. LATE CHARGES. If any Rent payment is not received by Landlord or
Landlord's designee within five (5) days after that Rent is due, Tenant shall
pay to Landlord a late charge equal to the greater of (i) One Hundred Dollars
($100), and (ii) two and one-half percent (2.5%) of the overdue amount for
any first or second late payment in any twelve (12) month period and ten
percent (10%) of the overdue amount for any third or subsequent late payment
in any twelve (12) month period, as liquidated damages, in lieu of actual
damages (other than interest under Section 24.2 and attorney fees and costs
under Section 27.1). Tenant shall pay this amount for each calendar month in
which all or any part of any Rent payment remains delinquent for more than
five (5) days after the due date. The parties agree that this late charge
represents a reasonable estimate of the expenses that Landlord will incur
because of any late payment of Rent (other than interest and attorney fees
and costs). Landlord's acceptance of any liquidated damages shall not
constitute a waiver of Tenant's default with respect to the overdue amount or
prevent Landlord from exercising any of the rights and remedies available to
Landlord under this Lease. Tenant shall pay the late charge as Additional
Rent with the next installment of Rent.
24.2. INTEREST. If any Rent payment is not received by Landlord or
Landlord's designee within five (5) days after that Rent is due, Tenant shall
pay to Landlord interest on the past due amount, from the date due until
paid, at the rate of eighteen percent (18%) per annum from the due date of
such amount ("Interest Rate"). Despite any other provision of this Lease, the
total liability for interest payments shall not exceed the limits, if any,
imposed by the usury laws of the State of California. Any interest paid in
excess of those limits shall be refunded to Tenant by application of the
amount of excess interest paid against any sums outstanding in any order that
Landlord requires. If the amount of excess interest paid exceeds the sums
outstanding, Landlord shall refund the portion exceeding those sums in cash
to Tenant. To ascertain whether any interest payable exceeds the limits
imposed, any non-principal payment (including late charges) shall be
considered to the extent permitted by law to be an expense or a fee, premium,
or penalty rather than interest.
Article 25
NONWAIVER
25.1. NON-WAIVER. No waiver of any provision of this Lease shall be
implied by any failure of Landlord to enforce any remedy for the violation of
that provision, even if that violation continues or is repeated. Any waiver
by Landlord of any provision of this Lease must be in writing. Such written
waiver shall affect only the provision specified and only for the time and in
the manner stated in the writing.
25.2. ACCEPTANCE AND APPLICATION OF PAYMENT, NOT ACCORD AND
SATISFACTION. No receipt by Landlord of a lesser payment than the Rent
required under this Lease shall be considered to be other than on account of
the earliest amount due, and no endorsement or statement on any check or
letter accompanying a payment or check shall be considered an accord and
satisfaction. Landlord may accept checks or payments without prejudice to
Landlord's right to recover all amounts due and pursue all other remedies
provided for in this Lease. Landlord's receipt of monies from Tenant after
giving notice to Tenant terminating this Lease shall in no way reinstate,
continue, or extend the Lease Term or affect the Termination Notice given by
Landlord before the receipt of those monies. After serving notice terminating
this Lease, filing an action, or obtaining final judgment for possession of
the Premises,
Page 23 of 28
<PAGE>
Landlord may receive and collect any Rent due, and the payment of that Rent
shall not waive or affect such prior notice, action, or judgment.
Article 26
WAIVER OF RIGHT TO JURY TRIAL
26.1. WAIVER OF RIGHT TO JURY TRIAL. Landlord and Tenant waive their
respective rights to trial by jury of any contract or tort claim,
counterclaim, cross complaint, or cause of action in any action, proceeding,
or hearing brought by either party against the other on any matter arising
out of or in any way connected with this Lease, the relationship of Landlord
and Tenant, or Tenant's use or occupancy of the Premises, including any claim
of injury or damage or the enforcement of any remedy under any current or
future law, statute, regulation, code, or ordinance.
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
----------------------------- -----------------------------
Landlord's Initials Tenant's Initials
Article 27
ATTORNEY FEES AND COSTS
27.1. LEGAL COSTS. If either party incurs any costs or expenses in
connection with any action instituted by either party by reason of any
dispute pursuant to this Lease or for the recovery of any sum due under this
Lease, or because of the breach of any provisions of this Lease by either
party, or for any other relief pursuant to this Lease, or in the event of any
other litigation between the parties with respect to this Lease, then all
costs and expenses, including without limitation, its actual professional
fees such as appraisers', accountants, and attorneys' fees, incurred by the
prevailing party therein shall be paid by the other party, which obligation
on the part of the other party shall be deemed to have accrued on the date of
the commencement of such action or dispute and shall be enforceable whether
or not the action is prosecuted to judgment. The provisions contained in this
Section 27.1 shall survive the expiration or earlier termination of this
Lease, and in the event any action or proceeding is instituted to recover
possession of the Premises following the expiration or earlier termination of
this Lease, the provisions contained in this Section 27.1 shall be applicable.
Article 28
LANDLORD'S ACCESS TO PREMISES
28.1. LANDLORD'S ACCESS TO PREMISES. Landlord and its agents shall
have the right at all reasonable times to enter the Premises to: (a) inspect
the Premises; (b) show the Premises to prospective purchasers, mortgagees, or
tenants or to ground lessors or underlying lessors; (c) serve, post, and keep
posted notices required by law or that Landlord considers necessary for the
protection of Landlord or the Building; or (d) make repairs, replacements,
alterations, or improvements to the Premises or Building that Landlord
considers necessary or desirable. Despite any other provision of this Article
28, Landlord may enter the Premises at any time to: (a) perform services
required of Landlord; (b) take possession due to any breach of this Lease; or
(c) perform any covenants of Tenant that Tenant fails to perform.
28.2. TENANT'S WAIVER. Landlord may enter the Premises without the
abatement of Rent and may take steps to accomplish the stated purposes.
Tenant waives any claims for damages caused by Landlord's entry, including
damage claims for: (a) injuries; (b) inconvenience to or interference with
Tenant's business; (c) lost profits; and (d) loss of occupancy or quiet
enjoyment of the Premises.
Article 29
SIGNS
29.1. BUILDING NAME; LANDLORD'S SIGNAGE RIGHTS. Subject to Tenant's
signage rights under this Article 29, Landlord may at any time change the
name of the Building and install, affix, and maintain all signs on the
exterior and interior of the Building as Landlord may, in Landlord's sole
discretion, desire. Tenant shall not have or acquire any property right or
interest in the name of the Building. Tenant may use the name of the Building
or pictures or illustrations of the Building in advertising or other
publicity during the Lease Term.
29.2. TENANT'S SIGNAGE RIGHTS WITHIN BUILDING.
29.2.1. SINGLE TENANT FLOOR. If the Premises comprise an entire
floor of the Building, Tenant may, at Tenant's sole expense, install
identification signs (including its logo) anywhere in the Premises, including
the elevator lobby of the Premises, subject to the following requirements:
(a) Tenant must obtain Landlord's prior written approval for such signs,
which Landlord may, in Landlord's sole discretion, grant or deny; (b) all
signs must be in keeping with the quality, design, and style of the Building;
and (c) no sign may be visible from the exterior of the Building.
29.2.2. MULTI TENANT FLOOR. If other tenants occupy space on the
floor on which the Premises are located, Landlord shall provide Tenant's
identifying signs at Tenant's expense. The signs shall be comparable to those
used by Landlord for other similar floors in the Building and shall comply
with Landlord's Building standard signage program.
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<PAGE>
29.2.3. MONUMENT AND BUILDING SIGNAGE. Landlord agrees that, for
so long as Tenant leases not less than ninety percent (90%) of the Rentable
Area of the Premises as described in Part I, Section 4 (c), and provided
Tenant shall not be in default under this Lease, Tenant shall have the sole
and exclusive right to (i) use of the existing monument sign located in front
of the Building (the "Monument Sign") and (ii) place one (1) top parapet
level tenant identification sign on the fascia of the Building (the "Building
Sign"). Landlord shall have the right to review and approve the design,
dimensions, construction and exact location of the Monument Sign and the
Building Sign prior to its fabrication or installation on the Monument Sign
and Building. Tenant's rights hereunder are further conditioned upon (i) the
Monument Sign and the Building Sign being permitted by applicable code,
ordinance, statute, rule or regulation or by any action or rule of any
governmental authority having jurisdiction over such matters, (ii) all
consents necessary from all governmental authorities having jurisdiction over
such matters having been obtained by Tenant, and (iii) the Monument Sign and
Building Sign being permitted by any recorded instrument affecting the
Project. Tenant will bear the entire cost associated with creating,
designing, manufacturing, and installing its sign on the Monument Sign and
the Building Sign and all costs of illuminating (if Tenant chooses to
illuminate), operating, maintaining and insuring the Monument Sign and
Building Sign ("Lighting Cost"). If any Lighting Cost is invoiced to
Landlord, such cost shall become Additional Rent due upon invoice therefrom
by Landlord. Upon the expiration or earlier termination of this Lease or
Tenant's right to possession of the Premises Tenant shall, at Tenant's sole
cost and expense, cause Tenant's sign on the Monument Sign and the Building
Sign to be removed and shall repair and restore those portions of the
Monument Sign and Building affected by the installation or removal of
Tenant's signage thereon, to the condition existing prior to their
installation or to a condition otherwise satisfactory to Landlord.
Article 30
TENANT PARKING
30.1. TENANT PARKING. Tenant shall be entitled to use of the number of
parking spaces set forth in Summary of Basic Lease Information Section 12.
Landlord specifically reserves the right to designate and to change the
location, size, configuration, design, layout, and all other aspects of the
parking facility. Landlord may close off or restrict access to the parking
facility from time to time to facilitate construction, alteration, or
improvements, without incurring any liability to Tenant and without any
abatement of Rent under this Lease. Tenant's use of the parking facility is
conditioned on Tenant's abiding by all rules and regulations prescribed from
time to time for the orderly operation and use of the parking facility.
Tenant shall use all reasonable efforts to ensure that Tenant's employees and
visitors also comply with such rules and regulations.
Article 31
MISCELLANEOUS
31.1. CAPTIONS. The captions of articles and sections and the table of
contents of this Lease are for convenience only and have no effect on the
interpretation of the provisions of this Lease.
31.2. WORD USAGE. Unless the context clearly requires otherwise, the
plural and singular numbers shall each be considered to include the other;
the masculine, feminine, and neuter genders shall each be considered to
include the others; "shall", "will", "must", "agrees", and "covenants" are
each mandatory; "may" is permissive; "or" is not exclusive; and "includes"
and "including" are not limiting.
31.3. COUNTING DAYS. Days shall be counted by excluding the first day
and including the last day. If the last day is a Saturday, Sunday, or legal
holiday as described in Government Code Sections 6700-6701, it shall be
excluded. Any act required by this Lease to be performed by a certain day
shall be timely performed if completed before 5 p.m. local time on that date.
If the day for performance of any obligation under this Lease is a Saturday,
Sunday, or legal holiday, the time for performance of that obligation shall
be extended to 5 p.m. local time on the first following date that is not a
Saturday, Sunday, or legal holiday.
31.4. ENTIRE AGREEMENT; AMENDMENTS. This Lease and all exhibits
addenda, schedules, and agreements referred to in this Lease constitute the
final, complete, and exclusive statement of the terms of the agreement
between Landlord and Tenant pertaining to Tenant's lease of space in the
Building and supersede all prior and contemporaneous understandings or
agreements of the parties. Neither party has been induced to enter into this
Lease by, and neither party is relying on, any representation or warranty
outside those expressly set forth in this Lease. This Lease may be amended
only by an agreement in writing signed by Landlord and Tenant.
31.5. EXHIBITS. The Exhibits and Addendum, if applicable, attached to
this Lease are a part of this Lease and incorporated into this Lease by
reference.
31.6. REASONABLENESS AND GOOD FAITH. Except as limited elsewhere in
this Lease, whenever this Lease requires Landlord or Tenant to give its
consent or approval to any action on the part of the other, such consent or
approval shall not be unreasonably withheld or delayed.
31.7. PARTIAL INVALIDITY. If a court or arbitrator of competent
jurisdiction holds any Lease clause to be invalid or unenforceable in whole
or in part for any reason, the validity and enforceability of the remaining
clauses, or portions of them, shall not be affected unless an essential
purpose of this Lease would be defeated by loss of the invalid or
unenforceable provision.
Page 25 of 28
<PAGE>
31.8 BINDING EFFECT. Subject to Article 17 and Sections 31.16-31,17,
this Lease shall bind and benefit the parties to this Lease and their legal
representatives and successors in interest.
31.9. INDEPENDENT COVENANTS. This Lease shall be construed as though
the covenants between Landlord and Tenant are independent and not dependent.
Tenant expressly waives the benefit of any statute to the contrary and agrees
that if Landlord fails to perform its obligations under this Lease. Tenant
shall not, except as set forth in Section 11.3 above, be entitled: (a) to
make any repairs or perform any acts at Landlord's expense; or (b) to any
setoff of the Rent or other amounts owing under this Lease against Landlord.
The foregoing, however, shall in no way impair Tenant's right to bring a
separate action against Landlord for any violation by Landlord of the
provisions of this Lease if notice is first given to Landlord and any lender
of whose address Tenant has been notified, and an opportunity is granted to
Landlord and that lender to correct those violations as provided in Section
21.4 and Subsection 22.7.1
31.10. GOVERNING LAW. This Lease shall be construed and enforced in
accordance with the laws of the State of California.
31.11. NOTICES. All notices (including requests, demands, approvals,
or other communications) under this Lease shall be in writing.
31.11.1. METHOD OF DELIVERY. Notice shall be sufficiently given
for all purposes as follows: (a) when personally delivered to the recipient,
notice is effective on delivery, (b) when mailed first class to the last
address of the recipient known to the party giving notice, notice is
effective on delivery, (c) when mailed by certified mail with return receipt
requested, notice is effective on receipt if delivery is confirmed by a
return receipt, (d) when delivered by overnight delivery,
FedEx/Airborne/United Parcel Service/DHL WorldWide Express with charges
prepaid or charged to the sender's account, notice is effective on delivery
if delivery is confirmed by the delivery service, (c) when sent by telex or
fax to the last telex or fax number of the recipient known to the party
giving notice, notice is effective on receipt as long as (1) a duplicate copy
of the notice is promptly given by first class or certified mail or by
overnight delivery or (2) the receiving party delivers a written confirmation
of receipt. Any notice given by telex or fax shall be considered to have been
received on the next business day if it is received after 5 p.m. (recipient's
time) or on a non-business day.
31.11.2. REFUSED, UNCLAIMED, OR UNDELIVERABLE NOTICES. Any
correctly addressed notice that is refused, unclaimed, or undeliverable
because of an act or omission of the party to be notified shall be considered
to be effective as of the first date that the notice was refused, unclaimed,
or considered undeliverable by the postal authorities, messenger, or
overnight delivery service.
31.11.3. ADDRESSES. Addresses for purposes of giving notice are
set forth in Section 13 of the Summary of Basic Lease Information. Either
party may change its address or telex or fax number by giving the other party
notice of the change in any manner permitted by this Section 31.11.
31.11.4 LENDERS AND GROUND LESSOR. If Tenant is notified of the
identity and address of Landlord's lender or ground or underlying lessor,
Tenant shall give to that lender or ground or underlying lessor written
notice of any default by Landlord under the terms of this Lease.
31.12. FORCE MAJEURE. If performance by a party of any portion of this
Lease is made impossible by any prevention, delay, or stoppage caused by
strikes; lockouts; labor disputes; acts of God; inability to obtain services,
labor or materials or reasonable substitutes for those items; government
actions; civil commotion, fire or other casualty; or other causes beyond the
reasonable control of the party obligated to perform, performance by that
party for a period equal to the period of that prevention, delay, or stoppage
is excused. Tenant's obligation to pay Rent, however, is not excused by this
Section 31.12.
31.13. TIME OF THE ESSENCE. Time is of the essence of this Lease and
each of its provision.
31.14. MODIFICATIONS REQUIRED BY LANDLORD'S LENDER. If any lender of
Landlord or ground lessor of the Building and/or Project requires a
modification of this Lease that will not increase Tenant's cost or expense or
materially or adversely change Tenant's rights and obligations, this Lease
shall be so modified and Tenant shall execute whatever documents are required
and deliver them to Landlord within ten (10) days after the request.
31.15. RECORDING; MEMORANDUM OF LEASE. Except as provided in this
Section 31.15, neither this Lease nor any memorandum, affidavit, or other
writing relating to this Lease may be recorded by Tenant or anyone acting
through, under, or on behalf of Tenant. Recordation in violation of this
provision constitutes an act of default by Tenant. On request by Landlord or
any lender or ground lessor, Tenant shall execute a short form of Lease for
recordation, containing (among other customary provisions) the names of the
parties and a description of the Premises and the Lease Term. Tenant shall
execute, acknowledge before a notary public and deliver that form to Landlord
within ten (10) days after the request.
31.16. LIABILITY OF LANDLORD. Except as otherwise provided in this
Lease or applicable law, for any breach of this Lease the liability of
Landlord (including all persons and entities that comprise Landlord, and any
successor landlord) and any recourse by Tenant against Landlord shall be
limited to the interest of Landlord and Landlord's successors in interest in
and to the Building and Project. On behalf of itself and all persons claiming
by, through, or under Tenant, Tenant expressly waives and releases Landlord
from any personal liability for breach of this Lease.
Page 26 of 28
<PAGE>
31.17. TRANSFER OF LANDLORD'S INTEREST. Landlord has the right to
transfer all or part of its interest in the Building and Project and in this
Lease. On such a transfer, Landlord shall automatically be released from all
liability accruing under this Lease, and Tenant shall look solely to that
transferee for the performance of Landlord's obligations under this Lease
after the date of transfer, subject to Section 6.2. Landlord may assign its
interest in this Lease to a mortgage lender as additional security. This
assignment shall not release Landlord from its obligations under this Lease,
and Tenant shall continue to look to Landlord for the performance of its
obligations under this Lease.
31.18. JOINT AND SEVERAL OBLIGATIONS OF TENANT. If more than one
individual or entity comprises Tenant, the obligations imposed on each
individual or entity that comprised Tenant under this Lease shall be joint
and several.
31.19. SUBMISSION OF LEASE. Submission of this document for
examination or signature by the parties does not constitute an option or
offer to lease the Premises on the terms in this document or a reservation of
the Premises in favor of Tenant. This document is not effective as a lease or
otherwise until executed and delivered by both Landlord and Tenant.
31.20. LEGAL AUTHORITY
31.20.1. CORPORATE AUTHORITY. If Tenant is a corporation, each
individual executing this Lease on behalf of that corporation represents and
warrants that: (a) the individual is authorized to execute and deliver this
Lease on behalf of that corporation in accordance with a duly adopted
resolution of the corporation's board of directors and in accordance with
that corporation's articles of incorporation or charter and bylaws; (b) this
Lease is binding on that corporation in accordance with its terms; (c) the
corporation is a duly organized and legally existing corporation in good
standing in the State of California; and (d) the execution and delivery of
this Lease by that corporation shall not result in any breach of or
constitute a default under any mortgage, deed of trust, lease loan, credit
agreement, partnership agreement, or other contract or instrument in which
that corporation is a party or by which that corporation may be bound. If
Tenant is a corporation, Tenant shall, within fifteen (15) days after the
date of this Lease, deliver to Landlord a copy of a resolution of Tenant's
board of directors authorizing or ratifying the execution and delivery of
this Lease. The secretary or assistant secretary of the corporation must duly
certify that resolution. If Tenant fails to comply with this Subsection
31.20.1. each individual execution this Lease on behalf of the corporation
shall be personally liable for all of Tenant's obligations under this Lease.
31.20.2. PARTNERSHIP AUTHORITY. If Tenant is a partnership,
each individual executing this Lease on behalf of the partnership represents
and warrants that: (a) the individual is duly authorized to execute and
delivery this Lease on behalf of the partnership in accordance with the
partnership agreement, or an amendment to the partnership agreement, now in
effect; (b) this Lease is binding on that partnership; (c) the partnership is
a duly organized and legally existing partnership and has filed all
certificates required by law; and (d) the execution and delivery of this
Lease shall not result in any breach of or constitute a default under any
mortgage, deed of trust, lease, loan, credit agreement, partnership
agreement, or other contract or instrument to which the partnership is a
party or by which the partnership may be found.
31.20.3. LIMITED LIABILITY COMPANY AUTHORITY. If Tenant is a
limited liability company, each individual executing this Lease on behalf of
that company represents and warrants that: (a) the individual(s) executing
this Lease on behalf of the company has/have full power and authority under
the company's governing documents to execute and deliver this Lease in the
name of and on behalf of the company and to cause the company to perform its
obligations under this Lease; (b) the company is a limited liability company
duly organized and validly existing under the laws of the State of
California; and (c) the company has the power and authority under applicable
law and its governing documents to execute and deliver this Lease and to
perform its obligations under this Lease.
31.21. RIGHT TO LEASE. Landlord reserves the absolute right to
contract with any other person or entity to be a tenant in the Building as
Landlord, in Landlord's sole business judgment, determines best to promote
the interests of the Building. Tenant does not rely on the expectation, and
Landlord does not represent, that any specific tenant or type or number of
tenants will, during the Lease Term, occupy any space in the Building.
31.22. NO AIR RIGHTS. No rights to any view from the Premises or to
exterior light or air to the Premises are created under this Lease.
31.23. BROKERS. Landlord and Tenant each represents to the other that
it has had no dealings with any real estate broker or agent in connection
with the negotiation of this Lease, except for the real estate brokers or
agents specified in Summary of Basic Lease Information Section 12 ("Brokers")
and that they know of no other real estate broker or agent who is entitled to
a commission or finder's fee in connection with this Lease. Each party shall
indemnify, protect, defend, and hold harmless the other party against all
claims, demands, losses, liabilities, lawsuits, judgments, and costs and
expenses (including reasonable attorney fees) for any leasing commission,
finder's fee, or equivalent compensation alleged to be owing on account of
the indemnifying party's dealings with any real estate broker or agent other
than the Brokers. The terms of this Section 31.23 shall survive the
expiration or earlier termination of the Lease Term.
31.24. TRANSPORTATION MANAGEMENT. Tenant shall fully comply with all
current or future compulsory programs imposed by any public authority,
intended to manage parking, transportation, or traffic in and around the
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<PAGE>
Building. In connection with this compliance, Tenant shall take responsible
action for the transportation planning and management of all employees
located at the Premises by working directly with Landlord, any government
transportation management organization, or other transportation related
committees or entities. This provision includes programs such as the
following: (a) restrictions on the number of peak hour vehicle trips
generated by Tenant; (b) encouragement of increased vehicle occupancy through
employer sponsored financial or in-kind incentives; (c) implementation of an in
house or area wide ridesharing program and appointment of an employee
transportation coordination; and (d) flexible work shifts for employees.
31.25. LEASE TERMINATION AND TENANT RELOCATION COSTS. To enable
Landlord to enter into this Lease and to accommodate Tenant's desire to lease
and occupy the Premises as provided herein, Landlord was required to
terminate its Lease with an existing tenant of the Building known as
Megashops.com ("Megashops") and to relocate a second existing tenant of the
Building known as MDL Information systems, Inc. ("MDL") to the third floor of
the Building. Tenant covenants and agrees to reimburse Landlord, or at
Landlord's option, to pay directly to Megashops and MDL, all costs and
expenses associated with terminating the Megashops lease and to relocate MDL
to the third floor of the Building including, but not limited to construction
costs, construction management fees to Landlord's property management firm,
space planning fees, engineering costs and legal fees. Notwithstanding.
Landlord agrees to be responsible for the costs and expenses associated with
the tenant improvements to the space MDL was originally intended to occupy on
the first floor of the Building totaling Forty-one Thousand Three Hundred
Fifty and 00/1000 Dollars ($41,350,000).
Executed as of the date stated in Summary of Basic Lease Information
Section 1.
LANDLORD TENANT
TIPAC-LLP Cayenta, Inc.,
a California limited partnership a Delaware corporation
By: Pacific Corporate Associates, III By: /s/ [ILLEGIBLE]
a California limited partnership --------------------------------
(Sole General Partner) Name: [ILLEGIBLE]
---------------------------
Title: SVP
---------------------------
By: Howard, Howard & Barnard, Inc.,
a California corporation
(Sole General Partner)
By: /s/ Robert W. Howard By:
---------------------------------- --------------------------------
Name: Robert W. Howard Name:
Title: Vice President ---------------------------
Title:
---------------------------
Page 28 of 28
<PAGE>
EXHIBIT A-1
DIAGRAM OF THE FIRST FLOOR OF THE PREMISES
This EXHIBIT A-1 is intended to show the general configuration of the first
floor of the Premises as of the Lease Commencement Date and is not a
representation or warranty by Landlord as to the size, nature or exact
configuration of the Premises.
[DIAGRAM]
<PAGE>
EXHIBIT A-2
DIAGRAM OF THE SECOND FLOOR OF THE PREMISES
This EXHIBIT A-2 is intended to show the general configuration of the second
floor of the Premises as of the Lease Commencement Date and is not a
representation or warranty by Landlord as to the size, nature or exact
configuration of the Premises.
[DIAGRAM]
<PAGE>
EXHIBIT A-3
DIAGRAM OF THE THIRD FLOOR OF THE PREMISES
This EXHIBIT A-3 is intended to show the general configuration of the third
floor of the Premises as of the Lease Commencement Date and is not a
representation or warranty by Landlord as to the size, nature or exact
configuration of the Premises.
[DIAGRAM]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of
the day and year first above written.
Address of Guarantor: GUARANTOR
Titan Corporation Titan Corporation
3033 Science Park Road a Delaware corporation
San Diego, CA 92121
Attention:______________________
By:___________________________
Address of Landlord: Name:______________________
Title:_____________________
TIPAC-LP
c/o Meissner & Jacquet Investment Management By:___________________________
Services Name:______________________
3870 Murphy Canyon Road, Suite 300 Title:_____________________
San Diego, CA 92123-4431
Attention: Mr. Kevin Tagle
With copy to:
TIPAC-1, LP
c/o Howard & Howard, Inc.
110 Newport Center Drive, Suite 200
Newport Beach, CA 92660
Attention: Mr. Robert W. Howard
Page 3 of 3
<PAGE>
Allowance. Tenant shall be entitled to apply any remaining Common Area
Improvement Allowance toward the cost of any Tenant Extra Work.
12. CONFLICTS. In the event of any conflict between the terms of this
Agreement and the Lease, the terms of this Agreement shall control.
Executed as of the date stated in Summary of Basic Lease Information
contained in Section 1 of the Lease.
LANDLORD TENANT
TIPAC-1, LP, Cayenta, Inc.,
a California limited partnership a Delaware corporation
By: Pacific Corporate Associates, III, By: /s/ [ILLEGIBLE]
a California limited partnership -------------------------------
(Sole General Partner) Name: [ILLEGIBLE]
--------------------------
Title: SVP
-------------------------
By: Howard, Howard & Barnard, Inc.,
a California corporation
(Sole General Partner)
By: ___________________________________ By:_______________________________
Name: Robert W. Howard Name:__________________________
Title: Vice President Title:_________________________
Page 3 of 3
<PAGE>
EXHIBIT F
ESTOPPEL CERTIFICATE
The undersigned certifies as follows:
1. The undersigned ("Tenant") and ______________________ ("Landlord")
entered into a written office lease dated ____________________, in which
Landlord leased to Tenant and Tenant leased from Landlord premises in the
office building located at ____________________ ("Building"). The Building is
described in Lease Article I (Building and Premises). The Lease has been
amended, modified, and supplemented as follows: ______________________________.
The lease, as amended, modified and supplemented, is referred to in this
Certificate as the "Lease".
2. Under the Lease, Tenant has leased approximately _________
rentable square feet of space ("Premises") in the Building and has paid to
Landlord a security deposit of ______________. The term of the Lease began on
___________ and expires on ____________, subject to any options to extend
identified in Section 4 of this EXHIBIT F. Tenant has paid Basic Rent through
______________. The next payment of Basic Rent in the amount of ___________
is due on ______________. Tenant is required to pay __________ percent of the
direct expenses (as defined in Lease Article 5) for the Building and Project,
in excess of direct expenses for base year ___________.
3. Tenant is entitled to ___________ unreserved parking spaces free
of charge and ___________ parking spaces at a charge of ___________ per month
per space.
4. The Lease provides for ____________ option(s) to extend the term
of the Lease for ____________ years each. The rental rate for each extension
term is as follows: _____________________________
5. There are no oral or written amendments, modifications, or
supplements to the Lease except as stated in Section 1 of this Certificate. A
true, correct, and complete copy of the Lease, including all amendments,
modifications, and supplements, is attached to this Certificate. The Lease,
as amended, modified and supplemented, is in full force and effect and
represents the entire agreement between Landlord and Tenant pertaining to the
Premises, the Building, and the Project.
6. All space and improvements leased by Tenant have been completed
and furnished in accordance with the provisions of the lease, and Tenant has
accepted and taken possession of the Premises. All contributions required to
be paid by Landlord to date for improvements to the Premises have been paid
in full.
7. Landlord is not in default in the performance of any of the terms
or provisions of the Lease. Tenant is not in default in the performance of
any of the terms or provisions of the Lease and has not assigned,
transferred, or hypothecated the Lease or any interest in the Lease or
subleased all or part of the Premises.
8. There are no setoffs or credits against Rent payable under the
Lease. No free periods or rental abatements, rebates, or concessions have
been granted to Tenant, except as follows: ____________________________.
9. Tenant has no actual or constructive knowledge of any processing,
use, storage, disposal, release, or treatment of any hazardous or toxic
material or substance on the Premises or the Project except as follows:
_______________________________________________________.
10. There are no pending actions, voluntary or involuntary, under any
bankruptcy or insolvency laws of the United States or any state against
Tenant or any guarantor of Tenant's obligations under the Lease.
This Certificate is given to __________________ as [LENDER OR PURCHASER]
with the understanding that he/she/it or his/her/its assignee shall rely on
it in connection with the [ACQUISITION OF THE BUILDING AND/OR PROJECT/MAKING A
LOAN SECURED BY THE BUILDING, THE LAND UPON WHICH THE BUILDING IS LOCATED AND
THE PROJECT]. Following that [ACQUISITION/LOAN]. Tenant agree that the Lease
shall remain in full force and effect and shall bind and inure to the benefit
of the [PURCHASER/LENDER] and its successor in interest.
TENANT
_____________________________________
a____________________________________
By:__________________________________
Name:_____________________________
Title:____________________________
Page 1 of 1
<PAGE>
EXHIBIT G
GUARANTY OF LEASE
This Guaranty of Lease ("Guaranty") is made and effective as of
January 14, 2000, by TITAN CORPORATION, A DELAWARE CORPORATION ("Guarantor")
in favor of TIPAC-I I,P, A CALIFORNIA LIMITED PARTNERSHIP ("Landlord") with
reference to the facts set forth below.
RECITALS
--------
A. Landlord has entered into that certain Lease Agreement ("Lease") of
even date herewith with CAYENTA, INC., A DELAWARE CORPORATION ("Tenant"), to
which this Guaranty is attached as an Exhibit for the lease of the premises
("Premises") located in the City of San Diego, State of California, as more
particularly described in the Lease.
B. As a condition to entering into the Lease, Landlord has required
that Guarantor execute this Guaranty guaranteeing performance of all the
covenants on Tenant's part to the performed pursuant to the Lease.
Guarantor's agreement to provide this Guaranty is a material consideration
for Landlord's decision to lease the Premises to Tenant.
NOW, THEREFORE, to induce Landlord to enter into the Lease and in
consideration thereof, Guarantor agrees as set forth below.
1. Guarantor unconditionally guarantees to Landlord, and to Landlord's
successors and assigns, the payment by Tenant of the Rent and all other
charges which accrue under the Lease in the manner and at the time prescribed
therein, and the full and punctual performance and observance, by Tenant, of
all the terms, covenants and conditions contained in the Lease. Guarantor
waives notice of any breach or default by Tenant. Guarantor's obligations
hereunder shall continue in full force and effect with respect to any of
Tenant's obligations under the Lease, which are not performed upon the
termination of this Lease.
2. This Guaranty is continuing guaranty of all of Tenant's obligations
under the Lease, independent of and in addition to any other guaranty,
previously or subsequently given to Landlord, and this Guaranty shall not
affect any of said guaranties.
3. Guarantor hereby expressly waives and relinquishes any and all
rights and remedies, which Guarantor may have or be able to assert by reason
of the laws or decisions of the State of California pertaining to the rights
and remedies of sureties.
4. Guarantor waives any right to require Landlord to (a) proceed
against Tenant or any co-guarantor, (b) proceed against or exhaust any
security (including a security deposit) held by Landlord, or (c) pursue any
remedy in Landlord's power whatsoever. Guarantor waives any defense it may
acquire by reason of Landlord's election of any remedy against it or Tenant
or both, including, but without limitation, the election by Landlord to
exercise its rights to occupy and operate the Premises under the Lease.
5. Guarantor waives any defense based upon the legal disability of
Tenant, or any discharge, release or limitation of the liability of Tenant to
Landlord, or any restraint or stay applicable to actions against Tenant, or
any disaffirmance or abandonment of the Lease by a trustee of Tenant whether
consensual, or by order of a court or other governmental authority, arising
by operation of law or any liquidation, reorganization, receivership,
bankruptcy, insolvency or debtor relief proceeding, or any other cause.
Guarantor further waives any defense based upon any amendment modification,
renewal, extension, assignment, subletting or other alteration (with or
without the consent of Landlord) of the Lease, or the term of the Lease or
obligation of Tenant or Landlord under the Lease, or any other documents
relating to the transactions described therein; any defense based upon the
negligence of Landlord, any defense based upon the forfeiture or termination
of the Lease by Landlord whether by expiration or default; any defense based
upon the failure of Landlord to file a claim in bankruptcy of Tenant; all
rights of subrogation, all rights to enforce any remedy that Landlord may
have against Tenant, and all rights to participate in any security held by
Landlord for the performance and obligations of Tenant under the Lease,
except to the extent such security remains after payment and performance of
Tenant's obligations in full; any defense based upon the impairment of any
subrogation rights that Tenant might have; any defense based upon death,
incapacity, lack of authority or termination of existence or revocation
hereof by any person or entity, or persons or entities, or the substitution
of any party hereto, and any defense based upon or related to Guarantor's lack
of knowledge as to Tenant's financial condition, and any and all rights under
Section 2845 of the California Civil Code and any successor provision.
6. Guarantor waives all presentments, demands, protests and notices of
any kind including notice of acceptance of the Guaranty by Landlord. Any act
of Landlord, or its successors or assigns, consisting of a modification of
the Lease, a waiver of any of the terms or conditions of the Lease, or the
giving of any consent to any manner or thing relating to the Lease, or the
granting of any indulgences or extensions of time to Tenant, are hereby
deemed approved by Guarantor and may be done without notice to Guarantor and
without releasing Guarantor from any of its obligations hereunder.
7. Guarantor assumes full responsibility for keeping fully informed of
the financial condition of Tenant and all other circumstances affecting
Tenant's ability to perform its obligations to Landlord, and agrees that
Landlord
Page 1 of 3
<PAGE>
shall have no duty to report to Guarantor any information which Landlord
receives about Tenant's financial condition or any circumstances bearing on
Tenant's ability to perform.
8. The covenants and obligations of Guarantor hereunder are
independent of the Tenant's obligations under the Lease and are binding upon
the Guarantor notwithstanding the fact that the Guarantor is not the
signatory to the Lease; separate action or actions may be brought against any
guarantor hereon, whether or not action is brought against Tenant or any
co-guarantor of Tenant or any co-guarantor be joined in any such action or
actions.
9. Any indebtedness or other obligations of Tenant now or hereafter
held by Guarantor is hereby subordinated to Tenant's obligations to Landlord
and such indebtedness or other obligations of Tenant to Guarantor, if
Landlord so request, shall be collected, enforced and received by Guarantor as
Trustee for Landlord and be paid over to Landlord on account of Tenant's
obligations to Landlord, but without reducing or affecting in any manner the
liability of Guarantor under the other provisions of this Guaranty.
10. This Guaranty shall be enforceable by Landlord in accordance with
the laws of the State of California and shall be construed in accordance
therewith. Guarantor agrees to pay attorney's fees and all other costs and
expenses, which Landlord may incur in enforcement of this Guaranty. Until
paid to Landlord, such sums will bear interest from the date such costs and
expenses are incurred at the maximum rate permitted by law.
11. No delay or failure on the part of Landlord to pursue any right or
remedy hereunder or under the Lease shall constitute a waiver of that right
or remedy. All remedies of Landlord against Guarantor are cumulative.
12. The obligations and promises set forth herein shall be joint and
several undertakings of each of the persons executing this Guaranty as a
Guarantor, and Landlord may proceed hereunder against any one or more of said
persons without waiving its right to proceed against any of the others. The
use of the singular herein shall include the plural.
13. Guarantor acknowledges that its undertakings given hereunder are
given in consideration of Landlord's entering into the Lease and that
Landlord would not consummate the Lease were it not for the execution and
delivery of this Guaranty.
14. The provisions of this Guaranty will bind and benefit the heirs,
executors, administrators, legal representatives, successors and assigns of
Guarantor and Landlord.
15. Guarantor individually represents and warrants that it has all
requisite power and authority to execute, deliver, perform and be legally bound
by this Guaranty on the terms and conditions herein stated and transact any
other business with Landlord as necessary to fulfill the terms of this
Guaranty.
16. No provision of this Guaranty or Landlord's rights hereunder can
be waived or modified nor can Guarantor be released from its obligations
hereunder except by a writing executed by Landlord. No such waiver shall be
applicable except in the specific instance for which given.
17. Guarantor hereby waives its right to trial by jury of any cause of
action, claim, counterclaim or cross-complaint in any action, proceeding
and/or hearing brought by either Landlord against Tenant and/or Guarantor or
Tenant against Landlord and/or Guarantor, or by Guarantor against Landlord
and/or Tenant, on any matter whatsoever arising out of, or in any way
connected with, this Guaranty and/or the Lease, the relationship of Landlord,
Tenant and Guarantor, Tenant's use and occupancy of the Premises or Common
Areas, or any claim of injury or damage, or the enforcement of any remedy
under any law, statute, or regulation, emergency or otherwise, now or
hereafter in effect.
18. The term "Tenant" will mean both the named tenant and any other
person or entity at any time assuming, subleasing or otherwise becoming
primarily liable for all or any part of the tenant's obligations. The term
"Landlord" will mean both the landlord named herein and any future owner or
holder of Landlord's interest in the Premises Landlord may, without notice,
assign this Guaranty in whole or in part without extinguishing or reducing
the liability of the Guarantor.
19. All notices or other communications required or permitted to be
given hereunder shall be in writing and shall be given in the manner required
for giving notices as set forth in Article 26 of the Lease. For purposes of
notice, the addresses of the parties shall be set forth on the signature
page hereof, provided, however, that any party shall have the right to change
its address for notice hereunder to any other location by giving notice to
the other party in the manner set forth above.
Page 2 of 3
<PAGE>
GUARANTY OF LEASE
This Guaranty of Lease ("Guaranty") is made and effective as of
January 31, 2000, by TITAN CORPORATION, A DELAWARE CORPORATION ("Guarantor")
in favor of TIPAC-I, LP, A CALIFORNIA LIMITED PARTNERSHIP ("Landlord") with
reference to the facts set forth below.
RECITALS
A. Landlord has entered into that certain Lease Agreement
("Lease") dated January , 2000, with CAYENTA, INC., A DELAWARE CORPORATION
("Tenant"), for the lease of the premises ("Premises") located in the City of
San Diego, State of California, as more particularly described in the Lease.
B. As a condition to entering into the Lease, Landlord has
required that Guarantor execute this Guaranty guaranteeing performance of all
the covenants on Tenant's part to be performed pursuant to the Lease.
Guarantor's agreement to provide this Guaranty is a material consideration
for Landlord's decision to lease the Premises to Tenant.
NOW, THEREFORE, to induce Landlord to enter into the Lease and in
consideration thereof, Guarantor agrees as set forth below.
1. Guarantor unconditionally guarantees to Landlord, and to
Landlord's successors and assigns, the payment by Tenant of the Rent and all
other charges which accrue under the Lease in the manner and at the time
prescribed therein, and the full and punctual performance and observance, by
Tenant, of all the terms, covenants and conditions contained in the Lease.
Landlord agrees to provide Guarantor with notice of any breach or default by
Tenant provided, however, that Landlord's failure to do so shall not release
or in any way diminish the obligations of Guarantor under this Guaranty.
Guarantor's obligations hereunder shall continue in full force and effect
with respect to any of Tenant's obligations under the Lease, which are not
performed upon the termination of this Lease.
2. This Guaranty is a continuing guaranty of all of Tenant's
obligations under the Lease, independent of and in addition to any other
guaranty, previously or subsequently given to Landlord, and this Guaranty
shall not affect any of said guaranties.
3. Guarantor hereby expressly waives and relinquishes any and all
rights and remedies, which Guarantor may have or be able to assert by reason
of the laws or decisions of the State of California pertaining to the rights
and remedies of sureties.
4. Guarantor waives any right to require Landlord to (a) proceed
against Tenant or any co guarantor, (b) proceed against or exhaust any
security (including a security deposit) held by Landlord, or (c) pursue any
remedy in Landlord's power whatsoever. Guarantor waives any defense it may
acquire by reason of Landlord's election of any remedy against it or Tenant
or both, including, but without limitation, the election by Landlord to
exercise its rights to occupy and operate the Premises under the Lease.
5. Guarantor waives any defense based upon the legal disability
of Tenant, or any discharge, release or limitation of the liability of Tenant
to Landlord, or any restraint or stay applicable to actions against Tenant, or
any disaffirmance or abandonment of the Lease by a trustee of Tenant whether
consensual, or by order of a court or other governmental authority, arising
by operation of law or any liquidation, reorganization, receivership,
bankruptcy, insolvency or debtor relief proceeding, or any other cause.
Guarantor further waives any defense based upon any amendment modification,
renewal, extension, assignment, subletting or other alteration (with or
without the consent of Landlord of the Lease, or the term of the Lease or
obligation of Tenant or Landlord under the Lease, or any other documents
relating to the transactions described therein; any defense based upon the
forfeiture or termination of the Lease by Landlord whether by expiration or
default; any defense based upon the failure of Landlord to file a claim in
bankruptcy of Tenant; all rights of subrogation, all rights to enforce any
remedy that Landlord may have against Tenant, and all rights to participate
in any security held by Landlord for the performance and obligations of
Tenant under the Lease, except to the extent such security remains after
payment and performance of Tenant's obligations in full, any defense based
upon the impairment of any subrogation rights that Tenant might have; any
defense based upon death, incapacity, lack of authority or termination of
existence or revocation hereof by any person or entity, or persons or
entities, or the substitution of any party hereto, and any defense based upon
or related to Guarantor's lack of knowledge as to Tenant's financial
condition, and any and all rights under Section 2845 of the California Civil
Code and any successor provision.
6. Guarantor waives all presentments, demands, protests and
notices of any kind including notice of acceptance of the Guaranty by
Landlord. Any act of Landlord, or its successors or assigns, consisting of a
modification of the Lease, a waiver of any of the terms or conditions of the
Lease, or the giving of any consent to any manner or thing relating to the
Lease, or the granting of any indulgences or extensions of time to Tenant,
are hereby deemed approved by Guarantor and may be done without notice to
Guarantor and without releasing Guarantor from any of its obligations
hereunder.
Page 1 of 3
<PAGE>
7. Guarantor assumes full responsibility for keeping fully
informed of the financial condition of Tenant and all other circumstances
affecting Tenant's ability to perform its obligations to Landlord, and agrees
that Landlord shall have no duty to report to Guarantor any information which
Landlord receives about Tenant's financial condition or any circumstances
bearing on Tenant's ability to perform.
8. The covenants and obligations of Guarantor hereunder are
independent of the Tenant's obligations under the Lease and are binding upon
the Guarantor notwithstanding the fact that the Guarantor is not the
signatory to the Lease; separate action or actions may be brought against any
guarantor hereon, whether or not action is brought against Tenant or any
co-guarantor or Tenant or any co-guarantor be joined in any such action or
actions.
9. Any indebtedness or other obligations of Tenant now or
hereafter held by Guarantor is hereby subordinated to Tenant's obligations to
Landlord, and such indebtedness or other obligations of Tenant to Guarantor,
if Landlord so request, shall be collected, enforced and received by
Guarantor as Trustee for Landlord and be paid over to Landlord on account of
Tenant's obligations to Landlord, but without reducing or affecting in any
manner the liability of Guarantor under the other provisions of this Guaranty.
10. This Guaranty shall be enforceable by Landlord in accordance
with the laws of the State of California and shall be construed in accordance
therewith. Guarantor agrees to pay attorney's fees and all other costs and
expenses, which Landlord may incur in enforcement of this Guaranty. Until
paid to Landlord, such sums will bear interest from the date such costs and
expenses are incurred at the maximum rate permitted by law.
11. No delay or failure on the part of Landlord to pursue any
right or remedy hereunder or under the Lease shall constitute a waiver of
that right or remedy. All remedies of Landlord against Guarantor are
cumulative.
12. The obligations and promises set forth herein shall be joint
and several undertakings of each of the persons executing this Guaranty as a
Guarantor, and Landlord may proceed hereunder against any one or more of said
persons without waiving its right to proceed against any of the others. The
use of the singular herein shall include the plural.
13. Guarantor acknowledges that its undertakings given hereunder
are given in consideration of Landlord's entering into the Lease and that
Landlord would not consummate the Lease were it not for the execution and
delivery of this Guaranty.
14. The provisions of this Guaranty will bind and benefit the
heirs, executors, administrators, legal representatives, successors and
assigns of Guarantor and Landlord.
15. Guarantor individually represents and warrants that it has
all requisite power and authority to execute, deliver, perform and be legally
bound by this Guaranty on the terms and conditions herein stated and transact
any other business with Landlord as necessary to fulfill the terms of this
Guaranty.
16. No provision of this Guaranty or Landlord's rights hereunder
can be waived or modified nor can Guarantor be released from its obligations
hereunder except by a writing executed by Landlord. No such waiver shall be
applicable except in the specific instance for which given.
17. Guarantor hereby waives its right to trial by jury of any
cause of action, claim, counterclaim or cross complaint in any action,
proceeding and/or hearing brought by either Landlord against Tenant and/or
Guarantor or Tenant against Landlord and/or Guarantor, or by Guarantor
against Landlord and/or Tenant, on any matter whatsoever arising out of, or
in any way connected with, this Guaranty and/or the Lease, the relationship
of Landlord, Tenant and Guarantor, Tenant's use and occupancy of the Premises
or Common Areas, or any claim of injury or damage, or the enforcement of any
remedy under any law, statute, or regulation, emergency or otherwise, now or
hereafter in effect.
18. The term "Tenant" will mean both the named tenant and any
other person or entity at any time assuming, subleasing or otherwise becoming
primarily liable for all or any part of the tenant's obligations. The term
"Landlord" will mean both the landlord named herein and any future owner or
holder of Landlord's interest in the Premises. Landlord may, without notice,
assign this Guaranty in whole or in part without extinguishing or reducing
the liability of the Guarantor.
19. All notices or other communications required or permitted to
be given hereunder shall be in writing and shall be given in the manner
required for giving notices as set forth in Article 26 of the Lease. For
purposes of notice, the addresses of the parties shall be as set forth on the
signature page hereof; provided, however, that any party shall have the right
to change its address for notice hereunder to any other location by giving
notice to the other party in the manner set forth above.
Page 2 of 3
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Guaranty as
of the day and year first above written.
Address of Guarantor: GUARANTOR
Titan Corporation Titan Corporation,
3033 Science Park Road a Delaware corporation
San Diego, CA 92121
Attention: /s/ Jeff Zuckerman
----------------------------------
By: /s/ L.L. Fowler
Address of Landlord: -----------------------------
Name: L.L. Fowler
------------------------
Title: Corp. V.P.
-----------------------
TIPAC-I, LP
c/o Meissner & Jacquet Investment Management By:
Services -----------------------------
3870 Murphy Canyon Road, Suite 300 Name:________________________
San Diego, CA 92123-4431 Title:_______________________
Attention: Mr. Kevin Tagle
With copy to:
TIPAC-I, LP
c/o Howard & Howard, Inc.
110 Newport Center Drive, Suite 200
Newport Beach, CA 92660
Attention: Mr. Robert W. Howard
Page 3 of 3
<PAGE>
Confidential Treatment Requested
under 17 C.F.R. Sections 200.80 (B)(4),
200.83 and 230.406
CONTRACT NO. 5600001842
AGREEMENT
FOR
TECHNICAL SERVICES
BETWEEN
SEMPRA ENERGY
AND
CAYENTA.COM
FOR
INFORMATION TECHNOLOGY CONSULTING SERVICES
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE.........................................................PAGE
<S> <C>
1. SCOPE..........................................................1
2. COMMENCEMENT AND COMPLETION OF WORK............................1
3. REPRESENTATIVES................................................1
4. RESPONSIBILITY OF CAYENTA.COM..................................2
5. MONITORING.....................................................2
6. CHANGES........................................................2
7. DELAYS.........................................................2
8. OWNERSHIP OF INTELLECTUAL PROPERTY AND MATERIAL................3
9. REPORTS........................................................3
10. SUBCONTRACTORS................................................4
11. COMPENSATION..................................................4
12. PAYMENT.......................................................4
13. AUDIT.........................................................5
14. TAXES.........................................................6
15. INDEPENDENT CAYENTA.COM.......................................6
16. WARRANTY......................................................7
17. INSURANCE.....................................................7
18. INDEMNITY.....................................................8
19. GOVERNING LAW.................................................9
20. COMPLIANCE WITH LAWS..........................................9
21. TERMINATION...................................................9
22. LIENS........................................................10
23. ASSIGNMENT...................................................10
24. EQUAL EMPLOYMENT OPPORTUNITY.................................10
25. CALENDAR YEAR 2000 COMPLIANCE................................11
26. NONWAIVER....................................................11
27. DISPUTES.....................................................11
28. NOTICES OR DEMANDS...........................................11
29. CONFIDENTIALITY..............................................12
30. TIME OF ESSENCE..............................................14
31. VALIDITY.....................................................14
32. SURVIVAL.....................................................14
33. NO ORAL MODIFICATIONS........................................14
34. CAPTIONS.....................................................14
35. COUNTERPARTS.................................................14
36. AUTHORITY....................................................14
37. JOINT AND SEVERAL LIABILITY..................................14
38. COMPLETE AGREEMENT...........................................15
</TABLE>
<PAGE>
SCHEDULE A - TECHNICAL SERVICES SCOPE OF WORK
SCHEDULE B - SUBCONTRACTORS LIST
SCHEDULE C - RESERVED
SCEHDULE D - COMPENSATION
SCHEDULE E - REQUIRED INSURANCE
SCHEDULE F - INTENTIONALLY OMITTED
SCHEDULE G - WORK AUTHORIZATION
SCHEDULE H - WEEKLY TIME CARD
SCHEDULE I - TRAVEL GUIDELINES
<PAGE>
SEMPRA ENERGY
San Diego, California
TECHNICAL SERVICES AGREEMENT
This Technical Services Agreement ("Agreement") is made effective as of
January 1, 2000, by and between Sempra Energy (SEMPRA ENERGY) and Cayenta.com
("Cayenta.com").
The Parties hereby agree as follows:
1. SCOPE
Cayenta.com shall perform, at its own proper cost and expense, in
workmanlike fashion to the industry standard, to the satisfaction of SEMPRA
ENERGY, the following generally described Technical Services (hereinafter,
the "Services"):
Information Technology Consulting Services
The Services, including the scope of work, specifications, schedule of
milestones and deliverables, and performance standards, are more fully
described in SCHEDULE A - TECHNICAL SERVICES SCOPE OF WORK (hereinafter, the
"Scope of Work"), attached hereto and made a part hereof by this reference.
2. COMMENCEMENT AND COMPLETION OF WORK
This Agreement shall commence January 3, 2000, and shall be in full
force and effect through June 30, 2001, unless terminated earlier in
accordance with Article 21. Cayenta.com agrees to commence and perform the
Services in accordance with the requests of SEMPRA ENERGY Representative. The
nature of the Services is such that timely performance is critical to the
orderly progress of related work and to the operating schedule of SEMPRA
ENERGY.
3. REPRESENTATIVES
3.1. SEMPRA ENERGY Representative: Jerry Deems
Phone (619) 696-4626
Fax (619) 696-4577
SEMPRA ENERGY designates, and Cayenta.com accepts, the individual
named above as SEMPRA ENERGY Representative for all matters relating to
Cayenta.com's performance of Services under this Agreement. The actions
taken by the SEMPRA ENERGY Representative regarding such performance shall be
deemed the acts of SEMPRA ENERGY. SEMPRA ENERGY may, upon written notice to
Cayenta.com, pursuant to Article 28 hereof, change the designated
Representative.
<PAGE>
3.2. Cayenta.com Representative: David Porrecca
225 Broadway
Suite 1500
San Diego, California 92101
(800) 568-6100 x2425
Cayenta.com designates, and SEMPRA ENERGY accepts, the individual
named above as Cayenta.com Representative for all matters relating to
Cayenta.com's performance of Services under this Agreement. The actions taken
by Cayenta.com Representative shall be deemed the acts of Cayenta.com.
4. RESPONSIBILITY OF CAYENTA.COM
Cayenta.com shall perform the Services in accordance with
established professional and business standards and ethics. All Services
shall conform to the Scope of Work and performance standards set forth in the
Scope of Work. Cayenta.com shall remedy any and all deficiencies in its
Services which result from Cayenta.com's failure to employ commercially
reasonable efforts to adhere to the Scope of Work.
5. MONITORING
All Services performed by Cayenta.com shall be subject to the
monitoring and approval of SEMPRA ENERGY at all times, but such right of
monitoring or actual approval of Services shall not relieve Cayenta.com of
responsibility for the proper performance of the Services. Cayenta.com shall
provide to SEMPRA ENERGY or SEMPRA ENERGY's designee access to Cayenta.com's
facility or facilities where the Services are being performed and sufficient,
safe and proper work conditions for such services and Cayenta.com shall
furnish to SEMPRA ENERGY such information concerning its operations or the
performance of the Services as SEMPRA ENERGY shall reasonably request.
6. CHANGES
6.1 Either party may initiate a request for a change in this
Agreement by advising the other Party of the change in writing. As soon as
practicable after notice of such request, Cayenta.com shall prepare and
forward to SEMPRA ENERGY in writing the proposed changes to this Agreement.
6.2 If the parties fail to agree on an Amendment to this Agreement
("Amendment") relating to a proposed change, SEMPRA ENERGY reserves the
option to retain others to provide the Services subject to the change order.
6.3 Cayenta.com shall implement a change in this Agreement only after
Cayenta.com has received a written Amendment executed by an authorized
procurement agent or officer of SEMPRA ENERGY. All changes shall be
performed under the Terms and Conditions of this Agreement. Cayenta.com
hereby expressly waives any compensation,
<PAGE>
reimbursement of expenses and any other right to receive payment with respect
to any change NOT authorized by a written Amendment to this Agreement.
7. DELAYS
Cayenta.com shall notify SEMPRA ENERGY in writing immediately of any
delay, or anticipated delay in Cayenta.com's performance of this Agreement
due to causes or circumstances beyond the reasonable control of Cayenta.com,
and the reason for and anticipated length of the delay. SEMPRA ENERGY may
extend the date of performance for a period equal to the time lost by reason
of the delay if SEMPRA ENERGY, in its reasonable judgment, determines that
the delay is due to causes or circumstances beyond the reasonable control of
Cayenta.com. Any extension to the contract term or milestone schedule
pursuant to this Article, shall be documented by a written Amendment to this
Agreement.
8. OWNERSHIP OF INTELLECTUAL PROPERTY AND MATERIAL
8.1 Any idea, invention, work of authorship, drawing, design,
formula, algorithm, utility, tool, pattern, compilation, program, device,
method, technique, process, improvement, development or discovery (hereinafter,
collectively, "Invention"), whether or not patentable, or copyrightable, or
entitled to legal protection as a trade secret or otherwise, that Cayenta.com
may conceive, make, develop, create, reduce to practice, or work on, in whole
or in part, in the course of performing the Services shall be owned by SEMPRA
ENERGY and shall be delivered to SEMPRA ENERGY upon completion of the
Services. Cayenta.com of the Services. Cayenta.com agrees that any
copyrightable invention shall constitute a "work made for hire." Cayenta.com
hereby assigns to SEMPRA ENERGY, without royalty or further consideration,
Cayenta.com's entire right, title and interest in and to any such inventions.
8.2 Cayenta.com hereby grants to SEMPRA ENERGY an irrevocable,
assignable, nonexclusive royalty-free unrestricted license to use, copy,
distribute and make derivatives of any proprietary rights or specialized
knowledge of Cayenta.com that are part of any work product furnished by
Cayenta.com to SEMPRA ENERGY under this Agreement for SEMPRA ENERGY's and its
affiliates' use. Prior to furnishing to SEMPRA ENERGY any proprietary rights
of Contractor or any subcontractor, Contractor shall inform SEMPRA ENERGY in
writing of its plan to provide such rights and shall describe such rights in
sufficient detail so that SEMPRA ENERGY can understand that the scope of the
rights claimed by Contractor.
8.3 If requested by SEMPRA ENERGY, Cayenta.com agrees to take all
actions necessary, at SEMPRA ENERGY's sole cost and expense, to obtain,
maintain or enforce patents, copyrights, trade secrets and other proprietary
rights in connection with any Invention, and Cayenta.com agrees that its
obligations under this Article shall continue beyond the termination or
completion of this Agreement.
8.4 Any and all material and information prepared, accumulated or
developed by Cayenta.com, any subcontractor or their respective employees in
the scope of work performing the services, including, without limitation,
documents, drawings, calculations, maps, plans, estimates, specifications,
sketches, notes, reports, summaries, data models and samples (hereinafter,
collectively, the "Material"), shall become the property of SEMPRA ENERGY
<PAGE>
when prepared or in process, whether or not delivered by Cayenta.com.
Cayenta.com shall deliver the Material, together with any other materials
furnished to Cayenta.com by SEMPRA ENERGY hereunder, to SEMPRA ENERGY upon
request, and, in any event, upon termination or completion of this Agreement.
8.5 Contractor agrees that during the term of this Agreement and
for a period of eighteen (18) months following its expiration or termination.
Contractor will not provide any consulting services to any gas or electric
utility, any utility holding company, or any regulated or unregulated
subsidiary of a utility holding company, any power marketer or any other
company that provided energy information or energy purchasing related
products or services in the United States, unless that entity is a wholly or
partially owned direct or indirect subsidiary (i.e. at least 10% voting and
beneficial membership) of Sempra Energy.
8.6 Prior to working on any customized software, Contractor shall
identify in writing to SEMPRA ENERGY any third party development tools,
(whether or not commercially available), compilers, libraries or other source
code to be embedded in, used in the development of and/or necessary for the
maintenance of any customized software written by Contractor or any
subcontractor in accordance with Schedule A. In addition, prior to working
on the project, Contractor shall inform SEMPRA ENERGY of the cost of
procuring a perpetual royalty-free license to use, modify, translate and
create derivatives of the third party source code as part of the SEMPRA
ENERGY software, the cost of obtaining a run-time executable license to the
third party software and the cost of development tools (whether or not
commercially available). If SEMPRA ENERGY approves the project in accordance
with SCHEDULE A, then Contractor shall be responsible for initiating and
assisting SEMPRA ENERGY in the procurement, in the name of SEMPRA ENERGY, of
any third party license required to enable SEMPRA ENERGY to maintain, enhance
and create derivatives of its customer software, and, in the case of any
business line software, to enable SEMPRA ENERGY or its subsidiaries and
affiliates (including without limitation Soliance Networks, L.L.C., a Delaware
limited liability company) to sublicense SEMPRA ENERGY's software (with the
embedded third party code) on a shrink wrap basis.
9. REPORTS
Cayenta.com shall provide periodic status reports in accordance with
Schedule A and as requested by the SEMPRA ENERGY Representative. Reports
shall be issued to the SEMPRA ENERGY Representative on a weekly basis and are
due by 2:00 p.m. every Friday. The reports shall contain weekly time sheet,
weekly accomplishments planned activities for the upcoming week, and issues
affecting current assignments. Reports shall make periodic comparisons of
the Services rendered to date against the Work Order, including any
milestones and estimated costs. Such reports shall include an explanation of
any significant variations, an identification of any potential or known
developments which may impact SEMPRA ENERGY, and any corrective actions
implemented.
10. SUBCONTRACTORS
Cayenta.com shall at all times be responsible for the negligent or
illegal acts and omissions of subcontractors and individuals directly or
indirectly employed by them. Cayenta.com shall be responsible for performance
of all the Services, whether performed by
<PAGE>
Cayenta.com or its subcontractors. This Agreement shall NOT give rise to
any contractual relationship between SEMPRA ENERGY and a subcontractor.
SEMPRA ENERGY shall NOT undertake any obligation to pay or to be responsible
for the payment of any sums to any subcontractor. Initial subcontractors are
referenced on SCHEDULE B - SUBCONTRACTORS LIST.
11. COMPENSATION
Cayenta.com hereby agrees to accept as full compensation for
satisfactory performance of the Services as described in Article 1 and
SCHEDULE A, the compensation that is outlined in SCHEDULE D - COMPENSATION.
Payments shall be made at the times and in the manner specified in Article 12.
12. PAYMENT
12.1. Cayenta.com shall invoice SEMPRA ENERGY in accordance with
the daily rates set forth in SCHEDULE D. Invoices shall be submitted
bi-weekly, with the beginning of the pay period being a Monday and the end of
the pay period being on a Friday. Invoices shall include at a minimum the
Contract Number, Work Authorization Number, Cayenta.com's employee name,
hours worked per pay period, daily rate and extended amount for each of
Cayenta.com's employees, and the total amount due for the pay period.
Cayenta.com shall have complete support documentation of all charges
incurred, including weekly time sheets as described in SCHEDULE H - WEEKLY
TIME CARD, any data required to calculate fees or variable rate changes, plus
receipts for reimbursable expenses in amount equal to or greater than $25.00
per item and a breakdown by category.
12.2. SEMPRA ENERGY may withhold payment of the whole or part of
any amount due or claimed to be due by Cayenta.com to such extent as may be
necessary to protect SEMPRA ENERGY from loss on account of any of the
following:
12.2.1. Defective Services NOT remedied.
12.2.2. Third party claims indemnified hereunder as filed
or with reasonable evidence indicating probable filing of such claims.
12.2.3. Failure of Cayenta.com to make payment promptly to
its employees, suppliers or subcontractors.
12.2.4. Indemnified damage caused by Cayenta.com to others
and/or SEMPRA ENERGY; or
12.2.5. A good faith dispute as to the achievement of a
milestone or the calculation of the amount invoiced.
12.3. Cayenta.com shall submit invoices in duplicate. SEMPRA
ENERGY's Representative shall approve all invoices before payment. Invoices
and payments shall be addressed as follows:
<PAGE>
Originals to: Sempra Energy
Attention: Accounts Payable
PO Box 129007
San Diego, CA 92112-9007
Copy to: SEMPRA ENERGY
Attention: Clyde Parks
101 Ash Street, HQ-07
San Diego, CA 92101
12.4. SEMPRA ENERGY shall make payment within [...***...] days
after receipt and approval of invoice.
13. AUDIT
13.1. SEMPRA ENERGY reserves the right to designate its own
employee representative(s) or its contracted representative with a certified
public accounting firm, who shall have the right to audit and to examine any
cost, payment, settlement or supporting documentation resulting from any
Services performed on this Agreement. Any such audit(s) shall be done by
SEMPRA ENERGY at reasonable times and in conformance with generally accepted
auditing standards and General Accepted Accounting Principles (GAAP).
Cayenta.com agrees to fully cooperate with any such audit(s).
13.2. Cayenta.com shall include a similar clause in its
agreements with its subcontractors reserving the right to designate
Cayenta.com's own employee representative(s), its contracted representative
from a certified public accounting firm, and representative(s) from SEMPRA
ENERGY, who shall have the right to audit and to examine any cost, payment,
settlement or other supporting documentation resulting from any item set
forth in its agreements.
13.3. Cayenta.com shall be notified in writing of any exception
taken as a result of an audit of Cayenta.com or a subcontractor. Cayenta.com
shall refund the amount of any exception to SEMPRA ENERGY within ten (10)
days or have the right to have the exception(s) audited by an independent
accounting firm whose determination shall be binding upon both parties.
Cayenta.com agrees to pay interest, accruing monthly, at a rate of [...***...]
% per annum on any payment which it is found responsible. Interest will be
computed from the date of written notification of exception(s) to the date
Cayenta.com reimburses SEMPRA ENERGY for any exception(s). In the event an
audit verifies overcharges of [...***...]%) or more, then Cayenta.com
shall reimburse SEMPRA ENERGY for the cost of the audit.
13.4. This right to audit shall extend for a period of five (5)
years following the date of final payment under this Agreement. Cayenta.com
and each subcontractor shall retain all necessary records/documentation for
the entire length of this audit period.
* Confidential Treatment Requested
<PAGE>
14. TAXES
14.1. Except as stated in Section 14, Cayenta.com shall
separately invoice and assumes exclusive liability for and shall pay before
delinquency, all federal, state or local sales, use, excise and other taxes,
charges or contributions imposed on, or with respect to, or measured by the
equipment, materials, supplies or labor furnished hereunder or the wages,
salaries or other remunerations paid to individuals employed in connection
with the performance of the Services. Provided that the conditions of
indemnification as set forth in Article 18 are satisfied, Cayenta.com shall
hold harmless, indemnify and defend SEMPRA ENERGY, together with any and all
its officers, directors, agents and employees from any liability, penalty,
interest and expense by reason of Cayenta.com's failure to pay such taxes,
charges or contributions. Cayenta.com and SEMPRA ENERGY shall cooperate with
each other to minimize the tax liability of both parties to the extent
legally permissible, including separately stating taxable charges on
Cayenta.com's invoices and supplying resale and exemption certificates, if
applicable, and other information as reasonably requested. Cayenta.com
agrees to deliver any software solely by (a) electronic transmission or (b) a
"load and leave" procedure whereby Cayenta.com loads the software onto SEMPRA
ENERGY's systems using LICENSOR's own media, over which media Cayenta.com at
all times retains possession and control. In the case of delivery under
option (b) above, Cayenta.com shall remove such media from SEMPRA ENERGY's
premises promptly following completion of such loading procedure.
14.2. Without limiting the generality of the foregoing,
Cayenta.com agrees to treat all individuals performing services under the
Agreement as employees of the Cayenta.com for purposes of Federal and State
employment taxes. No exceptions are permitted under this section without a
written Amendment to this Agreement prior to an individual performing any
Services under this Agreement.
14.3. Without limiting any of the provisions of Article 14,
Cayenta.com agrees that, at any time during the performance of this
Agreement, SEMPRA ENERGY shall have the right to audit Cayenta.com's
compliance with the requirement stated in Article 14.2 that Cayenta.com treat
all individuals performing Services under this Agreement as employees of
Cayenta.com for Federal and State employment tax purposes. Such audit shall
occur at reasonable times with Cayenta.com's full cooperation.
15. INDEPENDENT CONTRACTOR
15.1. It is agreed that Cayenta.com shall perform the Services
under this Agreement as an independent Contractor and no principal-agent or
employer-employee relationship or joint venture or partnership shall be
created with SEMPRA ENERGY.
15.2. Cayenta.com represents to SEMPRA ENERGY that it has taken
commercially reasonably efforts to ensure that it and its subcontractors are
properly licensed, insured, fully experienced and properly qualified to
perform the class and type of the Services as specified in this Agreement, in
addition to being properly equipped, organized, staffed and financed to
handle such Services.
<PAGE>
15.3. Cayenta.com shall perform the Services in an orderly and
workmanlike manner, enforce strict discipline and order among its personnel,
and shall NOT employ on the Services any personnel it knows or reasonably
should know are unskilled in the work assigned.
15.4. Cayenta.com shall use prudent business practices in its
relationships with suppliers and subcontractors.
15.5. Cayenta.com shall NOT engage in any advertising, publicity
or other promotional activities which in any way directly or indirectly
refers to this Agreement.
16. WARRANTY
Cayenta.com warrants that all services performed hereunder shall
satisfy the standards of care, skill and diligence normally provided by a
performance of such services. Any services supplied hereunder failing to
meet such standards shall be repeated or corrected, at no cost to SEMPRA
ENERGY and shall conform to the requirements of this Agreement.
17. INSURANCE
Insurance requirements set forth below do not in any way limit the
amount or scope of liability of Cayenta.com under this agreement. The
amounts listed indicate only the minimum amounts of insurance coverage SEMPRA
ENERGY is willing to accept to help insure full performance of all terms and
conditions of this agreement. All insurance required of Cayenta.com under
this agreement shall meet the following minimum requirements.
17.1. CERTIFICATES, NOTICE OF CANCELLATION. On or before the
effective date of this agreement, and thereafter during its term, Cayenta.com
shall provide SEMPRA ENERGY with current certificates of insurance, executed
by a duly authorized representative of each insurer, as evidence of all
insurance policies required under this Article 17. No insurance policy may
be canceled, materially revised, or non-renewed without at least thirty (30)
days prior written notice being given to SEMPRA ENERGY. Insurance must be
maintained without lapse in coverage during the term of this agreement.
SEMPRA ENERGY shall also be given certified copies of Cayenta.com's policies
of insurance, upon request.
17.2. ADDITIONAL INSURED. SEMPRA ENERGY shall be named as an
additional insured in each general liability policy. Such general liability
insurance shall provide a severability of interest or cross-liability clause.
17.3. PRIMARY COVERAGE. The required policies, and any of
Cayenta.com's policies providing coverage excess of the required policies,
shall provide that the coverage is primary for all purposes and Cayenta.com
will not seek any contribution from any insurance or self-insurance
maintained by SEMPRA ENERGY.
17.4. COMPANY RATINGS. All required policies of insurance must
be written by companies having an A.M. Best rating of "A-" or better, or
equivalent.
<PAGE>
17.5. DEDUCTIBLE; RETENTIONS. Cayenta.com shall be solely
responsible for any deductible or self-insured retention on insurance
required hereunder.
17.6. REQUIRED INSURANCE. At all times during this agreement,
Cayenta.com shall provide and maintain, at its own expense, the following
types of insurance:
17.6.1. GENERAL LIABILITY INSURANCE. Cayenta.com shall
maintain an occurrence form commercial general liability policy, or policies,
including coverage for sudden and accidental pollution liability on land and
on water, insuring against liability arising from bodily injury, property
damage, personal and advertising injury, independent Cayenta.coms liability,
products and completed operations and contractual liability. Such coverage
shall be in an amount of not less than $1,000,000 combined single limit per
occurrence.
17.6.2. AUTOMOBILE LIABILITY INSURANCE. In the event that
automobiles are used in connection with Cayenta.com's performance of this
agreement, Cayenta.com shall maintain an automobile liability policy or
policies insuring against liability for damages because of bodily injury,
death, or damage to property, (including loss of use thereof), and occurring
in any way related to the use, loading or unloading of any of Cayenta.com's
automobiles (including owned, hired and non-owned vehicles). Coverage shall
be in an amount of not less than $1,000,000 each accident.
17.6.3. WORKERS' COMPENSATION INSURANCE. In accordance with
the laws of the State or States in which the work will be performed,
Cayenta.com shall maintain in force workers' compensation insurance for all
of its employees. If applicable, Cayenta.com shall obtain U.S.
Longshoremen's and Harbor Workers compensation insurance, separately, or as
an endorsement to workers' compensation insurance. Cayenta.com shall also
maintain employer's liability coverage in an amount of not less than
$1,000,000 per accident and per employee for disease. In lieu of such
insurance, Cayenta.com may maintain a self-insurance program meeting the
requirements of the State or States in which the work will be performed along
with the required employer's liability insurance.
17.6.4. PROFESSIONAL LIABILITY INSURANCE. Cayenta.com shall
maintain professional liability insurance covering the professional
activities contemplated under this agreement in an amount of not less than
$1,000,000 each claim.
17.7. WAIVER OF SUBROGATION. Each policy of property, general
liability and automobile (including automobile physical damage) insurance
maintained by Cayenta.com shall contain a waiver of subrogation in favor of
SEMPRA ENERGY.
18. INDEMNITY
18.1. As between SEMPRA ENERGY and Cayenta.com, Cayenta.com shall
be solely liable for and Cayenta.com shall indemnify, defend and hold SEMPRA
ENERGY, and its present and future direct and indirect parent company(ies),
subsidiaries, affiliates, divisions and their respective directors, officers,
shareholders, employees, agents, representatives, successors and assigns
harmless from and against any and all claims, actions, suits,
<PAGE>
proceedings, losses, liabilities, penalties, damages, costs or expenses
(including attorneys' fees and disbursements) of any kind whatsoever
resulting from Cayenta.com's, its employees, or subcontractor's negligence or
willful misconduct causing, (1) injuries to or death of any and all
individuals, including, without limitation, members of the general public, or
any employee, agent, independent Cayenta.com or Cayenta.com or affiliate of
either SEMPRA ENERGY or Cayenta.com, arising out of or connected in any
manner with the performance of Services, (2) damage to, loss, and/or
destruction of property, including, without limitation, to, property of
SEMPRA ENERGY or Cayenta.com arising out of or connected in any manner with
the performance of Services, (3) third party claims of any kind, whether
based upon negligence, strict liability or otherwise, arising out of or in
connected in any manner to Cayenta.com's or any of its subcontractor's acts
or omissions in breach of this Agreement, or (4) Cayenta.com's failure to
comply with Article 20 hereunder. The indemnification obligation shall not
apply to the extent that injuries, death, loss, damage or destruction is
caused by the willful misconduct of SEMPRA ENERGY, its agents or employees,
or SEMPRA ENERGY's sole negligence.
18.2. Cayenta.com shall indemnify, defend and hold SEMPRA ENERGY,
and its present and future direct and indirect parent company(ies),
subsidiaries and affiliates and their directors, officers, shareholders,
employees, agents and representatives harmless from and against any and all
claims, actions, suits, proceedings, losses, liabilities, penalties, damages,
costs or expenses (inducing attorneys' fees and disbursements) of any kind
whatsoever arising from (1) actual or alleged infringement or
misappropriation by Cayenta.com or any subcontractor of any patent,
copyright, trade secret, trademark, service mark, trade name, or other
intellectual property right in connection with the Services, including
without limitation, any deliverable, (2) Cayenta.com's violation of any third
party license to use intellectual property in connection with the Services,
including, without limitation, any deliverable.
18.3. If any claim is brought against SEMPRA ENERGY, then
Cayenta.com shall be entitled to participate in, and, unless in the opinion
of counsel for SEMPRA ENERGY a conflict of interest between SEMPRA ENERGY and
Cayenta.com may exist with respect to such claim, assume the defense of such
claim, with counsel reasonably acceptable to SEMPRA ENERGY. If Cayenta.com
does not assume the defense of SEMPRA ENERGY, or if a conflict precludes
Cayenta.com from assuming the defense, then Cayenta.com shall reimburse
SEMPRA ENERGY on a monthly basis for SEMPRA ENERGY's defense through separate
counsel of SEMPRA ENERGY's choice. Even if Cayenta.com assumes the defense
of SEMPRA ENERGY with acceptable counsel, SEMPRA ENERGY, at its sole option,
may participate in the defense, at its own expense, with counsel of its own
choice without relieving Cayenta.com of any of its obligations hereunder.
18.4. Cayenta.com's obligation to indemnify under this Article
shall not be limited in any way by any limitation on the amount or type of
damages, compensation or benefits payable by or for Cayenta.com under any
Worker's Compensation Acts, Disability Benefit Acts or other Employee Benefit
Acts.
19. GOVERNING LAW
The formation, interpretation and performance of this Agreement
shall be governed by the internal laws of the State of California.
<PAGE>
20. COMPLIANCE WITH LAWS
Cayenta.com hereby represents that it and its subcontractors are and
at all times shall be familiar with, and at all times during performance of
the Services shall comply with and observe, all applicable federal, state and
local laws, ordinances, rules, regulations, executive orders, all applicable
safety orders and all orders or decrees of administrative agencies, courts or
other legally constituted authorities having jurisdiction or authority over
Cayenta.com, SEMPRA ENERGY or the Services.
21. TERMINATION
21.1. Cayenta.com agrees that if (1) Cayenta.com abandons the
Services, or (2) Cayenta.com shall become bankrupt or insolvent, or shall
assign this Agreement, or sublet any part thereof, without the written
authorization of SEMPRA ENERGY, or (3) Cayenta.com, in the reasonable opinion
of SEMPRA ENERGY Representative violates any of the provisions of this
Agreement, or executes this Agreement in bad faith, or (4) Cayenta.com, in
the sole opinion of the SEMPRA ENERGY Representative is not performing the
Services in accordance with the terms of this Agreement, SEMPRA ENERGY may
notify Cayenta.com pursuant to Article 28, to discontinue all or any part of
the Services and Cayenta.com shall thereupon discontinue the Services or such
parts thereof. The remedies herein shall be inclusive and additional to any
other remedies in law or equity, and no action by SEMPRA ENERGY shall
constitute a waiver of any such right or remedy.
21.2. It is also expressly agreed that SEMPRA ENERGY shall have the
right to terminate this Agreement, or any part thereof, at any time for its
sole convenience upon [...***...] days' written notice, pursuant to Article
28, to Cayenta.com and payment of termination charges as set forth in
SCHEDULE D, if applicable. Cayenta.com shall fully justify and document to
SEMPRA ENERGY any termination charges so claimed. In no event shall
Cayenta.com be entitled to payment for any Services which has NOT been
authorized by SEMPRA ENERGY, or is NOT yet performed, or any anticipated
profits for any Services that have not been authorized or performed.
21.3. Payment of termination charges shall occur within [...***...]
days of receipt of Cayenta.com's written submittal of charges and
justification to SEMPRA ENERGY's satisfaction. SEMPRA ENERGY shall have the
right to review and verify by independent audit, any termination charges
claimed by Cayenta.com prior to payment.
22. LIENS
Without limiting the generality of Article 18, Cayenta.com shall
indemnify, defend, and hold SEMPRA ENERGY, and its present and future direct
and indirect parent company(ies), subsidiaries, affiliates and their
directors, officers, shareholders, employees, agents and representatives
harmless from and against any mechanics lien or stop notice claim against
SEMPRA ENERGY by Cayenta.com, subcontractors, employees or agents pertaining
to the Services specified in this Agreement.
* Confidential Treatment Requested
<PAGE>
23. ASSIGNMENT
Cayenta.com shall give personal attention to the execution of the
Services herein provided for, and shall NOT assign this Agreement, nor employ
any subcontractor for the execution of the same or any part thereof, without
prior written authorization of SEMPRA ENERGY. No such written authorization,
however, shall be construed as discharging or releasing Cayenta.com in any
way from the performance of the Services or the fulfillment of any obligation
specified in this Agreement. Cayenta.com shall remain jointly and severally
liable with any assignee of its rights or obligations.
24. EQUAL EMPLOYMENT OPPORTUNITY
If this Agreement is subject to Executive Order 11246 of September
24, 1965, Section 503 of the Rehabilitation Act of 1973, or the Vietnam Era
Veterans' Readjustment Act of 1974, Cayenta.com agrees to comply with the
equal employment opportunity clauses set out at 41 CFR 60-1.4 and the
requirements for affirmative action for veterans and disabled persons set out
at 41 CFR 60-250.4 and 60-741.4, respectively, which clauses are incorporated
herein by reference with the same force and effect as if stated in full text.
25. CALENDAR YEAR 2000 COMPLIANCE
Cayenta.com represents, warrants and reports that the systems
utilized by Cayenta.com in the performance of Services for SEMPRA ENERGY
shall exhibit calendar Year 2000 Compliance. Year 2000 Compliance shall mean
the capability to (1) manage and manipulate data involving all dates
subsequent to, prior to and including the calendar year 2000 including
single-century and multi-century formulas, and will not cause an abnormally
ending (ABEND) scenario within the application, or result in incorrect values
generated involving such dates; (2) ensure that all date-related functions,
including generated code, will include the indication of century; and (3)
convert between date representatives (such as YYMMDD, Julian and Gregorian).
Failure of Cayenta.com to be Year 2000 compliant shall NOT in any way excuse
Cayenta.com from the duty to perform its obligations hereunder.
26. NONWAIVER
The failure of SEMPRA ENERGY to insist upon or enforce, in any
instance, strict performance by Cayenta.com of any of the terms of this
Agreement or to exercise any rights herein conferred shall NOT be construed
as a waiver or relinquishment to any extent of its right to assert, or rely
upon any such terms or rights on any future occasion. No waiver shall be
valid unless stated in writing as set forth in Article 28.
27. DISPUTES
27.1. Any dispute that cannot be resolved between Cayenta.com
Representative and SEMPRA ENERGY Representative shall be referred to Sempra
Energy Director-Procurement and an officer of Cayenta.com for resolution. If
SEMPRA ENERGY and Cayenta.com cannot reach an agreement within a reasonable
period of time, SEMPRA ENERGY and Cayenta.com shall have the right to pursue
litigation as provided for herein.
<PAGE>
27.2. In the event of any litigation to enforce or interpret any
terms of this Agreement, the parties agree that such action will be brought
in the Superior Court of the County of San Diego, California (or, if the
federal courts have exclusive jurisdiction over the subject matter of the
dispute, in the U.S. District Court for the Southern District of
California), and the parties hereby submit to the exclusive jurisdiction of
said court.
27.3. In any action in litigation to enforce or interpret any of
the terms of this Agreement, the prevailing party shall be entitled to
recover from the unsuccessful party all costs, expenses, (including expert
testimony) and reasonable attorneys fees incurred therein by the prevailing
party.
27.4. In no event shall the litigation of any controversy or the
settlement thereof delay the performance of this Agreement.
28. NOTICES OR DEMANDS
Any notice, request, demand or other communication required or
permitted under this Agreement, shall be deemed to be properly given by the
sender and received by the addressee if made in writing and (1) if personally
delivered; (2) three days after deposit in the mails if mailed by certified
or registered air mail, post prepaid, with a return receipt requested; or (3)
if sent by facsimile with confirmation sent as provided in (2) above. All
correspondence shall reference the contract number shown on the cover page of
this document. Mailed notices and facsimile notices shall be addressed as
follows to:
SEMPRA ENERGY: SEMPRA ENERGY
PO BOX 129007
San Diego, California 92112-9007
Facsimile No: (619) 699-5177
Attention: Director-Procurement
Contract No. 56000001842
Cayenta.com: CAYENTA.COM
225 Broadway
Suite 1500
San Diego, CA 92101
Attention: David Porreca
29. CONFIDENTIALLY
29.1. DEFINITIONS. For purposes of this Agreement, the term
"Confidential Information" means proprietary information concerning the
business, operations and assets of SEMPRA ENERGY, its present and future
direct or indirect parent company(ies), affiliates and/or subsidiaries,
including, without limitation, information or materials prepared in
connection with Peregrine Project or any related subsequent agreement,
designs, drawings, specifications, techniques, models, data, documentation,
source code, object code, diagrams, flow charts, research, development,
processes, procedures, know-how, manufacturing, development or
<PAGE>
marketing techniques and materials, development or marketing timetables,
strategies and development plans, customer, supplier or personnel names and
other information related to customers, suppliers or personnel, pricing
policies and financial information, and other information of a similar
nature, whether or not reduced to writing or other tangible form, and any
other trade secrets. Confidential Information shall not include (1)
information known to Cayenta.com or a Representative prior to obtaining the
same from SEMPRA ENERGY; (2) information in the public domain at the time of
disclosure by Cayenta.com; (3) information obtained by Cayenta.com or a
Representative from a third party who did not receive same, directly or
indirectly, from SEMPRA ENERGY; or (4) information approved for release by
written authorization of an authorized officer of SEMPRA ENERGY. For purposes
of this Agreement, Representatives means collectively each of Cayenta.com's
directors, officers, employees, agents, advisors or affiliates.
29.2. LIMITED USE; NONDISCLOSURE. Cayenta.com hereby agrees that it
shall use the Confidential Information solely for the purpose of performance
under this or other SEMPRA ENERGY contracts and not in any way detrimental to
SEMPRA ENERGY, its present and future direct or indirect parent company(ies),
affiliates and/or subsidiaries. Neither Cayenta.com nor its Representatives
shall use the Confidential Information for their own benefit. Cayenta.com
agrees to use the higher of the same degree of care it uses with respect to
its own proprietary or confidential information or a reasonable standard of
care to prevent unauthorized use or disclosure of the Confidential
Information. Expect as otherwise provided herein, Cayenta.com and its
Representatives shall keep confidential and not disclose the Confidential
Information. Cayenta.com shall cause each of its Representatives to become
familiar with, and abide by, the terms of this Agreement.
29.3. COURT OR ADMINISTRATIVE ORDER. Notwithstanding the provisions
of Article 29.2 above, Cayenta.com and its Representatives may disclose any
of the Confidential Information in the event, but only to the extent, that,
based upon advice of counsel, it is required to do so by the disclosure
requirements of any law, rule, or regulation or any order, decree, subpoena
or ruling or other similar process of any court, governmental agency or
governmental or regulatory authority. Prior to making or permitting any of
its Representatives to make such disclosure, Cayenta.com shall provide SEMPRA
ENERGY with prompt written notice of any such requirement so that SEMPRA
ENERGY (with Cayenta.com's assistance) may seek a protective order or other
appropriate remedy.
29.4. PUBLICITY. Cayenta.com] and its Representatives shall not,
without the prior written consent of SEMPRA ENERGY, disclose to any person
(1) the fact that the Confidential Information has been made available to
Cayenta.com or its Representatives or (2) any information regarding the
ongoing discussions and negotiations between the parties, including the fact
that such discussions and negotiations are occurring; provided, however, that
Cayenta.com and its Representatives may disclose the information described in
clauses (1) and (2) above if such disclosure is required under any of the
circumstances described in Article 29.3 above, in which the case the
procedures specified therein with respect to such disclosure shall apply.
29.5. DOCUMENT RETENTION. At any time upon the request of SEMPRA
ENERGY, Cayenta.com shall promptly deliver to SEMPRA ENERGY or destroy (with
such
<PAGE>
destruction to be certified to SEMPRA ENERGY) all documents (and all copies
thereof, however stored) furnished to or prepared by Cayenta.com and its
Representatives that contain Confidential Information and all other documents
in Cayenta.com's possession that contain or that are based on or derived from
Confidential Information.
29.6. SURVIVAL. Notwithstanding the return or destruction of all or
any part of the Confidential Information, the confidentiality provisions set
forth in this agreement shall nevertheless remain in full force and effect
with respect to specific Confidential Information until the date that is five
(5) years after the date of disclosure of such Confidential Information.
29.7. REMEDIES. The parties acknowledge that the Confidential
Information is valuable and unique, and that damages would be an inadequate
remedy for breach of this Agreement and the obligations of Cayenta.com and
the Representatives are specifically enforceable. Accordingly, the parties
agree that in the event of a breach or threatened breach of this Agreement by
Cayenta.com, SEMPRA ENERGY, its present and future direct or indirect parent
company(ies), affiliates and/or subsidiaries, who shall be third party
beneficiaries of this Agreement, shall be entitled to seek an injunction
preventing such breach, without the necessity of proving damages or posting
any bond. Any such relief shall be in addition to, and not in lieu of, money
damages or any other legal or equitable remedy available to SEMPRA ENERGY,
its present and future direct or indirect parent company(ies), affiliates
and/or subsidiaries.
30. TIME OF ESSENCE
Time is expressly agreed to be of the essence of this Agreement and
each, every and all of the terms, conditions and provisions herein.
31. VALIDITY
The invalidity, in whole or in part, of any provisions hereof shall
NOT affect the validity of any other provisions hereof.
32. SURVIVAL
The obligations imposed on Cayenta.com and Cayenta.com's employees
by and pursuant to Articles 8, 13, 14, 16, 17, 18, 22 and 27 survive
termination of this Agreement.
33. NO ORAL MODIFICATIONS
No modification of any provisions of this Agreement shall be valid
unless in writing and signed by authorized representatives of the party
against whom such modification is sought to be enforced. The authorized
representative of SEMPRA ENERGY is not the SEMPRA ENERGY Representative.
SEMPRA ENERGY Representative is not the authorized representative for
Amendments. Amendments must be signed by persons internally authorized to do
so by SEMPRA ENERGY pursuant to its corporate policies.
<PAGE>
34. CAPTIONS
The captions in this Agreement are for convenience and reference
only and the words contained therein shall in no way be held to explain,
modify, amplify or aid in the interpretation, construction or meaning of the
provisions of this Agreement.
35. COUNTERPARTS
This Agreement may be executed in counterparts which, taken
together, shall constitute a single instrument.
36. AUTHORITY
Each individual executing this Agreement on behalf of SEMPRA ENERGY
and Cayenta.com represents and warrants that he or she is duly authorized to
execute and deliver this Agreement on behalf of said party and that this
Agreement is binding upon said party in accordance with its terms.
37. JOINT AND SEVERAL LIABILITY
INTENTIONALLY OMITTED
38. COMPLETE AGREEMENT
This Agreement constitutes the complete and entire Agreement between
the parties and supersedes any previous communications, representations or
agreements, whether oral or written, with respect to the subject matter
hereof. There are no additions to, or deletions from, or changes in, any of
the provisions hereof, and no understandings, representations or agreements
concerning any of the same, which are NOT expressed herein, unless stated
below. THE PARTIES HEREBY AGREE THAT NO TRADE USAGE, PRIOR COURSE OF DEALING
OR COURSE OF PERFORMANCE UNDER THIS AGREEMENT SHALL BE A PART OF THIS
AGREEMENT OR SHALL BE USED IN THE INTERPRETATION OR CONSTRUCTION OF THIS
AGREEMENT. The following Schedules are attached hereto and incorporated
herein by this reference:
SCHEDULE A - TECHNICAL SERVICES SCOPE OF WORK
SCHEDULE B - SUBCONTRACTORS LIST
SCHEDULE C - RESERVED
SCHEDULE D - COMPENSATION
SCHEDULE E - REQUIRED INSURANCE
SCHEDULE F - INTENTIONALLY OMITTED
SCHEDULE G - WORK AUTHORIZATION
SCHEDULE H - WEEKLY TIME CARD
SCHEDULE I - TRAVEL GUIDELINES
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
CAYENTA.COM SEMPRA ENERGY
By: /s/ Gregory R. Smith By: /s/ Jerry Deems
------------------------------- -----------------------------------
Name: Gregory R. Smith Name: Jerry Deems
---------------------------- ---------------------------------
Vice President & Chief
Title: Chief Technical Officer Title: Information Technology Officer
--------------------------- -------------------------------
Date: 12/16/1999 Date: 12/16/99
---------------------------- --------------------------------
<PAGE>
SEMPRA ENERGY
SCHEDULE A
TECHNICAL SERVICES SCOPE OF WORK
The Services as generally described in Article 1 - SCOPE, are more definitively
described as stated below:
Cayenta.com shall provide SEMPRA ENERGY with consulting and professional
services support on a Time and Expense basis that includes but is not limited to
the following.
EFX APPLICATIONS PROJECTS
OVERVIEW
CAYENTA.COM will deliver time and materials consulting and contract services
in support of the enablement of nine strategic business applications to
operate within the EFX FRAMEWORK and also to deliver added business function.
The nine applications to be enabled and enhanced are CIS, CISCO, Gas Select,
GIR, Gas Select, OMS-A, OMS-B, MCS, Phoenix and Web Portal Enablement-SAP.
Cayenta.com will support eight related projects, which will deliver the
business enhancements and EFX integration.
The EFX FRAMEWORK is SEMPRA ENERGY'S strategic direction for delivering and
managing superior (web technology based) business applications in a
competitive market. The EFX Framework will enable delivery of new and
enhanced applications more rapidly, with higher quality and at lower cost
than can be delivered by conventional development methods.
The projects will deliver all created services and facilities in accordance
with Sempra Energy's EFX framework. All services will be designed such that
the resulting software components can be factored into Sempra Energy's
Business Services and Common Horizontal Facilities libraries. All web
components will make use of EFX web services to develop any and all web
client solutions.
EFX CIS ENABLEMENT
The CIS application provides customer care and billing functions for all
SoCal Gas core customers and partial customer management services for the
Phoenix non-core system.
This project will support the CIS application team in creating application
components that assist the CIS team to migrate the application away from OS/2
and Smalltalk. In addition, this project will deliver new component services
that help the CIS team extend their WEB-based client and add additional
e-commerce facilities as well as develop new CIS-specific integration
services and components
<PAGE>
mandated by GIR.
Specific services to be delivered include a java and CORBA-based CICS access
service packaged to meet specific CIS needs. Smalltalk process management
services will also be provided as well as Smalltalk CORBA interface to EFX to
enable the eventual migration of the CIS system to a physical 3-tier
implementation. The project will assist the CIS development team to integrate
GIR project requirements as new EFX components.
EFX CISCO ENABLEMENT
The CISCO application provides customer care and billing functions for all SDG&E
customers.
The purpose of this project is to provide bolt-on components and services that
make the CISCO application easier to interface with other applications, provide
enhanced services in support of Electric Industry Restructuring (EIR) and Gas
Industry Restructuring (GIR), and enable web-based customer access to billing
information.
EFX GIR INTEGRATION
Gas Industry Restructuring (GIR) is a PUC-initiated activity underway in
California to provide increased competition in the California natural gas
marketplace. One of the key impacts of this initiative is on Utility
Distribution Company (UDC) information technology systems that will require
modification to meet new regulator specified functional requirements. A key
aspect of these changes will be a requirement to provide expanded interfaces and
e-commerce facilities that link UDC's with their trading partners (e.g.,
retailers, shippers).
The purpose of this project is to provide a common platform that can be shared
by both SoCal Gas and SDG&E to provide e-commerce, trading partner integration,
and common GIR-mandated bolt-on services that can be utilized by both company's
application suite to meet the needs of deregulation. This project will develop a
common set of GIR-specific integration services and bolt-on functional
components that can be shared by both SoCal Gas and SDG&E.
EFX GAS SELECT DEVELOPMENT
The Gas Select application provides an on-line order entry system for SoCal Gas
non-core commercial customers.
The application, as part of the overall GIR process and in response to
competitive pressures needs to be redeveloped as a web-based portal solution.
The development of the application as a web-based solution will enable the Gas
Select to not only provide enhanced functionality, but will also provide lowered
support and maintenance costs on the part of the Gas Company as the system's
client will eliminate most client support issues. The purpose of this project
will be to provide the core web services and management facilities to host the
Gas Select application as an Internet portal. A key expected requirement is the
need to package commerce grade security with application to support secure
end-user access over
<PAGE>
the web.
EFX OMS INTEGRATION PLATFORM DEVELOPMENT - A
Outage Management Systems (OMS) are mission-critical applications that are
required to detect system outages and manage the recovery of service to Sempra
Energy customers. SDG&E has initiated a new project to replace its current
system with a new application platform. To operate, this new system will be
required to integrate key utility systems including GIS, SCADA, service order
dispatch, work force management, and customer information systems with the core
outage management system functionality. As a mission-critical system, it is also
necessary that the OMS application be highly-available to its users and be able
to sustain operations in a 7X24 environment and under degraded modes of
operation including application server failures.
The purpose of this project is to establish the necessary integration
infrastructure to host the OMS system including application integration, system
monitoring, and failure recovery services. This project will result in the
development and deployment of a system integration framework and management
environment for the OMS. Key services to be provided are application specific
proxies that will enable communication between all OMS II system components.
Specific proxy objects needing development for the OMS II include
representations of the CISCO, SORT, GFMS, and SCADA applications. A key focus
will be to provide facilities and services for enabling the OMS II system to
remain in operation in response to failures in feeder application systems as
well as support the dynamic redeployment of the OMS II application components in
response to system failures.
EFX OMS INTEGRATION PLATFORM DEVELOPMENT - B
Outage Management Systems (OMS) are mission-critical applications that are
required to detect system outages and manage the recovery of service to Sempra
Energy customers. SDG&E has initiated a new project to replace its current
system with a new application platform. To operate, this new system will be
required to integrate key utility systems including GIS, SCADA, service order
dispatch, work force management, and customer information systems with the core
outage management system functionality. As a mission-critical system, it is also
necessary that the OMS application be highly-available to its users and be able
to sustain operations in a 7X24 environment and under degraded modes of
operation including application server failures.
The purpose of this project is to establish the necessary integration
infrastructure to host the OMS system including application integration, system
monitoring, and failure recovery services. This project will result in the
development and deployment of a system integration framework and management
environment for the OMS. Key services to be provided are application specific
proxies that will enable communication between all OMS II system components.
Specific proxy objects needing development for the OMS II include
representations of the CISCO, SORT, GFMS, and SCADA applications. A key focus
will be to provide facilities and services for enabling the OMS II system to
remain in operation in response to failures in feeder application systems as
well as support the dynamic redeployment of the OMS II application components in
response to system failures.
<PAGE>
EFX MCS ENABLEMENT
The Measurement and Collection Service (MCS) provides the focal point for
collecting consumption information by Gas Company customers. The system is
expected to undergo revisions as a result of industry restructuring and the need
to provide additional support for the automated meter reading (AMR) devices.
The purpose of this project is to assist the MCS team to both meet the needs of
industry restructuring and provide an enhanced application platform for
extending and managing the MCS system. Services to be delivered as part of this
project include the development of new Meter Data Management Agency (MDMA)
interfaces as well as being able to deliver this information to customers via
EDI-based transactions. In addition, a new component architecture will be
designed to support the integration and management of vendor supplied AMR
systems and controllers.
EFX PHOENIX SERVICES DEVELOPMENT AND INTEGRATION SUPPORT
The Phoenix application has been developed by SoCal Gas to provide a highly
flexible and tailorable non-core gas billing and contract management platform.
The initial release of the application is currently being deployed and will then
be modified to support the needs of GIR both from regulatory and competitive
perspectives.
The purpose of this project is to create additional components and services to
enhance the competitiveness SoCal Gas' Gas product offering. This effort will
focus on the development of e-commerce, bill presentment, and beyond the
firewall business to business integration. This project will also provide
functional enhancements to core Phoenix application services including logging,
security, and load balancing services.
The initial release of the Phoenix project has been developed utilizing EFX.
EFX WEB PORTAL ENABLEMENT - SAP
Sempra Energy has recognized the benefits of using an already built ERP system
for providing back-end corporate processes and is implementing SAP applications
to that end. The integration between the front-end Web applications and the
back-end processes that they feed can provide improved efficiencies to Sempra
Energy. This will extend EFX services to be used to Web-enable the SAP
applications.
This project will develop required SAP services utilizing the Sempra Energy EFX
framework.
All Services shall be authorized by SEMPRA ENERGY via a Work Authorization
(Schedule G) and shall be provided by Cayenta.com on a Time and Expense basis.
All work will be performed onsite at SEMPRA ENERGY facilities.
<PAGE>
SEMPRA ENERGY will define all work to be performed by Cayenta.com via a Work
Authorization - SCHEDULE G. SEMPRA ENERGY will not reimburse Cayenta.com for
any work performed that has not been previously authorized by a Work
Authorization - SCHEDULE G.
The Cayenta.coms will work during SEMPRA ENERGY normal business hours and will
not be paid for holidays or weekends. If SEMPRA ENERGY requires Cayenta.com to
work on a holiday that is observed by SEMPRA ENERGY, Cayenta.com shall be
reimbursed if authorized by a Work Authorization - SCHEDULE G.
SEMPRA ENERGY shall be given ten (10) days notice and request for any vacation
or leave of absence planned by the Cayenta.coms. SEMPRA ENERGY must approve any
vacation or leave of absence taken by the Cayenta.coms.
Any changes to the Estimated expenditures, and Scope/Task as described in the
Work Authorization shall be documented and approved by the SEMPRA ENERGY
authorized representative as described herein. SEMPRA ENERGY shall not be liable
for payment for any change or work performed that has not been authorized and
approved in writing via a Work Authorization.
If at any time SEMPRA ENERGY is dissatisfied with the material performance or
experience level of an assigned Cayenta.com employee or Cayenta.com, SEMPRA
ENERGY shall immediately report such to Cayenta.com in writing and may request
Cayenta.com to replace such personnel. Cayenta.com shall use its commercially
reasonable best efforts to accomplish such change, recognizing the adverse
impact that unsatisfactory personnel shall have on the performance of Services
and meeting of the task and scope as described in the Work Authorization.
<PAGE>
SEMPRA ENERGY
SCHEDULE B
SUBCONTRACTORS LIST
INTENTIONALLY OMITTED
This section was intentionally omitted. There are no subcontractors identified
at this time. Any subcontractors, and their key employees, will be identified
in Work Authorizations.
<PAGE>
SEMPRA ENERGY
SCHEDULE C
RESERVED
<PAGE>
SEMPRA ENERGY
SCHEDULE D
COMPENSATION
Further definition of Article 11 - COMPENSATION, is as follows:
Cayenta.com shall provide SEMPRA ENERGY with software consulting and
professional services support on a Time and Expense basis that shall not exceed
[...***...].
Table C-1 defines standard billing rates for all standard TNP labor categories.
The rates presented below reflect those charged by TNP to its best customers and
are identical to the negotiated rates currently in place between Sempra Energy
and TNP.
TABLE C-1. BILLING RATES.
<TABLE>
<CAPTION>
Category Hourly Rate
<S> <C>
Managing Partner $[...***...]
Partner $[...***...]
Senior Technical Consultant $[...***...]
Technical Consultant $[...***...]
Associate Technical $[...***...]
Consultant
Research/Documentation $[...***...]
Support
Administrative Support $[...***...]
</TABLE>
Table C-2 documents total project cost and associated level of effort required
to meet the proposed statement of work over the contract's one year duration.
TABLE C-2. COSTS BY APPLICATION PROJECT ($000)
<TABLE>
<S> <C>
CIS ENABLEMENT [...***...]
CICSCO ENABLEMENT [...***...]
GIR INTEGRATION DEVELOPMENT [...***...]
GAS SELECT DEVELOPMENT [...***...]
OMS INTEGRATION PLATFORM DEVELOPMENT-A [...***...]
OMS INTEGRATION PLATFORM DEVELOPMENT-B [...***...]
MCS ENABLEMENT [...***...]
PHOENIX SERVICES DEVELOPMENT/INTEGRATION [...***...]
WEB PORTAL ENABLEMENT [...***...]
-----------
[...***...]
</TABLE>
* Confidential Treatment Requested
<PAGE>
SEMPRA ENERGY and Cayenta.com will negotiate the rate for all additional
Cayenta.coms on the project based on Cayenta.com experience and will be
documented and incorporated into any future Work Authorizations - SCHEDULE G.
Cayenta.com guarantees that the rates listed herein will remain the same
throughout the term of this Agreement.
SEMPRA ENERGY does not guarantee, represent or warrant that it will commit to
any specific quantities or dollar total for these services and assumes no
commitment liability, financial or otherwise, except as authorized on an
individual basis from time to time.
<PAGE>
SEMPRA ENERGY
SCHEDULE E
REQUIRED INSURANCE
<PAGE>
SEMPRA ENERGY
SCHEDULE F
INTENTIONALLY OMITTED
<PAGE>
SEMPRA ENERGY
SCHEDULE G
WORK AUTHORIZATION
WORK AUTHORIZATION #____
This signed document represents authorization for Cayenta.com to commence
consulting services against Agreement No.______ dated November 13, 1998
between Cayenta.com and SEMPRA ENERGY.
Cost Center____________ Acct: No.____________
SCOPE/TASK DESCRIPTION:
SEMPRA ENERGY REPRESENTATIVE
Name _____________ Phone No.____________
CAYENTA.COM STAFF MEMBER:
Name Classification Rate Phone No.
1.
2.
PERFORMANCE PERIOD
START DATE: END DATE:
TRAVEL AND EXPENSES:
All expenses are to be reimbursed in accordance with Schedule I - Travel
Guidelines.
ESTIMATED EXPENDITURES
The estimated expenditures for this Work Authorization is $_____________
Agreed and Accepted:
For: Sempra Energy For: Cayenta.com LLC
Signature:______________ Signature:______________
Name:___________________ Name:___________________
Title:__________________ Title:__________________
Date:___________________ Date:___________________
<PAGE>
SEMPRA ENERGY
SCHEDULE H
WEEKLY TIME CARD
for Time & Material Service Providers
(see Attachment H-2)
<PAGE>
WEEKLY TIME CARD
for Time & Material Service Providers
PERIOD COMPANY NAME Sempra Energy
--------------------------------
FROM: COMPANY REPRESENTATIVE --------------------------------
01-Jan-2000 CAYENTA.COM --------------------------------
THROUGH: CONSULTANT NAME: --------------------------------
07 Jan 2000 LOCATION SERVICES PERFORMED: --------------------------------
CONTRACT NUMBER --------------------------------
1
WORK AUTHORIZATION NUMBER --------------------------------
<TABLE>
<CAPTION>
================================================================================================================
DESCRIPTION OF SERVICES PROVIDED 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan TOTAL
2000 2000 2000 2000 2000 2000 2000
------------------------------------------------------------
SAT SUN MON TUE WED THU FRI
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0
- ----------------------------------------------------------------------------------------------------------------
0
- ----------------------------------------------------------------------------------------------------------------
4 4
- ----------------------------------------------------------------------------------------------------------------
0
- ----------------------------------------------------------------------------------------------------------------
3 3
- ----------------------------------------------------------------------------------------------------------------
0
- ----------------------------------------------------------------------------------------------------------------
0
- ----------------------------------------------------------------------------------------------------------------
0
- ----------------------------------------------------------------------------------------------------------------
8 4 8 8 5 33
- ----------------------------------------------------------------------------------------------------------------
0
================================================================================================================
Totals 0 0 8 8 8 8 8 40
================================================================================================================
</TABLE>
I CERTIFY THE FOREGOING TO BE CORRECT ACCOUNT OF THE TIME WORKED
CONSULTANT DATE
------------------------------------------- -------------
Sempra Energy REPRESENTATIVE: DATE
------------------------ -------------
*THIS TIMECARD WITH SEMPRA ENERGY REPRESENTATIVE SIGNATURE MUST
ACCOMPANY ALL INVOICES FOR SERVICES*
<PAGE>
SEMPRA ENERGY
SCHEDULE I
TRAVEL GUIDELINES
All travel-related reservations (hotel, air, car rental, etc.) shall be made
through SEMPRA ENERGY' Travel Services office. All bills shall include an
itemized listing supported by copies of the original bills, invoices, expense
accounts and miscellaneous supporting data. If charged to SEMPRA ENERGY, all
travel either to San Diego or from San Diego to other locations shall be
approved in writing in advance by SEMPRA ENERGY' Representative. Time for
travel will not be reimbursed except for travel during normal business hours.
A. AUTO MILEAGE
Auto mileage will be reimbursed are $.31 per mile, or the current rate as
specified by the Internal Revenue Service.
B. AIR TRAVEL
Air fares will be reimbursed based on the most direct route at coach
class travel rates. Upgrading (coach to a higher class) of airline tickets
will only be reimbursed when approved by the SEMPRA ENERGY Representative,
and only when the business schedule requires immediate travel and only
higher class accommodations are available. Downgrading (exchange) of
airline ticket where Cayenta.com receives financial or personal gain is
not permitted. If a trip is postponed, reservations should be canceled
immediately. Cayenta.com shall provide copies of passenger receipts to
SEMPRA ENERGY to receive reimbursement.
Travel arrangements should be made as early as possible (preferably three
(3) weeks) to take advantage of advance reservation rates.
C. COMBINING BUSINESS TRAVEL WITH PERSONAL TRAVEL
Cayenta.com may combine personal travel with SEMPRA ENERGY' business only
if the personal travel does not increase the cost to SEMPRA ENERGY.
Arrangement for personal travel should be handled by Cayenta.com. SEMPRA
ENERGY will not manage personal travel.
D. AIR TRAVEL INSURANCE
SEMPRA ENERGY does not pay for air travel insurance.
E. ACCOMMODATIONS
SEMPRA ENERGY will reimburse hotel room fees at the preferred corporate
rate. SEMPRA ENERGY may reimburse hotel room fees at the standard rate
based on single room occupancy in cases where a corporate rate is not
available.
<PAGE>
F. LAUNDRY
Laundry and dry cleaning charges will only be paid if Cayenta.com is on
travel for SEMPRA ENERGY for a period in excess of six (6) consecutive
days.
G. ENTERTAINMENT
SEMPRA ENERGY will not pay for the rental of premium channel movies, use
of health club facilities or other forms of entertainment.
H. AUTO RENTAL
If required, SEMPRA ENERGY will pay for reasonable car rental charges.
Cayenta.com is expected to request the rental of an economy car.
I. MEALS
Meals will be reimbursed on the actual cost up to a maximum of $50.00 per
day of travel. Receipts are required for all meals. In order to be
reimbursed, meal receipts (itemized if possible) in the form of
receipts, credit card receipts, or cash register tape must be submitted.
SEMPRA ENERGY will not pay for alcoholic beverages. In lieu of itemizing
meal expenses and submitting receipts, Cayenta.com may claim the standard
$31.00 per diem for the duration of the travel.
J. TELEPHONE USAGE
Cayenta.com shall submit documentation regarding all telephone calls
charged to SEMPRA ENERGY. Documentation must include the name of the
party being called and the purpose of the call. SEMPRA ENERGY shall
allow one business call upon arrival and one call prior to departure.
SEMPRA ENERGY will not pay for additional business calls unless directly
related to the Contract. Personal telephone call are not reimbursable
unless Cayenta.com is on travel for SEMPRA ENERGY for more than three
consecutive days. In this case, the cost of a call shall not exceed
$5.00 and one call is permitted every other day.
K. GROUND TRANSPORTATION
Public transportation should be used whenever possible; however, if
necessary, rental car expenses, including gas actually purchased, will be
reimbursed for authorized travel only. Cab fare (on a shared basis
whenever possible) is reimbursable. Receipts shall be required to
document all ground transportation charges.
Cayenta.com shall rent the lowest automobile classification appropriate
for the size or purpose of the group using the vehicle.
1-2 Travelers Compact
3 Travelers Medium/Intermediate
4-5 Travelers Full Size/Standard Equipment
6+ Travelers Van
Cayenta.com must fuel rental automobiles prior to turn-in as rental
companies normally add a large service charge to fuel costs.
<PAGE>
L. PARKING
SEMPRA ENERGY does not reimburse its employees for parking expenses at
any of its facilities; therefore, Cayenta.com will not be reimbursed for
such.
M. TOLLS AND FEES
Transportation-related toll and fees incurred while on SEMPRA ENERGY
business are reimbursable at actual cost.
N. BAGGAGE HANDLING
Baggage handling service fees are reimbursable at standard reasonable
rates.
O. OTHER BUSINESS EXPENSES
Supplies, equipment rental, reprographics and facsimile expenses may be
reimbursed when traveling on SEMPRA ENERGY business. Such expenses shall
be billed at cost.
P. NON-ALLOWABLE EXPENSES
SEMPRA ENERGY will not provide any reimbursement for travel expenses for
family members, personal items, charitable contributions, or for any
other type of expense not listed above.
<PAGE>
Confidential Treatment Requested
under 17 C.F.R. Sections 200.80 (B)(4),
200.83 and 230.406
CONTRACT NO. 5600001843
AGREEMENT
FOR
TECHNICAL SERVICES
BETWEEN
SEMPRA ENERGY
AND
CAYENTA.COM
FOR
INFORMATION TECHNOLOGY CONSULTING SERVICES
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE...................................................................PAGE
- ------- ----
<S> <C>
1. SCOPE.................................................................. 1
2. COMMENCEMENT AND COMPLETION OF WORK.................................... 1
3. REPRESENTATIVES........................................................ 1
4. RESPONSIBILITY OF CAYENTA.COM.......................................... 2
5. MONITORING............................................................. 2
6. CHANGES................................................................ 2
7. DELAYS................................................................. 2
8. OWNERSHIP OF INTELLECTUAL PROPERTY AND MATERIAL........................ 3
9. REPORTS................................................................ 3
10. SUBCONTRACTORS......................................................... 4
11. COMPENSATION........................................................... 4
12. PAYMENT................................................................ 4
13. AUDIT.................................................................. 5
14. TAXES.................................................................. 6
15. INDEPENDENT CAYENTA.COM................................................ 6
16. WARRANTY............................................................... 7
17. INSURANCE.............................................................. 7
18. INDEMNITY.............................................................. 8
19. GOVERNING LAW.......................................................... 9
20. COMPLIANCE WITH LAWS................................................... 9
21. TERMINATION............................................................ 9
22. LIENS..................................................................10
23. ASSIGNMENT.............................................................10
24. EQUAL EMPLOYMENT OPPORTUNITY...........................................10
25. CALENDAR YEAR 2000 COMPLIANCE..........................................11
26. NONWAIVER..............................................................11
27. DISPUTES...............................................................11
28. NOTICES OR DEMANDS.....................................................11
29. CONFIDENTIALITY........................................................12
30. TIME OF ESSENCE........................................................14
31. VALIDITY...............................................................14
32. SURVIVAL...............................................................14
33. NO ORAL MODIFICATIONS..................................................14
34. CAPTIONS...............................................................14
35. COUNTERPARTS...........................................................14
36. AUTHORITY..............................................................14
37. JOINT AND SEVERAL LIABILITY............................................14
38. COMPLETE AGREEMENT.....................................................15
<PAGE>
SCHEDULE A - TECHNICAL SERVICES SCOPE OF WORK
SCHEDULE B - SUBCONTRACTORS LIST
SCHEDULE C - RESERVED
SCHEDULE D - COMPENSATION
SCHEDULE E - REQUIRED INSURANCE
SCHEDULE F - INTENTIONALLY OMITTED
SCHEDULE G - WORK AUTHORIZATION
SCHEDULE H - WEEKLY TIME CARD
SCHEDULE I - TRAVEL GUIDELINES
</TABLE>
<PAGE>
SEMPRA ENERGY
San Diego, California
TECHNICAL SERVICES AGREEMENT
This Technical Services Agreement ("Agreement") is made effective as of
January 1, 2000, by and between Sempra Energy (SEMPRA ENERGY) and Cayenta.com
("Cayenta.com").
The Parties hereby agree as follows:
1. SCOPE
Cayenta.com shall perform, at its own proper cost and expense, in
workmanlike fashion to the industry standard, to the satisfaction of SEMPRA
ENERGY, the following generally described Technical Services (hereinafter,
the "Services"):
Information Technology Consulting Services
The Services, including the scope of work, specifications, schedule of
milestones and deliverables, and performance standards, are more fully
described in SCHEDULE A - TECHNICAL SERVICES SCOPE OF WORK (hereinafter the
"Scope of Work"), attached hereto and made a part of this reference.
2. COMMENCEMENT AND COMPLETION OF WORK
This Agreement shall commence January 3, 2000, and shall be in full
force and effect through June 30, 2001, unless terminated earlier in
accordance with Article 21. Cayenta.com agrees to commence and perform the
Services in accordance with the requests of SEMPRA ENERGY Representative. The
nature of the Services is such that timely performance is critical to the
orderly progress of related work and to the operating schedule of SEMPRA
ENERGY.
3. REPRESENTATIVES
3.1 SEMPRA ENERGY Representative: Jerry Deems
Phone (619) 696-4626
Fax (619) 696-4577
SEMPRA ENERGY designates, and Cayenta.com accepts, the individual named
above as SEMPRA ENERGY Representative for all matters relating to
Cayenta.com's performance of Services under this Agreement. The actions taken
by the SEMPRA ENERGY Representative regarding such performance shall be
deemed the acts of SEMPRA ENERGY. SEMPRA ENERGY may, upon written notice to
Cayenta.com, pursuant to Article 28 hereof, change the designated
Representative.
<PAGE>
3.2 Cayenta.com Representative: David Porrecca
225 Broadway
Suite 1500
San Diego, California 92101
(800) 568-6100 x2425
Cayenta.com designates, and SEMPRA ENERGY accepts, the individual named
above as Cayenta.com Representative for all matters relating to Cayenta.com's
performance of Services under this Agreement. The actions taken by
Cayenta.com Representative shall be deemed the acts of Cayenta.com.
4. RESPONSIBILITY OF CAYENTA.COM
Cayenta.com shall perform the Services in accordance with established
professional and business standards and ethics. All Services shall conform to
the Scope of Work and performance standards set forth in the Scope of Work.
Cayenta.com shall remedy any and all deficiencies in its Services which
result from Cayenta.com's failure to employ commercially reasonable efforts
to adhere to the Scope of Work.
5. MONITORING
All Services performed by Cayenta.com shall be subject to the monitoring
and approval of SEMPRA ENERGY at all times, but such right of monitoring or
actual approval of Services shall not relieve Cayenta.com of responsibility
for the proper performance of the Services. Cayenta.com shall provide to
SEMPRA ENERGY or SEMPRA ENERGY's designee access to Cayenta.com's facility or
facilities where the Services are being performed and sufficient, safe and
proper work conditions for such services and Cayenta.com shall furnish to
SEMPRA ENERGY such information concerning its operations or the performance
of the Services as SEMPRA ENERGY shall reasonably request.
6. CHANGES
6.1 Either party may initiate a request for a change in this
Agreement by advising the other Party of the change in writing. As soon as
practicable after notice of such request, Cayenta.com shall prepare and
forward to SEMPRA ENERGY in writing the proposed changes to this Agreement.
6.2 If the parties fail to agree on an Amendment to this
Agreement ("Amendment") relating to a proposed change, SEMPRA ENERGY reserves
the option to retain others to provide the Services subject to the change
order.
6.3 Cayenta.com shall implement a change in this Agreement only
after Cayenta.com has received a written Amendment executed by an authorized
procurement agent or officer of SEMPRA ENERGY. All changes shall be performed
under the Terms and Conditions of this Agreement. Cayenta.com hereby
expressly waives any compensation,
<PAGE>
reimbursement of expenses and any other right to receive payment with respect
to any change NOT authorized by a written Amendment to this Agreement.
7. DELAYS
Cayenta.com shall notify SEMPRA ENERGY in writing immediately of any
delay, or anticipated delay in Cayenta.com's performance of this Agreement
due to causes or circumstances beyond the reasonable control of Cayenta.com,
and the reason for and anticipated length of the delay. SEMPRA ENERGY may
extend the date of performance for a period equal to the time lost by reason
of the delay if SEMPRA ENERGY, in its reasonable judgment, determines that
the delay is due to causes or circumstances beyond the reasonable control of
Cayenta.com. Any extension to the contract term or milestone schedule
pursuant to this Article, shall be documented by a written Amendment to this
Agreement.
8. OWNERSHIP OF INTELLECTUAL PROPERTY AND MATERIAL
8.1 Any idea, invention, work of authorship, drawing, design,
formula, algorithm, utility, tool, pattern, compilation, program, device,
method, technique, process, improvement, development or discovery
(hereinafter, collectively, "Invention"), whether or not patentable, or
copyrightable, or entitled to legal protection as a trade secret or
otherwise, that Cayenta.com may conceive, make, develop, create, reduce to
practice, or work on, in whole or in part, in the course of performing the
Services shall be owned by SEMPRA ENERGY and shall be delivered to SEMPRA
ENERGY upon completion of the Services. Cayenta.com agrees that any
copyrightable Invention shall constitute a "work made for hire." Cayenta.com
hereby assigns to SEMPRA ENERGY, without royalty or any further
consideration, Cayenta.com's entire right, title and interest in and to any
such Inventions.
8.2 Cayenta.com hereby grants to SEMPRA ENERGY an irrevocable,
assignable, nonexclusive royalty-free unrestricted license to use, copy,
distribute and make derivatives of any proprietary rights or specialized
knowledge of Cayenta.com that are part of any work product furnished by
Cayenta.com to SEMPRA ENERGY under this Agreement for SEMPRA ENERGY's and its
affiliates' use. Prior to furnishing to SEMPRA ENERGY any proprietary rights
of Contractor or any subcontractor, Contractor shall inform SEMPRA ENERGY in
writing of its plan to provide such rights and shall describe such rights in
sufficient detail so that SEMPRA ENERGY can understand that the scope of the
rights claimed by Contractor.
8.3 If requested by SEMPRA ENERGY, Cayenta.com agrees to take all
actions necessary, at SEMPRA ENERGY's sole cost and expense, to obtain,
maintain or enforce patents, copyrights, trade secrets and other proprietary
rights in connection with any Invention, and Cayenta.com agrees that its
obligations under this Article shall continue beyond the termination or
completion of this Agreement.
8.4 Any and all material and information prepared, accumulated or
developed by Cayenta.com, any subcontractor or their respective employees in
the scope of work performing the services, including, without limitation,
documents, drawings, calculations, maps, plans, estimates, specifications,
sketches, notes, reports, summaries, data models and samples, (hereinafter,
collectively, the "Material"), shall become the property of SEMPRA ENERGY
<PAGE>
when prepared or in process, whether or not delivered by Cayenta.com.
Cayenta.com shall deliver the Material, together with any other materials
furnished to Cayenta.com by SEMPRA ENERGY hereunder, to SEMPRA ENERGY upon
request, and, in any event, upon termination or completion of this Agreement.
8.5 Contractor agrees that during the term of this Agreement and
for a period of eighteen (18) months following its expiration or termination,
Contractor will not provide any consulting services to any gas or electric
utility, any utility holding company, or any regulated or unregulated
subsidiary of a utility holding company, any power marketer or any other
company that provided energy information or energy purchasing related
products or services in the United States, unless that entity is a wholly or
partially owned direct or indirect subsidiary (i.e. at least 10% voting and
beneficial membership) of Sempra Energy.
8.6 Prior to working on any customized software, Contractor shall
identify in writing to SEMPRA ENERGY any third party development tools,
(whether or not commercially available), compilers, libraries or other source
code to be embedded in, used in the development of and/or necessary for the
maintenance of any customized software written by Contractor or any
subcontractor in accordance with Schedule A. In addition, prior to working on
the project, Contractor shall inform SEMPRA ENERGY of the cost of procuring a
perpetual royalty-free license to use, modify, translate and create
derivatives of the third party source code as part of the SEMPRA ENERGY
software, the cost of obtaining a run-time executable license to the third
party software and the cost of development tools (whether or not commercially
available). If SEMPRA ENERGY approves the project in accordance with SCHEDULE
A, then Contractor shall be responsible for initiating and assisting SEMPRA
ENERGY in the procurement, in the name of SEMPRA ENERGY, of any third party
license required to enable SEMPRA ENERGY to maintain, enhance and create
derivatives of its customer software, and, in the case of any business line
software, to enable SEMPRA ENERGY or its subsidiaries and/or affiliates
(including without limitation Soliance Networks, L.L.C., a Delaware Limited
Liability Company) to sublicense SEMPRA ENERGY's software (with the embedded
third party code) on a shrink wrap basis.
9. REPORTS
Cayenta.com shall provide periodic status reports in accordance with
Schedule A and as requested by the SEMPRA ENERGY Representative. Reports
shall be issued to the SEMPRA ENERGY Representative on a weekly basis and are
due by 2:00 p.m. every Friday. The reports shall contain weekly time sheet,
weekly accomplishments, planned activities for the upcoming week, and issues
affecting current assignment. Reports shall make periodic comparisons of the
Services rendered to date against the Work Order, including any milestones
and estimated costs. Such reports shall include an explanation of any
significant variations, an identification of any potential or known
developments which may impact SEMPRA ENERGY and any corrective actions
implemented.
<PAGE>
10. SUBCONTRACTORS
Cayenta.com shall at all times be responsible for the negligent or
illegal acts and omissions of subcontractors and individuals directly or
indirectly employed by them. Cayenta.com shall be responsible for performance
of all the Services, whether performed by Cayenta.com or its subcontractors.
This Agreement shall NOT give rise to any contractual relationship between
SEMPRA ENERGY and a subcontractor. SEMPRA ENERGY shall NOT undertake any
obligation to pay or to be responsible for the payment of any sums to any
subcontractor. Initial subcontractors are referenced on SCHEDULE B -
SUBCONTRACTORS LIST.
11. COMPENSATION
Cayenta.com hereby agrees to accept as full compensation for
satisfactory performance of the Services as described in Article 1 and
SCHEDULE A, the compensation that is outlined in SCHEDULE D - COMPENSATION.
Payments shall be made at the times and in the manner specified in Article 12.
12. PAYMENT
12.1. Cayenta.com shall invoice SEMPRA ENERGY in accordance with
the daily rates set forth in SCHEDULE D. Invoices shall be submitted
bi-weekly, with the beginning of the pay period being a Monday and the end of
the pay period being on a Friday. Invoices shall include at a minimum the
Contract Number, Work Authorization Number, Cayenta.com's employee name,
hours worked per pay period, daily rate and extended amount for each of
Cayenta.com's employees, and the total amount due for the pay period.
Cayenta.com shall have complete support documentation of all charges
incurred, including weekly time sheets as described in SCHEDULE H - WEEKLY
TIME CARD, any data required to calculate fees or variable rate charges, plus
receipts for reimbursable expenses in amount equal to or greater than $25.00
per item and a breakdown by category.
12.2. SEMPRA ENERGY may withhold payment of the whole or part of
any amount due or claimed to be due by Cayenta.com to such extent as may be
necessary to protect SEMPRA ENERGY from loss on account of any of the
following:
12.2.1. Defective Services NOT remedied.
12.2.2. Third party claims indemnified hereunder as filed or
with reasonable evidence indicating probable filing of such claims.
12.2.3. Failure of Cayenta.com to make payment promptly to its
employees, suppliers or subcontractors.
12.2.4. Indemnified damage caused by Cayenta.com to others
and/or SEMPRA ENERGY; or
<PAGE>
12.2.5. A good faith dispute as to the achievement of a
milestone or the calculation of the amount invoiced.
12.3. Cayenta.com shall submit invoices in duplicate. SEMPRA
ENERGY's Representative shall approve all invoices before payment. Invoices
and payments shall be addressed as follows:
Originals to: Sempra Energy
Attention: Accounts Payable
PO Box 129007
San Diego, CA 92112-9007
Copy to: SEMPRA ENERGY
Attention: Clyde Parks
101 Ash Street, HQ-07
San Diego, CA 92101
12.4 SEMPRA ENERGY shall make payment within [...***...] days after
receipt and approval of invoice.
13. AUDIT
13.1. SEMPRA ENERGY reserves the right to designate its own employee
representative(s) or its contracted representative with a certified public
accounting firm, who shall have the right to audit and to examine any cost,
payment, settlement or supporting documentation resulting from any Services
performed on this Agreement. Any such audit(s) shall be done by SEMPRA ENERGY
at reasonable times and in conformance with generally accepted auditing
standards and General Accepted Accounting Principles (GAAP). Cayenta.com
agrees to fully cooperate with any such audit(s).
13.2. Cayenta.com shall include a similar clause in its agreements
with its subcontractors reserving the right to designate Cayenta.com's own
employee representative(s), its contracted representative from a certified
public accounting firm, and representative(s) from SEMPRA ENERGY, who shall
have the right to audit and to examine any cost, payment, settlement or other
supporting documentation resulting from any item set forth in its agreements.
13.3. Cayenta.com shall be notified in writing of any exception
taken as a result of an audit of Cayenta.com or a subcontractor. Cayenta.com
shall refund the amount of any exception to SEMPRA ENERGY within ten (10)
days or have the right to have the exception(s) audited by an independent
accounting firm whose determination shall be binding upon both parties.
Cayenta.com agrees to pay interest, accruing monthly, at a rate of [...***...]%
per annum on any payment which it is found responsible. Interest will be
computed from the date of written notification of exception(s) to the date
Cayenta.com reimburses SEMPRA ENERGY for any exception(s). In the event an audit
verifies overcharges of [...***...]%) or more, then Cayenta.com shall
reimburse SEMPRA ENERGY for the cost of the audit.
* Confidential Treatment Requested
<PAGE>
13.4. This right to audit shall extend for a period of five (5)
years following the date of final payment under this Agreement. Cayenta.com
and each subcontractor shall retain all necessary records/documentation for
the entire length of this audit period.
14. TAXES
14.1. Except as stated in Section 14, Cayenta.com shall separately
invoice and assumes exclusive liability for and shall pay before delinquency,
all federal, state, or local sales, use, excise and other taxes, charges or
contributions imposed on, or with respect to, or measured by the equipment,
materials, supplies or labor furnished hereunder or the wages, salaries or
other remuneration's paid to individuals employed in connection with the
performance of the Services. Provided that the conditions of indemnification
as set forth in Article 18 are satisfied, Cayenta.com shall hold harmless,
indemnify and defend SEMPRA ENERGY, together with any and all its officers,
directors, agents and employees from any liability, penalty, interest and
expense by reason of Cayenta.com's failure to pay such taxes, charges or
contributions. Cayenta.com and SEMPRA ENERGY shall cooperate with each other
to minimize the tax liability of both parties to the extent legally
permissible, including separately stating taxable charges on Cayenta.com's
invoices and supplying resale and exemption certificates, if applicable, and
other information as reasonably requested. Cayenta.com agrees to deliver any
software solely by (a) electronic transmission or (b) a "load and leave"
procedure whereby Cayenta.com loads the software onto SEMPRA ENERGY's systems
using LICENSOR's own media, over which media Cayenta.com at all times retains
possession and control. In the case of delivery under option (b) above,
Cayenta.com shall remove such media from SEMPRA ENERGY's premises promptly
following completion of such loading procedure.
14.2. Without limiting the generality of the foregoing, Cayenta.com
agrees to treat all individuals performing services under the Agreement as
employees of the Cayenta.com for purposes of Federal and State employment
taxes. No exceptions are permitted under this section without a written
Amendment to this Agreement prior to an individual performing any Services
under this Agreement.
14.3. Without limiting any of the provisions of Article 14,
Cayenta.com agrees that, at any time during the performance of this
Agreement, SEMPRA ENERGY shall have the right to audit Cayenta.com's
compliance with the requirement stated in Article 14.2 that Cayenta.com treat
all individuals performing Services under this Agreement as employees of
Cayenta.com for Federal and State employment tax purposes. Such audit shall
occur at reasonable times with Cayenta.com's full cooperation.
15. INDEPENDENT CONTRACTOR
15.1. It is agreed that Cayenta.com shall perform the Services under
this Agreement as an independent Contractor and no principal-agent or
employer-employee relationship or joint venture or partnership shall be
created with SEMPRA ENERGY.
15.2. Cayenta.com represents to SEMPRA ENERGY that it has taken
commercially reasonable efforts to ensure that it and its subcontractors are
properly licensed, insured, fully experienced and properly qualified to
perform the class and type of the Services as
<PAGE>
specified in this Agreement, in addition to being properly equipped,
organized, staffed and financed to handle such Services.
15.3. Cayenta.com shall perform the Services in an orderly and
workmanlike manner, enforce strict discipline and order among its personnel,
and shall NOT employ on the Services any personnel it knows or reasonably
should know are unskilled in the work assigned.
15.4. Cayenta.com shall use prudent business practices in its
relationships with suppliers and subcontractors.
15.5. Cayenta.com shall NOT engage in any advertising, publicity or
other promotional activities which in any way directly or indirectly refers
to this Agreement.
16. WARRANTY
Cayenta.com warrants that all services performed hereunder shall
satisfy the standards of care, skill and diligence normally provided by a
performance of such services. Any services supplied hereunder failing to meet
such standards shall be repeated or corrected, at no cost to SEMPRA ENERGY
and shall conform to the requirements of this Agreement.
17. INSURANCE
Insurance requirements set forth below do not in any way limit the
amount or scope of liability of Cayenta.com under this agreement. The amounts
listed indicate only the minimum amounts of insurance coverage SEMPRA ENERGY
is willing to accept to help insure full performance of all terms and
conditions of this agreement. All insurance required of Cayenta.com under
this agreement shall meet the following minimum requirements:
17.1. CERTIFICATES, NOTICE OF CANCELLATION. On or before the
effective date of this agreement, and thereafter during its term, Cayenta.com
shall provide SEMPRA ENERGY with current certificates of insurance, executed
by a duly authorized representative of each insurer, as evidence of all
insurance policies required under this Article 17. No insurance policy may
be canceled, materially revised, or non-renewed without at least thirty (30)
days prior written notice being given to SEMPRA ENERGY. Insurance must be
maintained without lapse in coverage during the term of this agreement.
SEMPRA ENERGY shall also be given certified copies of Cayenta.com's policies
of insurance, upon request.
17.2. ADDITIONAL INSURED. SEMPRA ENERGY shall be named as an
additional insured in each general liability policy. Such general liability
insurance shall provide a severability of interest or cross-liability clause.
17.3. PRIMARY COVERAGE. The required policies, and any of
Cayenta.com's policies providing coverage excess of the required policies,
shall provide that the coverage is primary for all purposes and Cayenta.com
will not seek any contribution from any insurance or self-insurance
maintained by SEMPRA ENERGY.
<PAGE>
17.4. COMPANY RATINGS. All required policies of insurance must
be written by companies having an A. M. Best rating of "A-" or better, or
equivalent.
17.5. DEDUCTIBLE: RETENTIONS. Cayenta.com shall be solely
responsible for any deductible or self-insured retention on insurance
required hereunder.
17.6. REQUIRED INSURANCE. At all times during this agreement,
Cayenta.com shall provide and maintain, at its own expense, the following
types of insurance:
17.6.1. GENERAL LIABILITY INSURANCE. Cayenta.com shall
maintain an occurrence form commercial general liability policy, or
policies, including coverage for sudden and accidental pollution liability
on land and on water, insuring against liability arising from bodily injury,
property damage, personal and advertising injury, independent Cayenta.coms
liability, products and completed operations and contractual liability. Such
coverage shall be in an amount of not less than $1,000,000 combined single
limit per occurrence.
17.6.2. AUTOMOBILE LIABILITY INSURANCE. In the event that
automobiles are used in connection with Cayenta.com's performance of this
agreement, Cayenta.com shall maintain an automobile liability policy or
policies insuring against liability for damages because of bodily injury,
death, or damage to property, (including loss of use thereof), and occurring
in any way related to the use, loading or unloading of any of Cayenta.com's
automobiles (including owned, hired and non-owned vehicles). Coverage shall
be in an amount of not less than $1,000,000 each accident.
17.6.3. WORKERS' COMPENSATION INSURANCE. In accordance
with the laws of the State or States in which the work will be performed,
Cayenta.com shall maintain in force workers' compensation insurance for all
of its employees. If applicable, Cayenta.com shall obtain U.S.
Longshoremen's and Harbor Workers compensation insurance, separately, or as
an endorsement to workers' compensation insurance. Cayenta.com shall also
maintain employer's liability coverage in an amount of not less than
$1,000,000 per accident and per employee for disease. In lieu of such
insurance, Cayenta.com may maintain a self-insurance program meeting the
requirements of the State or States in which the work will be performed along
with the required employer's liability insurance.
17.6.4. PROFESSIONAL LIABILITY INSURANCE. Cayenta.com
shall maintain professional liability insurance covering the professional
activities contemplated under this agreement in an amount of not less than
$1,000,000 each claim.
17.7. WAIVER OF SUBROGATION. Each policy of property, general
liability and automobile (including automobile physical damage) insurance
maintained by Cayenta.com shall contain a waiver of subrogation in favor of
SEMPRA ENERGY.
18. INDEMNITY
18.1. As between SEMPRA ENERGY and Cayenta.com, Cayenta.com shall
be solely liable for and Cayenta.com shall indemnify, defend and hold SEMPRA
ENERGY, and its present and future direct and indirect parent company(ies),
subsidiaries, affiliates, divisions and
<PAGE>
their respective directors, officers, shareholders, employees, agents,
representatives, successors and assigns harmless from and against any an all
claims, actions, suits, proceedings, losses, liabilities, penalties, damages,
costs or expenses (including attorney's fees and disbursements) of any kind
whatsoever resulting from Cayenta.com's, it's employees, or subcontractor's
negligence or willful misconduct causing, (1) injuries to or death of any
and all individuals, including, without limitation, members of the general
public, or any employee, agent, independent Cayenta.com or Cayenta.com or
affiliate of either SEMPRA ENERGY or Cayenta.com, arising out of or connected
in any manner with the performance of Services, (2) damage to, loss, and/or
destruction of property, including, without limitation, to, property of
SEMPRA ENERGY or Cayenta.com arising out of or connected in any manner with
the performance of Services, (3) third party claims of any kind, whether
based upon negligence, strict liability or otherwise, arising out of or in
connected in any manner to Cayenta.com's or any of its subcontractor's acts or
omissions in breach of this Agreement or (4) Cayenta.com's failure to comply
with Article 20 hereunder. The indemnification obligation shall not apply to
the extent that injuries, death, loss, damage or destruction is caused by the
willful misconduct of SEMPRA ENERGY, its agents or employees, or SEMPRA
ENERGY's sole negligence.
18.2. Cayenta.com shall indemnify, defend and hold SEMPRA ENERGY,
and its present and future direct and indirect parent company(ies),
subsidiaries, and affiliates and their directors, officers, shareholders,
employees, agents and representatives harmless from and against any and all
claims, actions, suits, proceedings, losses, liabilities, penalties, damages,
costs or expenses (including attorneys' fees and disbursements) of any kind
whatsoever arising from (1) actual or alleged infringement or
misappropriation by Cayenta.com or any subcontractor of any patent,
copyright, trade secret, trademark, service mark, trade name, or other
intellectual property right in connection with the Services, including
without limitation, any deliverable, (2) Cayenta.com's violation of any third
party license to use intellectual property in connection with the Services,
including, without limitation, any deliverable.
18.3. If any claim is brought against SEMPRA ENERGY, then
Cayenta.com shall be entitled to participate in, and, unless in the opinion
of counsel for SEMPRA ENERGY a conflict of interest between SEMPRA ENERGY and
Cayenta.com may exist with respect to such claim, assume the defense of such
claim, with counsel reasonably acceptable to SEMPRA ENERGY. If Cayenta.com
does not assume the defense of SEMPRA ENERGY, or if a conflict precludes
Cayenta.com from assuming the defense, then Cayenta.com shall reimburse
SEMPRA ENERGY on a monthly basis for SEMPRA ENERGY's defense through separate
counsel of SEMPRA ENERGY's choice. Even if Cayenta.com assumes the defense
of SEMPRA ENERGY with acceptable counsel, SEMPRA ENERGY, at its sole option,
may participate in the defense, at its own expense, with counsel of its own
choice without relieving Cayenta.com of any of its obligations hereunder.
18.4. Cayenta.com's obligation to indemnify under this Article
shall not be limited in any way by any limitation on the amount or type of
damages, compensation or benefits payable by or for Cayenta.com under any
Worker's Compensation Acts, Disability Benefit Acts or other Employee Benefit
Acts.
<PAGE>
19. GOVERNING LAW
The formation, interpretation and performance of this Agreement
shall be governed by the internal laws of the State of California.
20. COMPLIANCE WITH LAWS
Cayenta.com hereby represents that it and its subcontractors are
and at all times shall be familiar with, and at all times during performance
of the Services shall comply with and observe, all applicable federal, state
and local laws, ordinances, rules, regulations, executive orders, all
applicable safety orders and all orders or decrees of administrative
agencies, courts or other legally constituted authorities having jurisdiction
or authority over Cayenta.com, SEMPRA ENERGY or the Services.
21. TERMINATION
21.1. Cayenta.com agrees that if (1) Cayenta.com abandons the
Services, or (2) Cayenta.com shall become bankrupt or insolvent, or shall
assign this Agreement, or sublet any part thereof, without the written
authorization of SEMPRA ENERGY, or (3) Cayenta.com in the reasonable opinion
of SEMPRA ENERGY Representative, violates any of the provisions of this
Agreement, or executes this Agreement in bad faith, or (4) Cayenta.com, in
the sole opinion of the SEMPRA ENERGY Representative not performing the
Services in accordance with the terms of this Agreement, SEMPRA ENERGY may
notify Cayenta.com, pursuant to Article 28, to discontinue all or any part of
the Services and Cayenta.com shall thereupon discontinue the Services or such
parts thereof. The remedies herein shall be inclusive and additional to any
other remedies in law or equity, and no action by SEMPRA ENERGY shall
constitute a waiver of any such right or remedy.
21.2. It is also expressly agreed that SEMPRA ENERGY shall have
the right to terminate this Agreement, or any part thereof, at any time for
its sole convenience upon [...***...] days' written notice, pursuant to
Article 28, to Cayenta.com and payment of termination charges as set forth in
SCHEDULE D, if applicable. Cayenta.com shall fully justify and document to
SEMPRA ENERGY any termination charges so claimed. In no event shall
Cayenta.com be entitled to payment for any Services which has NOT been
authorized by SEMPRA ENERGY, or is NOT yet performed, or any anticipated
profits for any Services that have not been authorized or performed.
21.3. Payment of termination charges shall occur within [...***...]
days of receipt of Cayenta.com's written submittal of charges and justification
to SEMPRA ENERGY's satisfaction. SEMPRA ENERGY shall have the right to review
and verify by independent audit, any termination charges claimed by Cayenta.com
prior to payment.
22. LIENS
Without limiting the generality of Article 18, Cayenta.com shall
indemnify, defend, and hold SEMPRA ENERGY, and its present and future direct
and indirect parent company(ies), subsidiaries, affiliates and their
directors, officers, shareholders, employees, agents and
* Confidential Treatment Requested
<PAGE>
representatives harmless from and against any mechanics lien or stop notice
claim against SEMPRA ENERGY by Cayenta.com, subcontractors, employees or
agents pertaining to the Services specified in this Agreement.
23. ASSIGNMENT
Cayenta.com shall give personal attention to the execution of the
Services herein provided for, and shall NOT assign this Agreement, nor employ
any subcontractor for the execution of the same or any part thereof, without
prior written authorization of SEMPRA ENERGY. No such written
authorization, however, shall be construed as discharging or releasing
Cayenta.com in any way from the performance of the Services or the
fulfillment of any obligation specified in this Agreement. Cayenta.com shall
remain jointly and severally liable with any assignee of its rights or
obligations.
24. EQUAL EMPLOYMENT OPPORTUNITY
If this Agreement is subject to Executive Order 11246 of September
24, 1965, Section 503 of the Rehabilitation Act of 1973, or the Vietnam Era
Veterans' Readjustment Act of 1974, Cayenta.com agrees to comply with the
equal employment opportunity clauses set out at 41 CFR 60-1.4 and the
requirements for affirmative action for veterans and disabled persons set out
at 41 CFR 60-250.4 and 60-741.4, respectively, which clauses are incorporated
herein by reference with the same force and effect as if stated in full text.
25. CALENDAR YEAR 2000 COMPLIANCE
Cayenta.com represents, warrants and reports that the systems
utilized by Cayenta.com in the performance of Services for SEMPRA ENERGY
shall exhibit calendar Year 2000 Compliance. Year 2000 Compliance shall mean
the capability to (1) manage and manipulate data involving all dates
subsequent to, prior to and including the calendar year 2000, including
single-century and multi-century formulas, and will not cause an abnormally
ending (ABEND) scenario within the application, or result in incorrect values
generated involving such dates; (2) ensure that all date-related functions,
including generated code, will include the indication of century; and (3)
convert between date representations (such as YYMMDD, Julian and Gregorian).
Failure of Cayenta.com to be Year 2000 compliant shall NOT in any way excuse
Cayenta.com from the duty to perform its obligations hereunder.
26. NONWAIVER
The failure of SEMPRA ENERGY to insist upon or enforce, in any
instance, strict performance by Cayenta.com of any of the terms of this
Agreement or to exercise any rights herein conferred shall NOT be construed
as a waiver or relinquishment to any extent of its right to assert, or rely
upon any such terms or rights on any future occasion. No waiver shall be
valid unless stated in writing as set forth in Article 28.
<PAGE>
27. DISPUTES
27.1. Any dispute that cannot be resolved between Cayenta.com
Representative and SEMPRA ENERGY Representative shall be referred to Sempra
Energy Director-Procurement and an officer of Cayenta.com for resolution. If
SEMPRA ENERGY and Cayenta.com cannot reach an agreement within a reasonable
period of time, SEMPRA ENERGY and Cayenta.com shall have the right to pursue
litigation as provided for herein.
27.2. In the event of any litigation to enforce or interpret
any terms of this Agreement, the parties agree that such action will be
brought in the Superior Court of the County of San Diego, California (or, if
the federal courts have exclusive jurisdiction over the subject matter of the
dispute, in the U.S. District Court for the Southern District of California),
and the parties hereby submit to the exclusive jurisdiction of said court.
27.3. In any action in litigation to enforce or interpret any
of the terms of this Agreement, the prevailing party shall be entitled to
recover from the unsuccessful party all costs, expenses, (including expert
testimony) and reasonable attorneys fees incurred therein by the prevailing
party.
27.4. In no event shall the litigation of any controversy or
the settlement thereof delay the performance of this Agreement.
28. NOTICES OR DEMANDS
Any notice, request, demand or other communication required or
permitted under this Agreement, shall be deemed to be properly given by the
sender and received by the addressee if made in writing and (1) if personally
delivered; (2) three days after deposit in the mails if mailed by certified
or registered air mail, post prepaid, with a return receipt requested; or (3)
if sent by facsimile with confirmation sent as provided in (2) above. All
correspondence shall reference the contract number shown on the cover page of
this document. Mailed notices and facsimile notices shall be addressed as
follows to:
SEMPRA ENERGY: SEMPRA ENERGY
PO BOX 129007
San Diego, California 92112-9007
Facsimile No: (619) 699-5177
Attention: Director-Procurement
Contract No. 5600001843
Cayenta.com: CAYENTA.COM
225 Broadway
Suite 1500
San Diego, CA 92101
Attention: David Porreca
<PAGE>
29. CONFIDENTIALITY
29.1. DEFINITIONS. For purposes of this Agreement, the term
"Confidential Information" means proprietary information concerning the
business, operations and assets of SEMPRA ENERGY, its present and future
direct or indirect parent company(ies), affiliates and/or subsidiaries,
including, without limitation, information or materials prepared in
connection with Peregrine Project or any related subsequent agreement,
designs, drawings, specifications, techniques, models, data, documentation,
source code, object code, diagrams, flow charts, research, development,
processes, procedures, know-how, manufacturing, development or marketing
techniques and materials, development or marketing timetables, strategies and
development plans, customer, supplier or personnel names and other
information related to customers, suppliers or personnel, pricing policies
and financial information, and other information of a similar nature, whether
or not reduced to writing or other tangible form, and any other trade
secrets. Confidential Information shall not include (1) information known to
Cayenta.com or a Representative prior to obtaining the same from SEMPRA
ENERGY; (2) information in the public domain at the time of disclosure by
Cayenta.com; (3) information obtained by Cayenta.com or a Representative from
a third party who did not receive same, directly or indirectly, from SEMPRA
ENERGY; or (4) information approved for release by written authorization of
an authorized officer of SEMPRA ENERGY For purposes of this Agreement,
Representatives means collectively each of Cayenta.com's directors, officers,
employees, agents, advisors or affiliates.
29.2. LIMITED USE: NONDISCLOSURE. Cayenta.com hereby agrees
that it shall use the Confidential Information solely for the purpose of
performance under this or other SEMPRA ENERGY contracts and not in any way
detrimental to SEMPRA ENERGY, its present and future direct or indirect
parent company(ies), affiliates and/or subsidiaries. Neither Cayenta.com nor
its Representatives shall use the Confidential Information for their own
benefit. Cayenta.com agrees to use the higher of the same degree of care it
uses with respect to its own proprietary or confidential information or a
reasonable standard of care to prevent unauthorized use or disclosure of the
Confidential Information. Except as otherwise provided herein, Cayenta.com
and its Representatives shall keep confidential and not disclose the
Confidential Information. Cayenta.com shall cause each of its Representatives
to become familiar with, and abide by, the terms of this Agreement.
29.3. COURT OR ADMINISTRATIVE ORDER. Notwithstanding the
provisions of Article 29.2 above, Cayenta.com and its Representatives may
disclose any of the Confidential Information in the event, but only to the
extent, that, based upon advice of counsel, it is required to do so by the
disclosure requirements of any law, rule, or regulation or any order, decree,
subpoena or ruling or other similar process of any court, governmental agency
or governmental or regulatory authority. Prior to making or permitting any of
its Representatives to make such disclosure, Cayenta.com shall provide SEMPRA
ENERGY with prompt written notice of any such requirement so that SEMPRA
ENERGY (with Cayenta.com's assistance) may seek a protective order or other
appropriate remedy.
29.4. PUBLICITY. Cayenta.com] and its Representatives shall
not, without the prior written consent of SEMPRA ENERGY, disclose to any
person (1) the fact that the Confidential Information has been made available
to Cayenta.com or its Representatives or
<PAGE>
(2) any information regarding the ongoing discussions and negotiations
between the parties, including the fact that such discussions and
negotiations are occurring; provided, however, that Cayenta.com and its
Representatives may disclose the information described in clauses (1) and (2)
above if such disclosure is required under any of the circumstances described
in Article 29.3 above, in which case the procedures specified therein with
respect to such disclosure shall apply.
29.5. DOCUMENT RETENTION. At any time upon the request of
SEMPRA ENERGY, Cayenta.com shall promptly deliver to SEMPRA ENERGY or destroy
(with such destruction to be certified to SEMPRA ENERGY) all documents (and
all copies thereof, however stored) furnished to or prepared by Cayenta.com
and its Representatives that contain Confidential Information and all other
documents in Cayenta.com's possession that contain or that are based on or
derived from Confidential Information.
29.6. SURVIVAL. Notwithstanding the return or destruction of
all or any part of the Confidential Information, the confidentiality
provisions set forth in this agreement shall nevertheless remain in full
force and effect with respect to specific Confidential Information until the
date that is five (5) years after the date of disclosure of such Confidential
Information.
29.7. REMEDIES. The parties acknowledge that the Confidential
Information is valuable and unique, and that damages would be an inadequate
remedy for breach of this Agreement and the obligations of Cayenta.com and
the Representatives are specifically enforceable. Accordingly, the parties
agree that in the event of a breach or threatened breach of this Agreement by
Cayenta.com, SEMPRA ENERGY, its present and future direct or indirect parent
company(ies), affiliates and/or subsidiaries, who shall be third party
beneficiaries of this Agreement, shall be entitled to seek an injunction
preventing such breach, without the necessity of proving damages or posting
any bond. Any such relief shall be in addition to, and not in lieu of, money
damages or any other legal or equitable remedy available to SEMPRA ENERGY,
its present and future direct or indirect parent company(ies), affiliates
and/or subsidiaries.
30. TIME OF ESSENCE
Time is expressly agreed to be of the essence of this Agreement and
each, every and all of the terms, conditions and provisions herein.
31. VALIDITY
The invalidity, in whole or in part, of any provisions hereof shall
NOT affect the validity of any other provisions hereof.
32. SURVIVAL
The obligations imposed on Cayenta.com and Cayenta.com's employees
by and pursuant to Articles 8, 13, 14, 16, 17, 18, 22 and 27 survive
termination of this Agreement.
<PAGE>
33. NO ORAL MODIFICATIONS
No modification of any provisions of this Agreement shall be valid
unless in writing and signed by authorized representatives of the party
against whom such modification is sought to be enforced. The authorized
representative of SEMPRA ENERGY is not the SEMPRA ENERGY Representative.
SEMPRA ENERGY Representative is not the authorized representative for
Amendments. Amendments must be signed by persons internally authorized to do
so by SEMPRA ENERGY pursuant to its corporate policies.
34. CAPTIONS
The captions in this Agreement are for convenience and reference
only and the words contained therein shall in no way be held to explain,
modify, amplify or aid in the interpretation, construction or meaning of the
provisions of this Agreement.
35. COUNTERPARTS
This Agreement may be executed in counterparts which, taken
together, shall constitute a single instrument.
36. AUTHORITY
Each individual executing this Agreement on behalf of SEMPRA ENERGY
and Cayenta.com represents and warrants that he or she is duly authorized to
execute and deliver this Agreement on behalf of said party and that this
Agreement is binding upon said party in accordance with its terms.
37. JOINT AND SEVERAL LIABILITY
INTENTIONALLY OMITTED
38. COMPLETE AGREEMENT
This Agreement constitutes the complete and entire Agreement
between the parties and supersedes any previous communications,
representations or agreements, whether oral or written, with respect to the
subject matter hereof. There are no additions to, or deletions from, or
changes in, any of the provisions hereof, and no understandings,
representations or agreements concerning any of the same, which are NOT
expressed herein, unless stated below. THE PARTIES HEREBY AGREE THAT NO TRADE
USAGE, PRIOR COURSE OF DEALING OR COURSE OF PERFORMANCE UNDER THIS AGREEMENT
SHALL BE A PART OF THIS AGREEMENT OR SHALL BE USED IN THE INTERPRETATION OR
CONSTRUCTION OF THIS AGREEMENT. The following Schedules are attached hereto
and incorporated herein by this reference:
SCHEDULE A - TECHNICAL SERVICES SCOPE OF WORK
SCHEDULE B - SUBCONTRACTORS LIST
SCHEDULE C - RESERVED
<PAGE>
SCHEDULE D - COMPENSATION
SCHEDULE E - REQUIRED INSURANCE
SCHEDULE F - INTENTIONALLY OMITTED
SCHEDULE G - WORK AUTHORIZATION
SCHEDULE H - WEEKLY TIME CARD
SCHEDULE I - TRAVEL GUIDELINES
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
CAYENTA.COM SEMPRA ENERGY
By: /s/ Gregory R. Smith BY: /s/ Jerry Deems
---------------------------------- ----------------------------------
Name: Gregory R. Smith Name: Jerry Deems
-------------------------------- --------------------------------
Vice President & Chief
Title: Chief Technical Officer Title: Information Technology Officer
------------------------------- -------------------------------
Date: 12/16/99 Date: 12/16/99
-------------------------------- --------------------------------
<PAGE>
SEMPRA ENERGY
SCHEDULE A
TECHNICAL SERVICES SCOPE OF WORK
The Services as generally described in Article 1 - SCOPE, are more definitively
described as stated below:
Cayenta.com shall provide SEMPRA ENERGY with consulting and professional
services support on a Time and Expense basis that includes but is not limited
to the following.
EFX INFRASTRUCTURE DEVELOPMENT PROJECTS
OVERVIEW
CAYENTA.COM will deliver time and materials consulting and contract services
in support of seven EFX FRAMEWORK related projects.
The EFX FRAMEWORK is SEMPRA ENERGY'S strategic direction for delivering and
managing superior (web technology based) business applications in a
competitive market. The EFX Framework will enable delivery of new and
enhanced applications more rapidly, with higher quality and at lower cost
than can be delivered by conventional development methods.
The projects will continue the development of new and improved EFX services
that can be leveraged by the IT community across all Sempra Energy companies,
create best practices for EFX development that can deployed as an integral
part of an overall FFX-based project delivery, develop new and improved EFX
Enterprise Infrastructure that can be leveraged by the IT community across
all Sempra Energy companies, provide specific courseware to train Sempra
Energy staff in the utilization of EFX, create the necessary tools and
supporting processes for administering within and across Sempra Energy
companies, create best practices for EFX development that can deployed as
an integral part of an overall EFX-based project delivery and to ensure that
EFX software is adapted, when necessary, to be compatible with core
technology selections being made by the corporation. The seven projects
included are EFX Core Services, EFX Design Center, EFX Enterprise
Infrastructure, EFX Rollout, EFX Operations 2000, EFX Process 2000 and EFX
Technology 2000. Brief descriptions are provided below.
EFX CORE SERVICES
EFX has been created by Sempra Energy to provide a common platform for
developing and integrating software in a single, high quality, supportable
environment. The purpose of this
<PAGE>
activity is to continue the development of new and improved EFX services that
can be leveraged by the IT community across all Sempra Energy companies.
This activity will result in the development of EFX 3.0. EFX 3.0 will be
based on the existing EFX 2.0 release but include newly developed components
and services. In addition to new development, a major aspect of this task
will be to factor and repackage code submissions made by Sempra Energy
development teams into sharable infrastructure services and components. New
development will focus on blending high quality, low cost component-based
products with standards compliant interfaces to develop a sharable set of
framework services that can be affordably deployed through out all Sempra
Energy company's and Soliance Network customers. Expected activities to be
conducted as part of EFX 3.0 include the integration of workflow services,
business object persistence services, and web portal and commerce facilities.
Additional areas will be added in response to application and integration
project demands. Finally, EFX 3.0 will be supported with user documentation
and examples.
EFX DESIGN CENTER DEVELOPMENT
Effective systems engineering processes are critical to the quality and
on-time delivery of software and system projects. Sempra Energy IT leadership
has recognized this fact and has made a significant commitment to institute
processes to manage and guide systems development and support. The purpose of
this task is to create best practices for EFX development that can
deployed as an integral part of an overall EFX-based project delivery.
This activity will adapt and extend the previously developed SDCDC-developed
Strategic Needs Assessment Process (SNAP) with extensions to support the
estimation, delivery, and ongoing operational support for EFX projects. Any
and all development processes will be based on leading industry solutions and
best practices and support a rapid iterative model of development and support
to ensure that any major project release is held to less than [...***...].
Further, it is expected that this activity will be conducted in close
cooperation with the Sempra Energy IT Quality Directory to ensure compliance
with any existing Sempra Energy systems engineering best practices.
EFX ENTERPRISE INFRASTRUCTURE II
EFX has been created by Sempra Energy to provide a common platform for
developing and integrating software in a single, high quality, supportable
environment. The purpose of this activity is to develop new and improved EFX
Enterprise Infrastructure that can be leveraged by the IT community across
all Sempra Energy companies.
This activity will result in the development of Enterprise Infrastructure
Applications such as an Enterprise Business Repository, LDAP Enterprise
Directory Services, Enterprise FTP Services, Enterprise FAX Services, and
Enterprise EDI services. This project is intended to increase the robustness
of the EFX infrastructure by both meeting new application requirements as
sharable framework services and harvesting existing applications for new
component services.
* Confidential Treatment Requested
<PAGE>
EFX ROLLOUT
EFX has been created by Sempra Energy to provide a common platform for
developing and integrating software in a single, high quality, supportable
environment. The purpose of this activity is to provide specific courseware
to train Sempra Energy staff in the utilization of EFX.
This activity will result in the development of a comprehensive set of
training courseware for EFX that can be provided to Sempra Energy's IT
community. The following courses are to be created as part of this activity:
- - EFX for Java Programmers
- - EFX for Visual Basic Programmers
- - EFX for PowerBuilder Programmers
- - EFX for System Administrators and Operators
This project is necessary to create the curriculum and courseware required to
train Sempra Energy IT staff to effectively utilize EFX and EFX services.
These classes are absolutely necessary to ensure the success of the EFX roll
out across Sempra Energy.
EFX OPERATIONS 2000
EFX has been created by Sempra Energy to provide a common platform for
developing and integrating software in a single, high quality, supportable
environment. Applications developed utilizing EFX are entering production and
will increasingly require support by Sempra Energy Operations staff. The
purpose of this activity is to create the necessary tools and supporting
processes for administering within and across Sempra Energy companies.
This activity will focus on the creation of EFX management tools and
processes that can be hosted in the current Sempra Energy data center(s).
These tools will be capable of administering and monitoring the EFX
environment and the applications under the control of EFX. A major focus will
be to integrate EFX with Sempra Energy operations management tools to ease
the overall training and support burden on data center staff. Special
attention will be placed on the coordination of software installation,
backup, job scheduling, and runtime tuning of system performance. This task
will also provide full documentation and processes for using all developed
operations tools. This project will be required to enable the full management
of EFX applications by the Sempra Energy Rancho Bernardo data center and
other operational support centers in a standardized manner and at reasonable
cost. It is expected that this activity will enable operations to provide
first and partial second level support for new and existing applications that
make use of EFX management services rather than by applications development
staff.
<PAGE>
EFX PROCESS 2000
Effective systems engineering processes are critical to the quality and
on-time delivery of software and system projects. Sempra Energy IT leadership
has recognized this fact and has made a significant commitment to institute
processes to manage and guide systems development and support. These systems
engineering efforts have focussed principally on working with existing
development teams and platforms responsible for maintaining Sempra Energy's
current software inventory. The purpose of this task is to create best
practices for EFX development that can deployed as an integral part of an
overall EFX-based project delivery.
This activity will adapt and extend the previously developed SDCDC-developed
Strategic Needs Assessment Process (SNAP) with extensions to support the
estimation, delivery, and ongoing operational support for EFX projects. Any
and all development processes will be based on leading industry solutions and
best practices and support a rapid iterative model of development and support
to ensure that any major project release is held to less than [...***...].
Further, it is expected that this activity will be conducted in close
cooperation with the Sempra Energy IT Quality Directory to ensure compliance
with any existing Sempra Energy systems engineering best practices.
This project is to create the project management and organizational templates
needed to complement EFX-based projects and to assist Sempra Energy IT and
Soliance Networks in competing against leading systems integrators.
EFX TECHNOLOGY 2000
EFX has been created by Sempra Energy to provide a common platform for
developing and integrating software in a single, high quality, supportable
environment. The purpose of this activity is to ensure that EFX software is
adapted, when necessary, to be compatible with core technology selections
being made by the corporation.
This activity will result in the modification of existing and new Sempra
Energy technology components as they enter the corporate inventory. This
activity will focus principally on porting and adapting EFX to all Sempra
Energy operating systems (e.g., MVS) and system services (e.g., RACF
security). A key activity will be to ensure that the preliminary support for
clustering on Sun's Solaris operating system is extended and ported to the
Windows NT/2000 environment. Additional system ports planned as a part of
this activity include MVS, RedHat Linux, HP/UX, and AIX. These ports, with
the exception of Linux, are required to bring existing Sempra Energy
applications under EFX management control.
This project is required to ensure that EFX is compatible with the entire
Sempra Energy deployment environment and suite of system services. This
breadth of coverage will also assist Sempra Energy in adapting EFX to support
and manage applications resulting from corporate acquisitions or owned by
Soliance Network customers.
* Confidential Treatment Requested
<PAGE>
All Services shall be authorized by SEMPRA ENERGY via a Work Authorization
(Schedule G) and shall be provided by Cayenta.com on a Time and Expense basis.
ALL WORK WILL BE PERFORMED ONSITE AT SEMPRA ENERGY FACILITIES.
SEMPRA ENERGY will define all work to be performed by Cayenta.com via a Work
Authorization - SCHEDULE G. SEMPRA ENERGY will not reimburse Cayenta.com for
any work performed that has not been previously authorized by a Work
Authorization - SCHEDULE G.
The Cayenta.coms will work during SEMPRA ENERGY normal business hours and
will not be paid for holidays or weekends. If SEMPRA ENERGY requires
Cayenta.com to work on a holiday that is observed by SEMPRA ENERGY,
Cayenta.com shall be reimbursed if authorized by a Work Authorization -
SCHEDULE G.
SEMPRA ENERGY shall be given ten (10) days notice and request for any
vacation or leave of absence planned by the Cayenta.coms. SEMPRA ENERGY must
approve any vacation or leave of absence taken by the Cayenta.coms.
Any changes to the Estimated expenditures, and Scope/Task as described in the
Work Authorization shall be documented and approved by the SEMPRA ENERGY
authorized representative as described herein. SEMPRA ENERGY shall not be
liable for payment for any change or work performed that has not been
authorized and approved in writing via a Work Authorization.
If at any time SEMPRA ENERGY is dissatisfied with the material performance or
experience level of an assigned Cayenta.com employee or Cayenta.com, SEMPRA
ENERGY shall immediately report such to Cayenta.com in writing and may
request Cayenta.com to replace such personnel. Cayenta.com shall use its
commercially reasonable best efforts to accomplish such change, recognizing
the adverse impact that unsatisfactory personnel shall have on the
performance of Services and meeting of the task and scope as described in the
Work Authorization.
<PAGE>
SEMPRA ENERGY
SCHEDULE B
SUBCONTRACTORS LIST
INTENTIONALLY OMITTED
This section was intentionally omitted. There are no subcontractors
identified at this time. Any subcontractors, and their key employees, will
be identified in Work Authorizations.
<PAGE>
SEMPRA ENERGY
SCHEDULE C
RESERVED
<PAGE>
SEMPRA ENERGY
SCHEDULE D
COMPENSATION
Further definition of Article 11 - COMPENSATION, is as follows:
Cayenta.com shall provide SEMPRA ENERGY with software consulting and
professional services support on a Time and Expense basis that shall not
exceed $[...***...].
Table C-1 defines standard billing rates for all standard TNP labor
categories. The rates presented below reflect those charged by TNP to its
best customers and are identical to the negotiated rates currently in place
between Sempra Energy and TNP.
<TABLE>
<CAPTION>
TABLE C-1 - BILLING RATES.
Category Hourly Rates
<S> <C>
Managing Partner $[...***...]
Partner $[...***...]
Senior Technical Consultant $[...***...]
Technical Consultant $[...***...]
Associate Technical
Consultant $[...***...]
Research/Documentation
Support $[...***...]
Administrative Support $[...***...]
</TABLE>
Table C-2 documents total project cost and associated level of effort
required to meet the proposed statement of work over the Agreement's one year
duration.
<TABLE>
<CAPTION>
TABLE C-2. COSTS BY INFRASTRUCTURE PROJECT ($000)
<S> <C>
EFX TECHNOLOGY 2000 [...***...]
EFX CORE SERVICES [...***...]
EFX ENTERPRISE INFRASTRUCTURE [...***...]
EFX DESIGN CENTER [...***...]
EFX OPERATIONS [...***...]
------------
$[...***...]
</TABLE>
SEMPRA ENERGY and Cayenta.com will negotiate the rate for all additional
Cayenta.coms on the projects based on Cayenta.com experience and will be
documented and incorporated into any future Work Authorizations - SCHEDULE G.
* Confidential Treatment Requested
<PAGE>
Cayenta.com guarantees that the rates listed herein will remain the same
throughout the term of this Agreement.
SEMPRA ENERGY does not guarantee, represent or warrant that it will commit to
any specific quantities or dollar total for these services and assumes no
commitment liability, financial or otherwise, except as authorized on an
individual basis from time to time.
* Confidential Treatment Requested
<PAGE>
SEMPRA ENERGY
SCHEDULE E
REQUIRED INSURANCE
<PAGE>
SEMPRA ENERGY
SCHEDULE F
INTENTIONALLY OMITTED
<PAGE>
SEMPRA ENERGY
SCHEDULE G
WORK AUTHORIZATION
WORK AUTHORIZATION # _____
This signed document represents authorization for Cayenta.com to commence
consulting services against Agreement No. _________ dated November 13, 1998
between Cayenta.com and SEMPRA ENERGY.
Cost Center _____________ Acct. No. ______________
SCOPE/TASK DESCRIPTION:
SEMPRA ENERGY REPRESENTATIVE
Name _____________________ Phone No. _________________
CAYENTA.COM STAFF MEMBER:
Name Classification Rate Phone No.
1.
2.
PERFORMANCE PERIOD
START DATE: END DATE:
TRAVEL AND EXPENSES:
All expenses are to be reimbursed in accordance with Schedule I - Travel
Guidelines.
ESTIMATED EXPENDITURES
The estimated expenditures for this Work Authorization is $ _________________.
Agreed and Accepted:
For: Sempra Energy For: Cayenta.com LLC
Signature: _____________________ Signature: _____________________
Name: __________________________ Name: __________________________
Title: _________________________ Title: _________________________
Date: __________________________ Date: __________________________
<PAGE>
SEMPRA ENERGY
SCHEDULE H
WEEKLY TIME CARD
for Time & Material Service Providers
(see Attachment H-2)
<PAGE>
WEEKLY TIME CARD
----------------
for Time & Material Service Providers
<TABLE>
<S> <C> <C>
PERIOD COMPANY NAME Sempra Energy
- ------ ---------------------------------------------------
FROM: COMPANY REPRESENTATIVE
---------------------------------------------------
01-JAN-2000 CAYENTA.COM
---------------------------------------------------
THROUGH: CONSULTANT NAME:
---------------------------------------------------
07 JAN 2000 LOCATION SERVICES PERFORMED:
---------------------------------------------------
CONTRACT NUMBER
---------------------------------------------------
WORK AUTHORIZATION NUMBER 1
---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SERVICES PROVIDED 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan TOTAL
2000 2000 2000 2000 2000 2000 2000
-----------------------------------------------------------------------------
SAT SUN MON TUE WED THU FRI
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0
- ----------------------------------------------------------------------------------------------------------------------------------
0
- ----------------------------------------------------------------------------------------------------------------------------------
4 4
- ----------------------------------------------------------------------------------------------------------------------------------
0
- ----------------------------------------------------------------------------------------------------------------------------------
3 3
- ----------------------------------------------------------------------------------------------------------------------------------
0
- ----------------------------------------------------------------------------------------------------------------------------------
0
- ----------------------------------------------------------------------------------------------------------------------------------
0
- ----------------------------------------------------------------------------------------------------------------------------------
8 4 8 8 5 33
- ----------------------------------------------------------------------------------------------------------------------------------
0
- ----------------------------------------------------------------------------------------------------------------------------------
Totals 0 0 8 8 8 8 8 40
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
I CERTIFY THE FOREGOING TO BE CORRECT ACCOUNT OF THE TIME WORKED
CONSULTANT DATE
---------------------------------- ---------
Sempra Energy REPRESENTATIVE DATE
---------------------------------- ---------
*THIS TIMECARD WITH SEMPRA ENERGY REPRESENTATIVE SIGNATURE MUST ACCOMPANY ALL
INVOICES FOR SERVICES*
H-2
<PAGE>
SEMPRA ENERGY
SCHEDULE I
TRAVEL GUIDELINES
All travel-related reservations (hotel, air, car rental, etc.) shall be made
through SEMPRA ENERGY' Travel Services office. All bills shall include an
itemized listing supported by copies of the original bills, invoices, expense
accounts and miscellaneous supporting data. If charged to SEMPRA ENERGY, all
travel either to San Diego or from San Diego to other locations shall be
approved in writing in advance by SEMPRA ENERGY' Representative. Time for
travel will not be reimbursed except for travel during normal business hours.
A. AUTO MILEAGE
Auto mileage will be reimbursed at $.31 per mile, or the current rate as
specified by the Internal Revenue Service.
B. AIR TRAVEL
Air fares will be reimbursed based on the most direct route at coach class
travel rates. Upgrading (coach to a higher class) of airline tickets
will only be reimbursed when approved by the SEMPRA ENERGY
Representative, and only when the business schedule requires immediate
travel and only higher class accommodations are available. Downgrading
(exchange) of airline ticket where Cayenta.com receives financial or
personal gain is not permitted. If a trip is postponed, reservations
should be canceled immediately. Cayenta.com shall provide copies of
passenger receipts to SEMPRA ENERGY to receive reimbursement.
Travel arrangements should be made as early as possible (preferably
three (3) weeks) to take advantage of advance reservation rates.
C. COMBINING BUSINESS TRAVEL WITH PERSONAL TRAVEL
Cayenta.com may combine personal travel with SEMPRA ENERGY' business
only if the personal travel does not increase the cost to SEMPRA ENERGY.
Arrangement for personal travel should be handled by Cayenta.com. SEMPRA
ENERGY will not manage personal travel.
D. AIR TRAVEL INSURANCE
SEMPRA ENERGY does not pay for air travel insurance.
E. ACCOMMODATIONS
SEMPRA ENERGY will reimburse hotel room fees at the preferred corporate
rate. SEMPRA ENERGY may reimburse hotel room fees at the standard rate
based on single room occupancy in cases where a corporate rate is not
available.
<PAGE>
F. LAUNDRY
Laundry and dry cleaning charges will only be paid if Cayenta.com is on
travel for SEMPRA ENERGY for a period in excess of six (6) consecutive
days.
G. ENTERTAINMENT
SEMPRA ENERGY will not pay for the rental of premium channel movies, use
of health club facilities or other forms of entertainment.
H. AUTO RENTAL
If required, SEMPRA ENERGY will pay for reasonable car rental charges.
Cayenta.com is expected to request the rental of an economy car.
I. MEALS
Meals will be reimbursed on the actual cost up to a maximum of $50.00
per day of travel. Receipts are required for all meals. In order to be
reimbursed, meal receipts (itemized if possible) in the form of
receipts, credit card receipts, or cash register tape must be submitted.
SEMPRA ENERGY will not pay for alcoholic beverages. In lieu of itemizing
meal expenses and submitting receipts, Cayenta.com may claim the
standard $31.00 per diem for the duration of the travel.
J. TELEPHONE USAGE
Cayenta.com shall submit documentation regarding all telephone calls
charged to SEMPRA ENERGY. Documentation must include the name of the
party being called and the purpose of the call. SEMPRA ENERGY shall
allow one business call upon arrival and one call prior to departure.
SEMPRA ENERGY will not pay for additional business calls unless
directly related to the Contract. Personal telephone call are not
reimbursable unless Cayenta.com is on travel for SEMPRA ENERGY for more
than three consecutive days. In this case, the cost of a call shall not
exceed $5.00 and one call is permitted every other day.
K. GROUND TRANSPORTATION
Public transportation should be used whenever possible; however, if
necessary, rental car expenses, including gas actually purchased, will
be reimbursed for authorized travel only. Cab fare (on a shared basis
whenever possible) is reimbursable. Receipts shall be required to
document all ground transportation charges.
Cayenta.com shall rent the lowest automobile classification appropriate
for the size or purpose of the group using the vehicle.
<TABLE>
<S> <C>
1-2 Travelers Compact
3 Travelers Medium/Intermediate
4-5 Travelers Full Size/Standard Equipment
6+ Travelers Van
</TABLE>
Cayenta.com must fuel rental automobiles prior to turn-in as rental
companies normally add a large service charge to fuel costs.
<PAGE>
L. PARKING
SEMPRA ENERGY does not reimburse its employees for parking expenses at
any of its facilities; therefore, Cayenta.com will not be reimbursed for
such.
M. TOLLS AND FEES
Transportation-related toll and fees incurred while on SEMPRA ENERGY
business are reimbursable at actual cost.
N. BAGGAGE HANDLING
Baggage handling service fees are reimbursable at standard reasonable
rates.
O. OTHER BUSINESS EXPENSES
Supplies, equipment rental, reprographics and facsimile expenses may be
reimbursed when traveling on SEMPRA ENERGY business. Such expenses shall
be billed at cost.
P. NON-ALLOWABLE EXPENSES
SEMPRA ENERGY will not provide any reimbursement for travel expenses for
family members, personal items, charitable contributions, or for any
other type of expense not listed above.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
on the consolidated financial statements of Cayenta, Inc. as of December 31,
1998 and 1999 and for each of the three years in the period ended December
31, 1999 dated January 31, 2000 (except with respect to the matters discussed
in Note 12, as to which the date is March 30, 2000) and to all references to
our Firm included in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
San Diego, California
May 5, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
on the financial statements of Transnational Partners II, LLC for the period
from February 9, 1997 (commencement of operations) to December 31, 1997, and
for the year ended December 31, 1998 dated December 28, 1999 and to all
references to our Firm included in or made a part of this registration
statement.
ARTHUR ANDERSEN LLP
San Diego, California
May 5, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
on the financial statements of JB Systems, Inc. (d.b.a. Mainsaver) for each
of the two years in the period ended December 31, 1998 and for the ten
months ended October 31, 1999, dated December 28, 1999, and to all references
to our Firm included in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
San Diego, California
May 5, 2000
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
The Board of Directors
SFG Technologies Inc.
We consent to the use of our report dated January 31, 2000, relating to the
consolidated balance sheets of SFG Technologies Inc. as at December 21, 1999
and December 31, 1998 and the consolidated statements of operations, deficit,
and cash flows for the period from January 1, 1999 to December 21, 1999, the
eight months ended December 31, 1998 and the years ended April 30, 1998 and
1997, included in this registration statement on Form S-1 of Cayenta, Inc.
and to the reference to our firm under the heading "Experts" in the related
prospectus.
/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
May 3, 2000
<PAGE>
Exhibit 23.5
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 11, 2000 with respect to the financial
statements of Assist Cornerstone Technologies, Inc., included in Amendment
No.3 to the Registration Statement (Form S-1 No. 333-93789) and related
Prospectus of Cayenta, Inc for the registration of 7,475,000 shares of its
Class A common stock.
/s/ Ernst & Young LLP
Salt Lake City, Utah
May 4, 2000
