<PAGE>
As filed with the Securities and Exchange Commission on March 14, 2000
Registration No. 333-94283
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------
ZEFER CORP.
(Exact name of registrant as specified in its charter)
Delaware 7389 04-3462742
(State or other (Primary Standard (IRS Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
-------------
711 Atlantic Avenue
Boston, Massachusetts 02111
(617) 451-8000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-------------
WILLIAM A. SEIBEL
Chairman of the Board, President and Chief Executive Officer
ZEFER Corp.
711 Atlantic Avenue
Boston, Massachusetts 02111
(617) 451-8000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------
Copies to:
DAVID E. REDLICK, ESQ. WILLIAM J. WHELAN III, ESQ.
JAMES R. BURKE, ESQ. Cravath, Swaine & Moore
Hale and Dorr LLP Worldwide Plaza
60 State Street 825 Eighth Avenue
Boston, Massachusetts 02109 New York, New York 10019
Telephone: (617) 526-6000 Telephone: (212) 474-1000
Telecopy: (617) 526-5000 Telecopy: (212) 474-3700
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
-------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the commission, acting pursuant to said Section 8(a),
may determine.
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- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 14, 2000
4,000,000 Shares
[LOGO OF ZEFER]
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of our common stock is expected to be between
$11.00 and $13.00 per share. We have applied to list our common stock on The
Nasdaq Stock Market's National Market under the symbol "ZEFR".
The underwriters have an option to purchase a maximum of 600,000 additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 5.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions ZEFER
-------- ------------- -----------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of 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
First Union Securities, Inc.
Robertson Stephens
The date of this prospectus is , 2000.
<PAGE>
from
digital vision.....
[ZEFER LOGO APPEARS HERE]
<PAGE>
ZEFER provides strategy-led Internet consulting and implementation services to
both established companies and dot-com startups to help them create and execute
strategies and new business models for the digital economy.
Foodline.com
[FOODLINE.COM WEBSITE SCREEN IMAGE]
An online restaurant
reservation system.
www.foodline.com
The Children's Place
[CHILDREN'S PLACE WEBSITE SCREEN IMAGE]
A bricks-and-mortar retailer
builds an online business.
www.childrensplace.com
<PAGE>
to
business results
Zuellig Pharma
[ZUELLIG PHARMA WEBSITE SCREEN IMAGE]
An extranet delivering real-time
information to suppliers,
salespeople and managers.
www.zuelligpharma.com
Publicaciones Semana
[SEMANA.COM WEBSITE SCREEN IMAGE]
An online magazine,
search engine and portal.
www.semana.com
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 5
Use of Proceeds..................... 12
Dividend Policy..................... 13
Capitalization...................... 14
Dilution............................ 15
Selected Pro Forma Financial Data... 16
Selected Historical Financial Data.. 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 18
Business............................ 25
Management.......................... 35
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Certain Relationships and Related
Transactions...................... 47
Principal Stockholders............. 51
Description of Capital Stock....... 52
Shares Eligible for Future Sale.... 54
U.S. Federal Tax Considerations for
Non-United States Holders......... 56
Underwriting....................... 60
Notice to Canadian Residents....... 62
Legal Matters...................... 63
Experts............................ 63
Where You Can Find More
Information....................... 64
Index to Financial Statements...... F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
as of the date of this document.
Dealer Prospectus Delivery Obligation
Until , 2000, 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.
<PAGE>
PROSPECTUS SUMMARY
This summary may not contain all of the information that is important to
you. You should carefully read the entire prospectus, including the financial
statements and related notes, before investing in our common stock.
[LOGO OF ZEFER]
ZEFER Corp. was founded for the purpose of providing strategy consulting and
software application development and implementation services to dot-com and
traditional companies to enable them to effectively use the Internet in their
businesses. We advise clients with respect to the ways in which they can use
the Internet for such purposes as streamlining their operations or reaching new
markets. We then develop the software applications required to achieve our
clients' strategic goals. A key aspect of our service offering is that we
involve business strategy consultants throughout our engagements in order to
continually improve the client services that we provide in light of evolving
markets and technologies. We refer to this as a "strategy-led" approach.
As part of our strategy consulting services, we help our clients identify
business objectives and create and prioritize a portfolio of initiatives for
using the Internet in their businesses. We design these initiatives to offer a
variety of ways to maximize competitiveness in the new economic environment
that has resulted from the widespread acceptance of the Internet. After
creating an initial Internet strategy, we architect and build scalable,
flexible applications that can be adapted over time to our clients' evolving
needs. We refer to these applications and our strategy consulting services as
"solutions" because our clients use these services to solve business problems
or achieve business goals.
Our strategy-led approach includes:
. analyzing the client's industry, business model and goals;
. developing a portfolio of Internet initiatives in the context of an
overall business strategy; and
. developing and launching various Internet initiatives in a sequence that
is designed to maximize business value over the long term.
We deliver our services through teams of consultants with backgrounds in
business strategy, experience design, technology and program management.
Experience design is the art of constructing the various sensory elements that
a user encounters when visiting a website. Because these teams include
consultants with different skills who work closely together throughout a client
engagement, we refer to them as being "integrated" and "multidisciplinary." Our
integrated, multidisciplinary approach allows us to deliver high quality
Internet initiatives without the time delays and increased costs associated
with handing off a project from one team to another or among multiple service
providers. Our commitment to research and innovation allows us to provide our
clients with Internet professional services that are at the forefront of
Internet technologies and experience design. Our consultants are trained in the
latest practices and technologies in their disciplines.
Our delivery model is based upon a proprietary methodology that we call
ENABLE. This methodology consists of four phases: ENvision, Architect, Build
and Launch, and Evolve. Our ENABLE methodology is designed to ensure that we:
. involve all of our competencies in each phase of our engagements;
. take advantage of the standards, benchmarks and approaches we have
developed; and
. follow detailed control procedures that are designed to ensure that we
are delivering high quality solutions.
Our objective is to become the leading provider of strategy-led Internet
professional services. Our business strategy for accomplishing this objective
includes continuing to attract and retain outstanding professionals,
1
<PAGE>
continuing to serve cutting edge dot-com clients, enhancing and extending our
service offering and continuing to build the ZEFER brand.
We were incorporated in Delaware in March 1999. Our principal executive
offices are located at 711 Atlantic Avenue, Boston, Massachusetts 02111 and our
telephone number is (617) 451-8000. Our world wide web address is
www.ZEFER.com. The information on our website is not incorporated by reference
into this prospectus.
We have applied to register "ZEFER" as a trademark in the United States,
Canada and in the European Union. ZEFER 360(degrees) is an unregistered
trademark. All other trademarks or trade names in this prospectus are the
property of their respective owners.
Risk Factors
Investing in our common stock involves risk. In particular, we have a
history of operating losses, incurred an operating loss of $34.1 million for
the period from our inception to December 31, 1999 and expect to continue to
incur operating losses in the future. In addition, after this offering, our
executive officers and directors and funds controlled by GTCR Golder Rauner,
L.L.C., or GTCR, will beneficially own an aggregate of approximately 79.2% of
our capital stock. The funds controlled by GTCR will hold approximately 63.3%
of our capital stock. Additionally, three of our directors are affiliated with
GTCR. If these persons were to choose to act together, they would be able to
control the election of directors and all other matters submitted to our
stockholders for approval, as well as our management and affairs. Please see
"Risk Factors."
The Offering
<TABLE>
<C> <S>
Common stock offered by ZEFER....................... 4,000,000 shares
Common stock to be outstanding after this offering.. 47,694,823 shares
Use of proceeds..................................... Repayment of debt,
working capital and other
general corporate
purposes, including
possible acquisitions
Proposed Nasdaq symbol.............................. ZEFR
</TABLE>
The number of shares of our common stock that will be outstanding after this
offering excludes 4,627,111 shares subject to outstanding options as of
December 31, 1999 under our 1999 Incentive Plan and 1999 Stock Option Plan at a
weighted average exercise price of $1.38 per share and 39,555 additional shares
available for issuance under these plans as of such date. In February 2000, our
board of directors approved an amendment to our 1999 Incentive Plan increasing
the shares available for issuance under the plan by 20,000,000.
Unless otherwise indicated, all information in this prospectus:
. assumes that the underwriters will not exercise their over-allotment
option;
. reflects the issuance during the first quarter of 2000 of an aggregate
of 15,262.6610 shares of class A preferred stock to existing holders of
class A preferred stock at a price of $1,000 per share for an aggregate
of $15,262,661, and the issuance during the first quarter of 2000 of an
aggregate of 1,792.5376 shares of class A preferred stock at a price of
$0.01 per share to GTCR Capital Partners, L.P., an affiliate of GTCR, in
consideration of financing provided to us;
. reflects the exchange upon the closing of this offering of all
outstanding shares of class A preferred stock, including related accrued
and unpaid dividends as of March 31, 2000, for 3,632,222 shares of
common stock at an exchange rate based on an assumed initial public
offering price of $12.00 per share, the mid-point of the range on the
cover of this prospectus; and
. assumes the conversion upon the closing of this offering of a $2.0
million promissory note issued to Renaissance Worldwide, Inc. into
208,333 shares of common stock, which is based on a conversion rate
equal to 80% of the assumed initial public offering price.
2
<PAGE>
Summary Financial Data
The following pro forma statement of operations data presents the results of
operations for us, an entity originally known as ZEFER Corp. and referred to in
this prospectus as Original ZEFER, the divisions of Renaissance Worldwide,
Inc., Spyplane, LLC and Waite & Company, Inc. The pro forma financial data give
effect to the acquisition of each of these businesses as if each had been
acquired on January 1, 1998. The pro forma financial data do not purport to
represent what our actual results of operations would have been had each of
these businesses been acquired on January 1, 1998, nor do they project our
results of operations for any future period.
<TABLE>
<CAPTION>
Pro Forma
--------------------------------------------------------------------------
Years Ended Three Months Ended
--------------------------- ----------------------------------------------
December 31, December 31, March 31, June 30, September 30, December 31,
1998 1999 1999 1999 1999 1999
------------- ------------- --------- -------- ------------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 17,984 $ 33,084 $ 3,957 $ 5,612 $ 10,212 $ 13,303
Loss from operations.... (18,269) (47,588) (6,983) (9,395) (10,125) (21,085)
Net loss................ (20,878) (45,441) (7,721) (8,720) (6,818) (22,182)
Basic and diluted net
loss per share......... $ (0.70) $ (1.50) $ (0.26) $ (0.29) $ (0.22) $ (0.73)
Weighted average
shares................. 29,675 30,212 29,693 29,917 30,311 30,450
</TABLE>
The following historical statement of operations data presents the results
of operations of the divisions of Renaissance for the years ended December 31,
1997 and 1998 and the five months ended May 28, 1999 and the results of
operations of Original ZEFER for the period from inception (March 19, 1998)
through December 31, 1998 and the four months ended April 30, 1999. In
addition, the following data present our results of operations for the period
from our inception (March 18, 1999) through December 31, 1999.
<TABLE>
<CAPTION>
Historical
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
Divisions of
Renaissance Original ZEFER Registrant
----------------------- ---------------------------- ------------
Five
Months Period from Period from
Years Ended Ended Inception to Four Months Inception to
December 31, May 28, December 31, Ended April 30, December 31,
1997 1998 1999 1998 1999 1999
------ ------- ------- ------------ --------------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $9,539 $13,798 $ 3,886 $ 621 $ 491 $ 25,277
Income (loss) from
operations............. 2,654 (3,763) (4,718) (562) (2,262) (34,080)
Net income (loss)....... 1,295 (4,194) (5,043) (555) (2,280) (30,573)
Basic and diluted net
income (loss) per
share.................. $ (1.14)
Weighted average
shares................. 26,793
</TABLE>
3
<PAGE>
The following balance sheet data should be read in conjunction with
"Selected Historical Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
related notes included elsewhere in this prospectus. The pro forma information
reflects:
. the issuance during the first quarter of 2000 of an aggregate of
17,055.1986 shares of class A preferred stock to existing holders of
class A preferred stock and GTCR Capital Partners, an affiliate of GTCR,
for $15,262,679;
. the exchange upon the closing of this offering of all outstanding shares
of class A preferred stock, including related accrued and unpaid
dividends as of March 31, 2000, for 3,632,222 shares of common stock at
an exchange rate based on an assumed initial public offering price of
$12.00 per share;
. the incurrence of an additional $7.4 million of subordinated
indebtedness payable to GTCR Capital Partners; and
. the conversion upon the closing of this offering of a $2.0 million
promissory note issued to Renaissance Worldwide, Inc. into 208,333
shares of common stock.
The pro forma as adjusted information reflects:
. receipt of estimated net proceeds of $42.8 million from the sale by us
of 4,000,000 shares of common stock in this offering, after deducting
the estimated underwriting discounts and commissions and estimated
offering expenses; and
. the application of a portion of the net proceeds to repay $19.4 million
of outstanding bank indebtedness under a revolving line of credit
guaranteed by GTCR.
<TABLE>
<CAPTION>
December 31, 1999
---------------------------
Pro
Pro Forma As
Actual Forma Adjusted
-------- ------- --------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................... $ 1,271 $23,904 $47,328
Working capital (deficit)........................... (23,377) (744) 22,680
Total assets........................................ 50,936 73,569 96,993
Lines of credit..................................... 19,566 19,566 150
Other debt, including current portion............... 2,980 980 980
Subordinated debt payable to GTCR................... 11,119 18,490 18,490
Redeemable preferred stock.......................... 25,803 -- --
Total stockholders' equity (deficit)................ (25,024) 18,771 61,611
</TABLE>
To the extent net proceeds from this offering exceed $42.8 million, we will
apply a portion of the net proceeds to repay outstanding subordinated
indebtedness owed to GTCR Capital Partners and may apply a portion of the net
proceeds to redeem shares of our common stock issued to holders of class A
preferred stock, which include the funds controlled by GTCR, upon exchange of
their shares of class A preferred stock. See "Use of Proceeds."
4
<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 Relating To Our Business
Our future success is uncertain because we have a limited operating history
We have a limited operating history in the new and rapidly changing Internet
professional services market. We were incorporated in March 1999 and acquired a
number of businesses during 1999, each of which had a limited operating
history. Accordingly, our historical results of operations may not reflect the
current nature of our service offering and you should not rely on them as an
indicator of our future performance. In particular, our larger work force and
the greater variety of services that we offer may affect our future results as
compared to our historical results.
We have a history of operating losses and expect to incur losses in the future
We expect to continue to incur increasing sales and marketing, hiring and
training, infrastructure development and general and administrative expenses.
As a result, we will need to generate significant revenues to achieve
profitability. We cannot be certain whether or when this will occur because of
the significant risks and uncertainties that affect our business.
We experienced a net loss of $30.6 million for the period from our inception
to December 31, 1999 and a pro forma net loss of $45.4 million for the year
ended December 31, 1999. The pro forma net loss gives effect to the results of
operations of the companies that we acquired as if we had acquired such
companies on January 1, 1999. The pro forma net loss includes net losses
incurred by these companies prior to the dates we acquired them, interest
expense on borrowings to finance the acquisitions, and expenses relating to
depreciation and amortization arising from the acquisitions. We expect to
continue to incur significant operating losses as we expand our business. If we
do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis in the future.
Our growth could be limited if we are unable to attract, develop and retain
personnel with management expertise, Internet expertise and consulting and
technical skills
Because we are a professional services firm, the number and quality of our
professionals are critical to the services we offer. We believe that our
success in the highly competitive Internet professional services market depends
largely on our ability to attract, develop and retain highly skilled
professionals to manage, deliver and sell our services. Individuals with
management experience, Internet expertise and consulting and technical skills
are in short supply. Accordingly, we may not be able to hire or retain the
necessary number or mix of personnel to implement our business strategy.
Competition to hire from this limited pool of professionals is intense. We may
need to incur higher compensation expenses than we currently expect in order to
attract and retain qualified personnel.
Our markets are highly competitive and our failure to compete in them
successfully would limit our ability to maintain our existing clients or
attract new clients
We compete in the rapidly evolving market of Internet professional service
providers. This market is highly competitive. Our competitors include a wide
variety of Internet-focused professional service firms, strategic management
consulting companies, traditional information technology service firms, systems
5
<PAGE>
integration firms and internal IT departments of our prospective clients. Many
of our competitors have longer operating histories, better name recognition,
larger client bases and greater financial, technical, marketing and public
relations resources than we have. Because the Internet professional services
market has relatively low barriers to entry, we believe competition will
intensify as the market evolves. If we do not compete successfully, we will not
be able to maintain or increase our market share, which would result in serious
harm to our business.
Our results of operations would suffer if we are unable to keep pace with the
rapid technological change of the Internet, changing business methodologies and
evolving client requirements
The Internet professional services industry is characterized by a rapidly
evolving technological landscape, evolving business methodologies and
constantly changing client requirements. The manner in which firms have
conducted business on the Internet has changed dramatically in the last few
years, and our future success depends in part on our ability to anticipate and
adapt to new changes.
We may be unable to successfully manage our growth, which would negatively
impact our business
Since our founding, we have rapidly expanded our operations by hiring new
employees, making acquisitions, adding new clients, extending existing client
relationships and expanding our geographic markets. For instance, our employees
increased from 222 at June 30, 1999 to 481 at December 31, 1999. Our growth has
placed and will continue to place a significant strain on our management,
operating and financial systems and sales, marketing and administrative
resources. If we cannot effectively manage our expanding operations, we may not
be able to continue to grow or we may grow at a slower pace. Furthermore, our
operating costs may escalate faster than planned.
To successfully manage our growth we must:
. attract and retain leading business, design, technical and project
management talent;
. expand our training and development programs for our existing and new
employees;
. improve our management, financial, human resource and information
systems and controls; and
. build a base of intellectual capital that can be leveraged for client
development and service delivery.
We may undertake additional acquisitions which may affect our ability to manage
and maintain our business, may result in adverse accounting treatment and may
be difficult to integrate into our business
Since our inception, we have acquired a number of businesses. In the future,
we may undertake additional acquisitions of professional service firms that
provide Internet consulting or Internet software application design and
implementation services or other businesses that complement our existing
operations. Such acquisitions could involve a number of risks, including:
. the diversion of the attention of management and other key personnel;
. inability to effectively integrate the acquired business into our
culture, client delivery methodology and other standards, controls,
procedures and policies;
. inability to retain the management, key personnel and other employees of
the acquired business;
. inability to retain the acquired company's customers; and
. the amortization of goodwill, which may adversely affect our reported
results of operations.
Client satisfaction or performance problems with an acquired business also
could affect our reputation as a whole. In addition, any acquired business
could significantly underperform relative to our expectations.
6
<PAGE>
Difficulties presented by international operations could negatively affect our
business
We have clients outside the United States and may face risks in doing
business abroad that we do not face domestically. Among the international risks
we believe are most likely to affect us are:
. difficulties in staffing and managing international operations;
. longer payment cycles;
. problems in collecting accounts receivable;
. language and cultural differences;
. local economic conditions in foreign markets;
. international currency issues, including fluctuations in currency
exchange rates and the conversion to the euro by all countries of the
European Union; and
. restrictions on the import and export of sensitive U.S. technologies,
such as data security and encryption technologies, that we may wish to
use in solutions we develop for clients.
Any of these factors could adversely impact our business results.
We generally enter into fixed-price contracts and risk incurring losses on
particular engagements if we miscalculate the time or resources needed to
complete them
Approximately 90% of our revenues for the period from our inception through
December 31, 1999 was derived from fixed-price contracts. Because of the
complex nature of the services we provide, it is sometimes difficult to
accurately estimate the cost, scope and duration of particular client
engagements. If we underestimate the resources required by client engagements,
we may be required to devote additional resources to these engagements without
receiving additional compensation, which would adversely affect our results of
operations and financial condition.
The developing market for Internet professional services and the level of
acceptance of the Internet as a business medium will affect our business
The market for Internet professional services is relatively new and is
evolving rapidly. Our future growth is dependent upon our ability to provide
Internet professional services that are accepted by our existing and future
clients as an integral part of their business models. The level of demand for
and acceptance of Internet professional services is highly uncertain and
dependent upon a number of factors, including:
. the growth in consumer access to and acceptance of new interactive
technologies such as the Internet;
. the adoption of Internet-based business models by companies; and
. the development of technologies that facilitate two-way communication
between companies and targeted audiences.
Significant issues concerning the commercial use of Internet technologies
include security, reliability, cost, ease of use and quality of service. These
issues remain unresolved and may inhibit the growth of Internet business
solutions that utilize these technologies.
Industry analysts and others have made many predictions concerning the
growth of the Internet as a business medium. These predictions should not be
relied upon. If the market for Internet professional services fails to develop,
or develops more slowly than expected, or if our services do not achieve market
acceptance, our business will not succeed and the value of your investment in
our common stock will decline.
We may be unable to redeploy our professionals effectively if engagements are
terminated unexpectedly, which would adversely affect our revenues
Our clients can cancel or reduce the scope of their engagements with us on
short notice. If they do so, we may be unable to reassign our professionals to
new engagements without delay. The cancellation or reduction
7
<PAGE>
in scope of an engagement could, therefore, reduce the utilization rate of our
professionals, which would have a negative impact on our financial condition
and results of operations.
A small number of our clients account for a significant portion of our
revenues, which may decline if we cannot keep or replace these client
relationships
During the period from our inception through December 31, 1999, five clients
accounted for approximately 31% of our revenues. We anticipate that our results
of operations in any given period may continue for the foreseeable future to
depend to a significant extent upon revenues from a small number of clients. In
addition, we anticipate that such clients will continue to vary over time, so
that the achievement of our long-term goals will require us to obtain
additional significant clients on an ongoing basis. Either our loss of existing
clients or our failure to generate new clients will have an adverse effect on
our financial condition and results of operations.
Failure of computer systems and software to be year 2000 compliant could
increase our costs, disrupt our service and reduce demand from our clients
We confront the year 2000 problem in two contexts.
Our Clients. The failure of our clients to ensure that their operations are
year 2000 compliant could have an adverse effect on them, which in turn could
limit their ability to retain us as a third-party service provider or process
our invoices in a timely manner. In addition, clients or potential clients may
delay purchasing our services to the extent such clients or potential clients
are required to devote resources to resolving the year 2000 problem.
Our Services. The solutions that we provide to our clients integrate
software and other technology from different providers. If there is a year 2000
problem with respect to a solution provided by us, it may be difficult to
determine whether the problem relates to services that we have performed or is
due to the software, technology or services of other providers. Furthermore, a
number of our contracts, including contracts with some of our largest clients,
contain express or implied warranties with respect to year 2000 readiness. As a
result, we may be subjected to year 2000-related lawsuits, whether or not the
services that we have performed are year 2000 compliant. We cannot be certain
what the outcomes of these types of lawsuits may be.
Our business may suffer if we have disputes with clients over our right to
reuse intellectual property developed during client engagements
Part of our business involves the development of software applications for
discrete client engagements. Ownership of client-specific software is generally
held by the client, although we typically retain the right to reuse some of the
processes and other intellectual property developed in connection with client
engagements. Issues relating to the right to use intellectual property can be
complicated. Accordingly, disputes may arise that could adversely affect our
ability to reuse applications, processes and other intellectual property that
result from particular client engagements. Such disputes could damage our
relationships with our clients and our business reputation, divert our
management's attention and have an adverse effect on our ability to grow our
business.
Intellectual property infringement claims against us, even without merit, could
cost a significant amount of money to defend and may divert management's
attention
As the number of Internet applications in our target market increases and
the functionality of these applications overlaps, we may become subject to
infringement claims. We cannot be certain that our services, the solutions that
we deliver or the software used in our solutions 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.
Infringement claims, even if without merit, can be time consuming and expensive
to defend. They may divert management's attention and resources and could cause
service implementation delays. They also could require us to enter into costly
royalty or licensing agreements.
8
<PAGE>
We may not have sufficient funds to repay our loan agreement with a GTCR
affiliate
Our loan agreement with GTCR Capital Partners matures on the first
anniversary of the effective date of this offering. As of March 1, 2000, there
was $20.2 million of outstanding indebtedness under the loan agreement.
Although we will be prepaying at least a portion of the GTCR loan with the
proceeds of this offering, it is likely that we will require funds from
external sources, such as a new loan facility, in order to repay the GTCR loan.
GTCR Capital Partners has a security interest in substantially all of our
assets. If we are unable to repay the loan, GTCR Capital Partners would be able
to foreclose on our assets.
We may need additional capital, which may not be available to us, and which, if
raised, may dilute your ownership interest in us
We used $18.5 million of net cash in operating activities for the period
from our inception to December 31, 1999 and expect to continue to require cash
for our operating activities for the foreseeable future. After this offering we
will continue to have significant indebtedness and may need to raise additional
funds through public or private equity or debt financing in order to:
. fund our working capital requirements;
. support additional capital expenditures;
. service our existing debt, particularly our $20.2 million of
indebtedness to GTCR Capital Partners that matures on the first
anniversary of the effective date of this offering;
. take advantage of acquisition or expansion opportunities; or
. develop new services.
Any additional capital raised through the sale of equity will dilute your
ownership interest in us and may be on terms that are unfavorable to you.
Risks Relating To This Offering
After this offering, our executive officers, directors and funds controlled by
GTCR will still be able to control all matters submitted to stockholders for
approval
When this offering is completed, our executive officers, directors and funds
controlled by GTCR, which we refer to as the "GTCR Funds," will, in the
aggregate, beneficially own shares representing approximately 79.2% of our
capital stock. As a result, these persons, if they were to choose to act
together, will be able to control all matters submitted to our stockholders for
approval, as well as our management and affairs. For example, these persons, if
they were to choose to act together, will control the election of directors and
any merger, consolidation or sale of all or substantially all of our assets.
Antitakeover defenses that we have in place could delay or prevent an
acquisition and could adversely affect the price of our common stock because
purchasers cannot acquire a controlling interest
Provisions of our certificate of incorporation and bylaws and provisions of
Delaware law could delay, defer or prevent an acquisition or change of control
of us or otherwise adversely affect the price of our common stock. These
provisions may deprive you of the opportunity to sell your shares at a premium
over prevailing prices. This potential inability to obtain a control premium
could reduce the market price of our common stock. Please refer to "Description
of Capital Stock" for a more detailed discussion of these and other provisions.
9
<PAGE>
Purchasers in this offering will suffer immediate and substantial dilution of
their investment
Purchasers of common stock in this offering will pay a price per share that
substantially exceeds the per share value of our tangible assets after
subtracting our liabilities and the per share price paid by our existing
stockholders and by persons who exercise currently outstanding options to
acquire our common stock. Accordingly, you will experience immediate and
substantial dilution of approximately $11.19 per share, representing the
difference between our pro forma net tangible book value per share after giving
effect to this offering and the initial public offering price. In addition,
purchasers of common stock in this offering will have contributed approximately
48.0% of the aggregate price paid by all purchasers of our stock but will own
only approximately 8.4% of our common stock outstanding after this offering.
See "Dilution."
Our stock price could be volatile, which could result in substantial losses for
investors purchasing shares in this offering
The trading price of our common stock is likely to be volatile. The stock
market in general and the market for technology and Internet-related companies
in particular have experienced extreme volatility. This volatility has often
been unrelated to the operating performance of particular companies. We cannot
be sure that an active public market for our common stock will develop or
continue after this offering. Investors may not be able to sell their common
stock at or above our initial public offering price. The price for our common
stock will be determined in the marketplace and may be influenced by many
factors, including:
. variations in our financial results or those of companies that are
perceived to be similar to ours;
. changes in earnings estimates by industry research analysts;
. investors' perceptions of us; and
. general economic, industry and market conditions.
Substantial sales of our common stock could cause our stock price to decline
If our existing stockholders sell a large number of shares of our common
stock or the public market perceives that existing stockholders might sell
shares of common stock, the market price of the common stock could
significantly decline. All of the shares offered under this prospectus will be
freely tradable without restriction or further registration under the federal
securities laws unless purchased by our "affiliates" as that term is defined in
Rule 144 under the Securities Act of 1933. Of the remaining 43,694,823 shares
outstanding at the time of this offering:
. 4,527,843 shares may be sold 90 days after the effective date of this
offering; and
. 32,979,366 additional shares may be sold upon the expiration of 180-day
lock-up agreements.
Existing stockholders holding an aggregate of 35,019,414 shares of common
stock have rights with respect to the registration of these shares of common
stock with the Securities and Exchange Commission. If we register their shares
of common stock, they can sell those shares in the public market.
Securities issued in reliance on Rule 701, such as shares of our common
stock acquired pursuant to the exercise of certain options granted under our
stock plans, are also restricted securities. Beginning 90 days after the date
of this prospectus, 381,920 shares issuable upon the exercise of vested stock
options may be sold under Rule 701 by stockholders other than our affiliates.
After this offering, we intend to register approximately 25,166,666 shares
of our common stock that we have issued or may issue under our stock plans.
Once we register these shares, they can be freely sold in the public market
upon issuance, subject to the "lock-up" agreements described above and the
restrictions imposed on our affiliates under Rule 144.
10
<PAGE>
This Document Includes Forward-Looking Statements
This prospectus contains forward-looking statements that involve substantial
risks and uncertainties. In some cases you can identify these statements by
forward-looking words such as "anticipate," "believe," "could," "estimate,"
"expect," "intend," "may," "should," "will," and "would" or similar words. You
should read statements that contain these words carefully because they discuss
our future expectations, contain projections of our future results of
operations or of our financial position or state other "forward-looking"
information. We believe that it is important to communicate our future
expectations to our investors. However, there may be events in the future that
we are not able to accurately predict or control. The important factors listed
above, as well as any cautionary language in this prospectus, provide examples
of risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Before you invest in our common stock, you should be aware that the occurrence
of the events described in these risk factors and elsewhere in this prospectus
could have an adverse effect on our business, results of operations and
financial position.
11
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from our sale of 4,000,000 shares of
common stock will be approximately $42.8 million, assuming an initial public
offering price of $12.00 per share and after deducting estimated underwriting
discounts and our estimated offering expenses. If the underwriters' over-
allotment option is exercised in full, we estimate that our net proceeds will
be approximately $49.5 million.
We expect to use a portion of the net proceeds from this offering to repay
approximately $19.4 million of outstanding indebtedness under a revolving line
of credit with Harris Trust and Savings Bank. This indebtedness was incurred on
July 16, 1999 to fund operating losses and bears interest at the prime lending
rate, which was 8.75% as of February 29, 2000. This indebtedness is guaranteed
by GTCR and is due on demand. The GTCR Funds will own approximately 63.3% of
our common stock following this offering.
We expect to use the remaining $23.4 million of net proceeds, together with
cash from operations, for working capital and other general corporate purposes,
including possible acquisitions of professional service firms that provide
Internet consulting or Internet software application design and implementation
services or other businesses that complement our existing operations. We may
also make minority investments in some of our clients. From time to time we
engage in discussions with potential acquisition candidates and with clients
regarding investment opportunities. However, we have no current plans,
commitments or agreements with respect to any acquisitions or investments and
we may not make any acquisitions or investments.
To the extent the net proceeds from this offering are greater than $42.8
million but less than or equal to $76.0 million, we will use one half of such
additional proceeds to repay outstanding subordinated indebtedness owed to GTCR
Capital Partners. We incurred $12.8 million of this indebtedness in November
1999 to fund operating losses and repurchase shares of stock held by the GTCR
Funds. We incurred an additional $7.4 million of this indebtedness to fund
operations during the first quarter of 2000. This indebtedness bears interest
at a rate of 12.0% per annum and matures upon the first anniversary of the
effective date of this offering. As of March 1, 2000, $20.2 million of this
indebtedness, which includes $1.7 million of unamortized original issuance
discount, was outstanding.
To the extent net proceeds from this offering are greater than $76.0
million, we will first apply such net proceeds to repay the remaining $3.6
million balance of subordinated indebtedness owed to GTCR Capital Partners. We
will then redeem on a pro rata basis shares of our common stock issued to
holders of class A preferred stock, which include the GTCR Funds, upon exchange
of their shares of class A preferred stock. The redemption of such shares of
common stock will have the ultimate effect of reducing the number of shares of
common stock that will be held by the holders of our class A preferred stock
following this offering. The per share redemption price will be the initial
public offering price. See "Certain Relationships and Related Transactions" for
a discussion of this exchange and redemption.
Pending use of the net proceeds, we intend to invest these proceeds in
short-term, investment grade, interest-bearing instruments.
12
<PAGE>
DIVIDEND POLICY
We have never declared or paid any cash dividends on our shares of common
stock. We intend to retain future earnings, if any, to finance our growth
strategy. We do not anticipate paying cash dividends on our common stock in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of our board of directors after taking into account various factors,
including our financial condition, our operating results, our current and
anticipated cash needs, restrictions in any future financing agreements and our
plans for expansion.
Some of our existing lines of credit prohibit the declaration or payment of
cash dividends to our stockholders so long as any indebtedness under these
lines is outstanding. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and note
7 of the ZEFER Corp. financial statements.
13
<PAGE>
CAPITALIZATION
The following table sets forth our actual, pro forma and pro forma as
adjusted capitalization as of December 31, 1999. The pro forma information
reflects:
. the issuance during the first quarter of 2000 of an aggregate of
17,055.1986 shares of class A preferred stock to existing holders of
class A preferred stock and GTCR Capital Partners for proceeds of
$15,262,679;
. the exchange upon the closing of this offering of all outstanding shares
of class A preferred stock, including related accrued and unpaid
dividends as of March 31, 2000, for 3,632,222 shares of common stock at
an exchange rate based on an assumed initial public offering price of
$12.00 per share;
. the incurrence of an additional $7,370,339 million of subordinated
indebtedness payable to GTCR Capital Partners;
. the filing of a certificate of amendment upon the closing of this
offering that eliminates the class A preferred stock and authorizes
150,000,000 shares of common stock and 5,000,000 shares of undesignated
preferred stock; and
. the conversion upon the closing of this offering of a $2.0 million
promissory note issued to Renaissance Worldwide, Inc. into 208,333
shares of common stock.
The pro forma as adjusted information reflects:
. receipt of estimated net proceeds of $42.8 million from the sale by us
of 4,000,000 shares of common stock in this offering, after deducting
the estimated underwriting discounts and commissions and estimated
offering expenses; and
. the application of a portion of the net proceeds to repay $19,416,122
million of outstanding bank indebtedness under a revolving line of
credit guaranteed by GTCR.
The share numbers exclude 4,627,111 shares of common stock issuable upon
exercise of stock options outstanding as of December 31, 1999 at a weighted
average exercise price of $1.38 per share and 39,555 shares of common stock
available for issuance under our 1999 Incentive Plan and 1999 Stock Option Plan
as of December 31, 1999. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and the financial statements and
related notes included elsewhere in this prospectus. See also "Use of
Proceeds."
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except
share and per share data)
<S> <C> <C> <C>
Cash and cash equivalents...................... $ 1,271 $23,904 $47,328
======== ======= =======
Lines of credit................................ $ 19,566 $19,566 $ 150
Other debt, including current portion.......... 2,980 980 980
Subordinated debt payable to GTCR.............. 11,119 18,490 18,490
Class A redeemable preferred stock, $0.01 par
value per share; 96,632 shares authorized;
24,814 shares outstanding, actual; no shares
outstanding, pro forma and pro forma as
adjusted...................................... 25,803 -- --
Stockholders' equity (deficit):
Undesignated preferred stock, $0.01 par value
per share; no shares authorized or
outstanding, actual; 5,000,000 shares
authorized and no shares outstanding, pro
forma and pro forma as adjusted.............. -- -- --
Common stock, $0.001 par value per share;
100,000,000 shares authorized, actual;
39,854,268 shares outstanding, actual;
150,000,000 shares authorized, pro forma and
pro forma as adjusted; 43,694,823 shares
outstanding, pro forma; 47,694,823 shares
outstanding, pro forma as adjusted........... 40 44 48
Additional paid-in-capital.................... 10,438 56,021 98,857
Subscriptions receivable...................... (1,138) (1,138) (1,138)
Deferred compensation......................... (3,791) (3,791) (3,791)
Accumulated deficit........................... (30,573) (32,365) (32,365)
-------- ------- -------
Total stockholders' equity (deficit)....... (25,024) 18,771 61,611
-------- ------- -------
Total capitalization..................... $ 34,444 $57,807 $81,231
======== ======= =======
</TABLE>
14
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of December 31,
1999 was approximately $(4.1) million, or $(0.09) per share. Pro forma net
tangible book value per share represents the amount of our total tangible
assets reduced by our total liabilities, divided by the number of shares of
common stock outstanding as of December 31, 1999, assuming (a) the issuance
during the first quarter of 2000 of an aggregate of 17,055.1986 shares of class
A preferred stock to existing holders of class A preferred stock and GTCR
Capital Partners, (b) the exchange of all outstanding shares of class A
preferred stock, including related accrued and unpaid dividends as of March 31,
2000, for 3,632,222 shares of common stock at an exchange rate based on an
assumed initial public offering price of $12.00 per share and (c) the
conversion of a $2.0 million promissory note issued to Renaissance Worldwide,
Inc. into 208,333 shares of common stock. After giving effect to the sale by us
of 4,000,000 shares of common stock in this offering, deducting the estimated
underwriting discounts and commissions and estimated offering expenses and
applying a portion of the net proceeds to repay $19.4 million of outstanding
bank indebtedness under a revolving line of credit, our pro forma net tangible
book value as of December 31, 1999 would have been approximately $38.7 million,
or $0.81 per share. This represents an immediate increase in pro forma net
tangible book value of $0.90 per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $11.19 per share to
purchasers of common stock in this offering.
If the initial public offering price is higher or lower, the dilution to new
investors will be greater or less, respectively. Dilution is determined by
subtracting pro forma net tangible book value per share after the offering from
the amount of cash paid by a new investor for a share of common stock. The
following table illustrates the per share dilution to new investors:
<TABLE>
<CAPTION>
Per share
--------------
<S> <C> <C>
Assumed initial public offering price per share................. $12.00
Pro forma net tangible book value per share as of December 31,
1999......................................................... $(0.09)
Increase in pro forma net tangible book value per share
attributable to new investors................................ 0.90
------
Pro forma net tangible book value per share after this
offering....................................................... 0.81
------
Dilution per share to new investors............................. $11.19
======
</TABLE>
The following table sets forth on a pro forma basis as of December 31, 1999
the difference between the number of shares of common stock purchased from us,
assuming the issuance of 3,840,555 shares of common stock in exchange for the
shares of class A preferred stock and upon conversion of the Renaissance note,
the total consideration paid to us and the average price paid by existing
stockholders and by new investors, before deduction of estimated underwriting
discounts and commissions and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration price
------------------ ------------------- per
Number Percent Amount Percent share
---------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 43,694,823 91.6% $51,902,249 52.0% $ 1.19
New investors.................... 4,000,000 8.4 48,000,000 48.0 12.00
---------- ----- ----------- -----
Total.......................... 47,694,823 100.0% $99,902,249 100.0%
========== ===== =========== =====
</TABLE>
As of December 31, 1999, there were options outstanding to purchase a total
of 4,627,111 shares of common stock at a weighted average exercise price of
$1.38 per share under our stock plans. To the extent any of these stock options
are exercised, there will be additional dilution to new investors.
15
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
The following pro forma statement of operations data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes
included elsewhere in this prospectus. The following tables present pro forma
statement of operations data for us, Original ZEFER, the divisions of
Renaissance Worldwide, Inc., Spyplane, LLC and Waite & Company, Inc. The pro
forma statement of operations data give effect to the acquisition of each of
these businesses as if each had been acquired on January 1, 1998 and are
derived from our unaudited financial statements and the unaudited financial
statements of these businesses. The pro forma statement of operations data do
not purport to represent what our actual results of operations would have been
had each of these businesses been acquired on January 1, 1998, nor do they
project our results of operations for any future period.
<TABLE>
<CAPTION>
Pro Forma Three Months Ended Pro Forma Years Ended
------------------------------------------------ -------------------------
March 31, June 30, September 30, December 31, December 31, December 31,
1999 1999 1999 1999 1998 1999
--------- -------- ------------- ------------ ------------ ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 3,957 $ 5,612 $ 10,212 $ 13,303 $ 17,984 $ 33,084
Operating expenses:
Cost of services...... 4,000 4,528 6,110 8,514 12,540 23,152
Hiring and training... 191 248 1,338 3,989 217 5,766
Research and
innovation........... -- 128 406 1,298 -- 1,832
Sales and marketing... 778 971 1,636 4,922 4,403 8,307
General and
administrative....... 2,102 5,163 6,063 10,290 3,933 23,618
Depreciation and
amortization......... 3,869 3,969 4,781 5,257 15,160 17,876
Compensation expense.. -- -- 3 118 -- 121
------- -------- -------- -------- -------- --------
Total operating
expenses........... 10,940 15,007 20,337 34,388 36,253 80,672
------- -------- -------- -------- -------- --------
Loss from operations.... (6,983) (9,395) (10,125) (21,085) (18,269) (47,588)
Interest and other
expense, net........... (738) (1,089) (689) (1,097) (2,609) (3,613)
------- -------- -------- -------- -------- --------
Loss before taxes....... (7,721) (10,484) (10,814) (22,182) (20,878) (51,201)
Benefit from income
taxes.................. -- 1,764 3,996 -- -- 5,760
------- -------- -------- -------- -------- --------
Net loss................ $(7,721) $ (8,720) $ (6,818) $(22,182) $(20,878) $(45,441)
======= ======== ======== ======== ======== ========
Net loss per share...... $ (0.26) $ (0.29) $ (0.22) $ (0.73) $ (0.70) $ (1.50)
======= ======== ======== ======== ======== ========
Weighted average
shares................. 29,693 29,917 30,311 30,450 29,675 30,212
======= ======== ======== ======== ======== ========
Operating Expenses as a
Percentage of Revenues:
Cost of services........ 101.1 % 80.7 % 59.8 % 64.0 % 69.7% 70.0 %
Hiring and training..... 4.8 4.4 13.1 30.0 1.2 17.4
Research and
innovation............. -- 2.3 4.0 9.8 -- 5.5
Sales and marketing..... 19.7 17.3 16.0 37.0 24.5 25.1
General and
administrative......... 53.1 92.0 59.4 77.3 21.9 71.4
Depreciation and
amortization........... 97.8 70.7 46.8 39.5 84.3 54.0
Compensation expense.... -- -- -- 0.9 -- 0.4
------- -------- -------- -------- -------- --------
Total operating
expenses........... 276.5 % 267.4 % 199.1 % 257.5 % 201.6% 243.8 %
======= ======== ======== ======== ======== ========
</TABLE>
16
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
We were incorporated in Delaware on March 18, 1999 and reorganized on
April 30, 1999 for the purpose of continuing the business of Original ZEFER,
which was incorporated on March 19, 1998. Subsequent to our reorganization with
Original ZEFER, we acquired Spyplane, LLC on May 14, 1999, the divisions of
Renaissance Worldwide, Inc. on May 28, 1999, and Waite & Company, Inc. on
September 13, 1999. The following statement of operations and balance sheet
data present the financial condition and results of operations of the divisions
of Renaissance for and as of the years ended December 31, 1997 and 1998 and the
five months ended May 28, 1999 and the financial condition and results of
operations of Original ZEFER for and as of the period from inception (March 19,
1998) through December 31, 1998 and the four months ended April 30, 1999. In
addition, the following data present our financial condition and results of
operations for and as of the period from our inception (March 18, 1999) through
December 31, 1999. For purposes of these selected financial data, our
predecessor information includes selected financial data for Original ZEFER and
the divisions of Renaissance. The statement of operations data and balance
sheet data are derived from our audited financial statements and the audited
financial statements of Original ZEFER and the divisions of Renaissance
included elsewhere in this prospectus. The historical results are not
necessarily indicative of results to be expected in any future period. You
should read the data set forth below in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Predecessor
--------------------------------------------------------
Divisions of Renaissance Original ZEFER Registrant
-------------------------- ---------------------------- ------------
Five
Months Period from Period from
Years Ended Ended Inception to Four Months Inception to
December 31, May 28, December 31, Ended April 30, December 31,
1997 1998 1999 1998 1999 1999
------- ------- -------- ------------ --------------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 9,539 $13,798 $ 3,886 $ 621 $ 491 $ 25,277
Operating Expenses:
Cost of services....... $ 4,461 $10,056 4,781 469 589 15,736
Hiring and training.... -- 196 160 7 10 5,543
Research and
innovation............ -- -- -- -- -- 1,832
Sales and marketing.... 592 4,126 1,013 140 125 7,056
General and
administrative........ 1,635 2,843 2,461 511 1,973 18,420
Depreciation and
amortization.......... 197 340 190 55 56 10,649
Compensation expense... -- -- -- -- -- 121
------- ------- -------- ------ ------- ---------
Total operating
expenses............. 6,885 17,561 8,604 1,182 2,753 59,357
Income (loss) from
operations............. 2,654 (3,763) (4,718) (561) (2,262) (34,080)
Interest income......... 4 -- -- 12 7 44
Interest and other
expense................ (38) (432) (325) (5) (26) (2,297)
Provision for (benefit
from) income taxes..... 1,326 -- -- -- -- (5,760)
------- ------- -------- ------ ------- ---------
Net income (loss)....... $ 1,295 $(4,194) $ (5,043) $ (555) $(2,280) $ (30,573)
======= ======= ======== ====== ======= =========
Basic and diluted net
income (loss) per
share.................. $ (1.14)
=========
Weighted average
shares................. 26,793
=========
Balance Sheet Data (at
end of period):
Cash and cash
equivalents............ $ 102 $ 312 $ 57 $ 539 $ 143 $ 1,271
Working capital
(deficit).............. 653 1,482 (2,653) 386 (994) (23,377)
Total assets............ 4,719 7,946 6,549 1,026 1,136 50,936
Lines of credit......... -- 1,734 1,748 -- -- 19,566
Other debt, including
current portion........ 806 341 298 -- -- 2,980
Subordinated debt
payable to GTCR........ -- -- -- -- -- 11,119
Redeemable preferred
stock.................. -- -- -- 1,200 1,200 25,803
Total stockholders'
equity (deficit)....... 1,955 2,599 (1,667) (609) (1,928) (25,024)
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with "Selected Pro Forma Financial
Data," "Selected Historical Financial Data" and our financial statements and
notes thereto appearing elsewhere in this prospectus. This discussion and
analysis contains forward-looking statements that involve risks, uncertainties
and assumptions. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors, including those set forth under "Risk Factors" and elsewhere in this
prospectus.
Overview
We were organized on March 18, 1999 for the purpose of continuing the
business of our predecessor, which we refer to as Original ZEFER. Original
ZEFER was established on March 19, 1998 to provide strategy-led Internet
consulting services. Original ZEFER had revenues of $0.6 million for the period
from its inception to December 31, 1998, and $0.3 million for the three months
ended March 31, 1999.
We have completed the following strategic acquisitions that have enabled us
to gain critical resources and delivery capabilities, expand into new
geographic regions and deliver larger projects:
. Spyplane. On May 14, 1999, we acquired all of the outstanding membership
interests of Spyplane LLC, a San Francisco-based digital branding and
design firm. Digital branding is the adaptation of a brand name or logo
onto a digital platform. Spyplane had revenues of $0.3 million for the
period beginning on its inception, May 7, 1998 and ending on December
31, 1998 and revenues of $0.5 million for the period from January 1,
1999 to May 14, 1999.
. The Divisions of Renaissance. On May 28, 1999, we acquired two divisions
of Renaissance Worldwide, Inc. One division was engaged in web
application development and the other division was engaged in customer
relationship management consulting and implementation. The Divisions of
Renaissance had combined revenues of $13.8 million for the year ended
December 31, 1998 and $3.9 million for the five months ended May 28,
1999.
. Waite & Company. On September 13, 1999, we acquired Waite & Company,
Inc., a Boston-based strategic marketing and management-consulting firm.
Waite & Company had revenues of $3.3 million for the year ended December
31, 1998 and $2.9 million for the period from January 1, 1999 to
September 13, 1999.
We are a strategy-led Internet consulting and implementation firm. We derive
our revenues primarily from providing Internet consulting and implementation
services to our clients. We expect that our revenues will be driven primarily
by the number, scope and pricing of our client engagements along with our
capacity to deliver such engagements. Our operating results will be determined
primarily by our headcount, utilization of billable consultants and level of
selling, general and administrative and other operating expenditures.
Approximately 90% of our revenues for the period from our inception through
December 31, 1999 was derived from services performed on a fixed-price basis,
and we expect to continue to derive a substantial majority of our revenue from
fixed-price contracts in the future. The balance of our revenues are derived
from time and materials engagements. A majority of our engagements last from
three to six months. To determine the proposed fixed price of an engagement, we
use an estimation process that takes into account:
. the type and overall complexity of the project;
. the anticipated number and type of consultants needed and their
associated billing rates; and
. the estimated duration of and risks associated with the engagement.
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All fixed-price proposals must receive the approval of a member of our
senior management team. We recognize revenues from fixed-price engagements
using the percentage of completion method, based on the ratio of costs incurred
to date to the total estimated project costs. We calculate project costs based
on the direct payroll and associated employee benefits of the consultants on
the engagement, plus any direct, unbilled out-of-pocket expenses. Finance
personnel meet regularly with project managers to ensure that the budgeted
costs to complete the engagement, which are used to calculate revenue
recognition, reflect the current actual status of the project and the updated
anticipated costs to complete the engagement. We make provisions for estimated
losses on engagements during the period in which such losses become probable
and can be reasonably estimated. These losses have not been significant to
date. We sometimes recognize revenues in advance of billing our customers and
therefore maintain a significant unbilled receivables balance. We make
provisions for uncollectible accounts receivable, which have not been
significant to date. We offset out-of-pocket expenses reimbursed by the client
against the expenses incurred and do not recognize such reimbursements as
revenues.
Cost of services consists primarily of salaries and associated employee
benefits for personnel directly associated with the delivery of services in
client engagements and non-reimbursed out-of-pocket expenses incurred by such
consultants. We expect that cost of services will increase over time in
absolute dollars in conjunction with wage increases and inflation, as well as
increases in the number of billable professionals related to volume.
Hiring and training expenses consist primarily of salaries and related
expenses associated with attracting, recruiting, training and retaining
qualified professionals. We expect these expenses to increase over time in
absolute dollars as our employee base grows and we complete the construction of
a 12,000 square foot innovation and training facility.
Research and innovation expenses consist primarily of (1) salaries and
related employee benefits of employees assigned directly to internal research
and development projects, as well as direct expenses for these projects, such
as special equipment, software and travel-related expenses; (2) the costs
associated with the dedicated knowledge management team as well as the unified
services team, which is responsible for developing and enhancing our ENABLE
methodology; and (3) the expense and fees associated with our board of
advisors, which consists of experts in the fields of study relevant to the
development of innovative thinking. Our dedicated knowledge management team is
a group of our professionals whom we have assigned to identify methodologies,
best practices and other processes that we have developed for use throughout
our organization in ongoing and future client engagements.We expect research
and innovation costs to increase in both absolute dollars and as a percentage
of revenues in the near term as we seek to enhance our competitive position.
Sales and marketing expenses consist primarily of salaries, commissions and
related expenses for employees dedicated to our sales and marketing efforts.
Additionally, we include costs associated with advertising, public relations,
seminars, mailings, Internet campaigns, speaking engagements and other
sponsored marketing events and promotions in sales and marketing expenses. We
expect sales and marketing expenses to increase in absolute dollars as we
expand our direct sales force and promotional efforts.
General and administrative expenses consist primarily of human resources,
information technology, finance, legal and administrative personnel and
facilities and general operating costs. We expect these expenses to increase in
absolute dollars to support the growth of our business.
Depreciation and amortization expenses consist primarily of the amortization
of goodwill and other intangibles related to acquisitions. They also include
depreciation of property and equipment.
Pro Forma Results of Operations
Twelve Months Ended December 31, 1999 Compared to Twelve Months Ended December
31, 1998
Pro forma revenues for the year ended December 31, 1999, as compared to the
year ended December 31, 1998, increased by $15.1 million, or 84.0%, to $33.1
million from $18.0 million. The increase in pro forma
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revenues was primarily a result of an increase in the number of client
engagements and an expansion of our service offerings, along with the
increased scope and complexity of engagements.
Historical Results of Operations
ZEFER
Period from Our Inception (March 18, 1999) to December 31, 1999
Revenues. Revenues for the period from inception to December 31, 1999 were
$25.3 million. During the period revenues increased as a result of an increase
in the number of client engagements and an expansion of our service offerings,
along with the increased scope and complexity of engagements. The increase
reflected both organic growth and the acquisitions described above.
Operating Expenses. Costs of services for the period were $15.7 million, or
62% of revenues, reflecting increasing numbers of billable professionals as we
expanded our capacity to meet the increase in demand for Internet consulting
and implementation services. Hiring and training costs were $5.5 million, or
22% of revenues, reflecting our recruiting and retention efforts, including
expansion of our human resources department, our use of external recruiters
and the assimilation and training of an expanding employee base. We initiated
our research and innovation activities during 1999 with costs of $1.8 million,
or 7% of revenues, for the period. Most of our research and innovation
expenses related to the development of our proprietary ENABLE methodology and
knowledge management infrastructure. Sales and marketing expenses for the
period were $7.1 million, or 28% of revenues, reflecting the building of a
sales and marketing organization to support rapid growth. General and
administrative expenses for the period were $18.4 million, or 73% of revenues,
reflecting our investment in the infrastructure required to rapidly scale our
business. Depreciation and amortization for the period was $10.6 million, or
42% of revenues. Of this amount, amortization of goodwill and other
intangibles related to acquisitions was $8.1 million, or 32% of revenues,
while depreciation of purchased of computer equipment, software and furniture
and fixtures during the period was $2.6 million, or 10% of revenues.
Stock-Based Compensation. We recorded deferred compensation of $3.9 million
in the period from inception through December 31, 1999, of which $0.1 million
has been amortized as compensation expense during 1999, secured compensation
represents the difference between the exercise price of stock options granted
and the sale price of restricted common stock and the fair market value of the
underlying common stock at the date of grant. The difference is recorded as a
component of stockholders' equity and is being amortized over the vesting
period of the applicable options and restricted common stock, which is
typically four years. Of the total deferred compensation amount, $0.1 million
has been amortized as of December 31, 1999. The amortization of deferred
compensation is recorded as stock-based compensation. We currently expect to
amortize the remaining $3.8 million of deferred compensation over the vesting
period which is primarily four years.
Interest and Other Expenses. Interest and other expenses for the period was
$2.3 million, or 9% of revenues, primarily due to the accrued interest on the
class A preferred stock. The benefit from taxes for the period was $5.8
million, or 23% of revenues, due to the application of net operating loss
carryforwards against deferred tax liabilities recorded in connection with
certain acquisitions.
Though we did not begin operations until March 18, 1999, our predecessors,
Original ZEFER and the Divisions of Renaissance, did have prior operating
histories.
Original ZEFER
Four Months Ended April 30, 1999 Compared to Period from Inception (March 19,
1998) to December 31, 1998
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Revenues. Revenues for the four months ended April 30, 1999 decreased by
$0.1 million to $0.5 million from $0.6 million for the period from inception to
December 31, 1998. The decrease is primarily due to the fact we are comparing a
four month period to a nine month period, partially offset by an increase in
the number of client engagements.
Operating Expenses. Costs of services for the period ended April 30, 1999
increased by $0.1 million to $0.6 million from $0.5 million for the period from
inception to December 31, 1998. Cost of services increased as a percent of
revenues to 120% for the period ended April 30, 1999 from 76%, reflecting
increasing numbers of billable professionals as we expanded our capacity to
meet the increase in demand for Internet consulting and implementation
services. Hiring and training costs increased by $3,000 to $10,000, or 2% of
revenues, for the period ended April 30, 1999 from $7,000, or 1% of revenues,
for the period from inception to December 31, 1998 reflecting increased
recruiting efforts. Sales and marketing expenses decreased $16,000 to $124,000,
or 25% of revenues, for the period ended April 30, 1999 from $140,000, or 23%
of revenues, for the period from inception to December 31, 1998. General and
administrative expenses increased $1.5 million to $2.0 million for the period
ended April 30, 1999 from $0.5 million for the period from inception to
December 31, 1998, reflecting our investment in the infrastructure required to
rapidly scale our business.
Interest and Other Expense. Interest and other expense increased $25,000 to
$19,000 for the period ended April 30, 1999 from a net benefit $6,000, for the
period from inception to December 31, 1998 primarily due to increased interest
on capital leases for computer equipment.
Divisions of Renaissance
Five Months Ended May 28, 1999 Compared to the Twelve Months Ended December
31, 1998
The five-month period ended May 28, 1999 and the twelve-month period ended
December 31, 1998 are not comparable periods. The amounts described below for
the five-month period ended May 28, 1999 would have been higher if a comparable
twelve-month period had been used.
Revenues. Revenues for the five months ended May 28, 1999 compared to the
twelve months ended December 31, 1999 decreased by $9.9 million to $3.9 million
from $13.8 million primarily because the periods are not comparable.
Operating Expenses. Costs of services decreased by $5.3 million to $4.8
million, or 123% of revenues, for the five-month period ended May 28, 1999 from
$10.1 million, or 73% of revenues, for the period ended December 31, 1998. This
decrease was primarily due to the fact that we are comparing a five-month
period to a twelve-month period, and was partially offset by accrued severance
costs related to Renaissance's reduction in billable professionals prior to our
acquisition. Hiring and training costs decreased by $36,000 to $160,000, or 4%
of revenues, for the period ended May 28, 1999 from $196,000, or 1% of
revenues, for the period ended December 31, 1998. Sales and marketing expenses
decreased by $3.1 million to $1.0 million, or 26% of revenues, for the period
ended May 28, 1999 from $4.1 million, or 30% of revenues. This decrease in
sales and marketing expenses was primarily due to the fact that we are
comparing a five month period to a twelve month period, and was somewhat offset
by higher selling costs. General and administrative expenses decreased by $0.5
million to $2.7 million, or 68% of revenues, for the period ended May 28, 1999
from $3.2 million, or 23% of revenues, for the period ended December 31, 1998.
This decrease in general and administrative expenses was primarily due to the
fact that we are comparing a five month period to a twelve month period, and
was partially offset by higher administrative costs related to Renaissance's
reduction in the workforce and restructuring prior to our acquisition.
Interest and Other Expense. Interest and other expense decreased by $0.1
million to $0.3 million, or 8% of revenues, for the five month period ended May
28, 1999 from $0.4 million, or 3% of revenues, for the period ended December
31, 1998. This decrease in interest and other expenses was primarily due to the
fact that we are comparing a five month period to a twelve month period.
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Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues. Revenues for the year ended December 31, 1998 increased by $4.3
million to $13.8 million from $9.5 million for the year ended December 31,
1997. This increase was primarily due to the establishment of the customer
relationship management practice in 1998.
Operating Expenses. Cost of services increased by $5.6 million to $10.1
million for the year ended December 31, 1999 from $4.5 million for the year
ended December 31, 1997. This increase was primarily due to an increase in the
number of billable professionals due to the establishment of the CRM division
in March 1998. Hiring and training costs increased to $0.1 million for the year
ended December 31, 1998 primarily due to the hiring and training of billable
CRM professionals. Sales and marketing increased by $3.5 million to
$4.1 million for the year ended December 31, 1998 from $0.6 million for the
year ended December 31, 1997. This increase was primarily due to the
development of a dedicated sales force. General and administrative expenses
increased by $1.5 million to $2.7 million for the five-month period ended May
28, 1999 from $1.2 million for the five-month period ended May 28, 1998. This
increase was primarily due to an increase in the number of billable
professionals in the CRM division.
Interest and Other Expenses. Interest and other expenses increased by $0.4
million to $0.4 million for the year ended December 31, 1999 from zero. This
increase was primarily due to an increase in indebtedness taken on by the
divisions of Renaissance during 1998.
Liquidity and Capital Resources
Since inception we have financed our operations and capital expenditures
primarily through the sale of common and preferred stock and capital lease and
other debt financing. As of December 31, 1999, we had raised $29.2 million of
capital from the sale of common and preferred stock, and we raised an
additional $15.3 million from the sale of preferred stock during the first
quarter of 2000. As of December 31, 1999, we had $1.3 million in cash and cash
equivalents. We expect that accounts receivable will continue to increase
proportionately to the extent our revenues continue to rise. Any such increase
that occurs at a greater rate than increases in revenues is likely to have an
adverse effect on cash flows from operating activities.
We have a revolving line of credit for $20.0 million with Harris Bank and
Trust Company. Borrowings under this line of credit bear interest at the prime
lending rate (8.5% at December 31, 1999). All borrowings under this line are
guaranteed by GTCR. As of December 31, 1999, there were outstanding borrowings
under this line of credit in the amount of $19.4 million. We intend to repay
the outstanding balance under this line of credit with a portion of the net
proceeds of this offering.
We also have a capital equipment line with TLP Leasing, Inc. pursuant to
which we have financed computer equipment and office furniture. Amounts
financed under this capital equipment line have an imputed interest rate of
11.0% per annum. As of February 29, 2000, $629,000 was outstanding under this
line.
As part of the consideration for our acquisition of Spyplane, we issued to
the former members of Spyplane promissory notes in the aggregate principal
amount of $980,000. These notes bear interest at a rate of 8.0% per annum. One
half of the accrued interest plus $180,000 of the outstanding principal, or an
aggregate of $220,000, is payable on May 14, 2000. The remaining unpaid
principal and interest on the notes is due on May 14, 2001.
As part of the consideration for our acquisition of the divisions of
Renaissance the Company issued to Renaissance Worldwide Inc. a promissory note
in the aggregate principal amount of $2.0 million. The note bears interest at a
rate equal to the 30-day LIBOR (5.8% at December 31, 1999) plus 2.0% per annum
and interest is payable quarterly through May 2002. Principal is payable in
eight quarterly installments commencing May 2000. At the option of Renaissance,
the principal amount outstanding under the Renaissance note is convertible to
common stock of the Company at the conversion price equal to 80% of the IPO
price.
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On November 24, 1999, we entered into a loan agreement with GTCR Capital
Partners, an affiliate of GTCR. The loan agreement provides for up to $32.2
million of borrowings, of which we borrowed $12.8 million on November 24, 1999
to fund operations and repurchase shares of stock held by GTCR. During the
first quarter of 2000, we borrowed an additional $7.4 million to fund
operations. As of March 1, 2000, $20.2 million of indebtedness, which includes
$1.7 million of unamortized original issuance discount, was outstanding under
the loan. Borrowings under this loan agreement bear interest at 12.0% per
annum. Interest is payable quarterly in arrears beginning December 31, 1999.
The loan becomes due on the first anniversary of the effective date of this
offering.
After the consummation of this offering, GTCR Capital Partners has no
obligation to make additional loans to us under the loan agreement. In
addition, should we dispose of any assets or subsidiaries for net proceeds in
excess of $0.1 million, we must apply the net proceeds of such disposition to
prepay the loan. Borrowings are secured by substantially all of our assets. To
the extent the net proceeds from this offering are greater than $42.8 million
but less than or equal to $76.0 million, we will use one half of such net
proceeds to repay the loan. To the extent net proceeds are greater than $76.0
million, we will first apply such net proceeds to repay the remaining $3.6
million balance of the loan. If we do not repay the loan with net proceeds from
this offering, or repay only a portion of the loan with net proceeds, it is
likely that we will require funds from external sources, such as a new loan
facility, in order to repay this loan.
As of December 31, 1999, we had a revolving line of credit for $0.2 million
with Silicon Valley Bank East. On February 16, 2000, we repaid in full the
outstanding balance under this line of credit and terminated the line.
During the period from inception (March 18, 1999) through December 31, 1999,
our operating activities used $18.5 million of cash. Net cash used by operating
activities during this period resulted from a net loss of $30.6 million and
increases in unbilled receivables of $3.0 million, prepaid expenses and other
current assets of $1.4 million and a deferred tax benefit of $5.8 million.
These uses of cash were partially offset by increases in accounts payable and
accrued expenses of $4.6 million, and $5.5 million, respectively, and non-cash
charges relating to depreciation and amortization of $10.6 million and non-cash
interest charges of $1.4 million. The increase in accounts receivable was
primarily attributable to increased volume of revenues and accounts receivable
purchased from acquired entities.
During the period from inception through December 31, 1999, our investing
activities used $39.7 million in cash. Net cash used by investing activities
during this period resulted primarily from cash paid for the acquisitions of
Original ZEFER, Spyplane, LLC, the divisions of Renaissance and Waite &
Company, Inc. totaling $26.3 million, capital expenditures of $9.0 million and
an increase in long-term other assets of $4.5 million. The capital expenditures
were primarily for computer equipment and software required by our increase in
headcount and furniture and fixtures related to the build-out of our leased
facilities. We expect that capital expenditures will continue to increase to
the extent we continue to increase our headcount, open additional offices,
invest in research and innovation and generally expand our operations.
Additionally, while we currently have no plans to acquire additional
businesses, future investing activities may include the acquisition of
businesses.
During the period from inception through December 31, 1999, our financing
activities provided $59.6 million in cash. Net cash provided by financing
activities during this period resulted from net borrowings on a line of credit
of $19.4 million, proceeds from the issuance of redeemable preferred stock of
$24.2 million, proceeds from the issuance of subordinated debt to GTCR of $11.1
million, proceeds from the issuance of common stock of $4.5 million and
proceeds from the repayment of subscriptions receivable of $0.5 million.
We believe that the net proceeds from this offering, together with our
existing cash resources and our projected cash flow from operations, will be
sufficient to fund our planned operations for at least the next twelve months.
However, we may require significant additional funds for possible future
acquisitions of businesses, products or technologies complementary to our
business and are likely to require funds from external sources, such as a new
loan facility, to repay the loan from GTCR Capital Partners.
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Our ability to repay the outstanding indebtedness owed to GTCR Capital
Partners and to fund operations beyond twelve months will be dependent upon the
success of our operations and our future prospects which, in turn, will affect
our ability to raise debt or equity on commercially reasonable terms. If
additional funds are required, we may raise such funds from time to time
through public or private sales of equity or from borrowings. We currently have
no plans for further equity offerings but may undertake such offerings
depending upon our results of operations, capital requirements and the state of
the economy and capital markets.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
establishes accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, and for hedging
activities. It requires an entity to recognize all derivatives as either assets
or liabilities in the balance sheet and measure those instruments at fair
value. Pursuant to SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133,
SFAS No. 133 is effective for all quarters of fiscal years beginning after June
15, 2000. SFAS No. 133 is not expected to have a material impact on our
financial statements.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. SOP 98-1 requires costs associated with
internal use software to be charged to operations as incurred until
capitalization criteria set forth in SOP 98-1 are met. SOP 98-1 became
effective January 1, 1999. The adoption of this statement did not have a
material impact on our financial position or results of operations.
Market Risk Disclosure
We are exposed to market risk from changes in interest rates primarily
through our borrowing activities. Our ability to finance future acquisitions
may be impacted if we are unable to obtain appropriate financing at acceptable
rates. We do not believe that interest rate risk is material to our business.
In July 1999, we entered into a $20.0 million unsecured demand line of
credit with a bank of which $19.4 million was outstanding as of December 31,
1999. Borrowings on the line bear interest at the prime lending rate, which was
8.5% at December 31, 1999. We intend to repay the outstanding balance under
this line with a portion of the net proceeds of this offering.
To date, we have not utilized derivative financial instruments or derivative
commodity instruments. We do not expect to employ these or other strategies to
hedge market risk in the foreseeable future. We do invest our cash in money
market funds, which are subject to minimal credit and market risk. We believe
the market risks associated with these financial instruments are immaterial.
Year 2000 Impact
We have not experienced any problems with our computer systems relating to
distinguishing twenty-first century dates from twentieth century dates, which
generally are referred to as year 2000 problems. We are also not aware of any
material year 2000 problems with our clients or vendors. Accordingly, we do not
anticipate incurring material expenses or experiencing any material operational
disruptions as a result of any year 2000 problems.
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BUSINESS
Overview
We provide strategy consulting and software application development and
implementation services to dot-com and traditional companies to enable them to
effectively use the Internet in their businesses. The growth of the Internet
economy has created opportunities for many businesses to significantly improve
cost efficiencies, create revenue growth and redeploy assets in accordance with
new business models. We assist clients in identifying business objectives and
creating and prioritizing a portfolio of initiatives for using the Internet in
their businesses. These initiatives are designed to offer our clients a variety
of ways to maximize their competitiveness in the new economic environment that
has resulted from the widespread acceptance of the Internet. After creating an
initial Internet strategy, we architect and build scalable, flexible solutions
that can be adapted over time to the evolving needs of our clients. We believe
that our strategy-led services enable new dot-coms to rapidly develop and
deploy an online business, and enable traditional businesses to redefine their
business models and build on their existing assets.
As of December 31, 1999, we had 312 billable professionals and during 1999
we entered into engagements with approximately 90 clients. We have offices in
Boston, New York, Pittsburgh, Chicago and San Francisco.
Industry Background
Innovations in Internet technology and widespread acceptance of Internet-
based business models have been the primary drivers in the evolution of the
Internet economy. We believe the Internet economy has evolved in three distinct
waves as companies have increasingly realized the value of the Internet to
their businesses. Throughout these waves, companies have increasingly looked to
outside service providers to help them capitalize on the opportunities offered
by the Internet. International Data Corporation estimates that the market for
Internet services worldwide will grow from $7.8 billion in 1998 to $78.6
billion in 2003, representing a compound annual growth rate of 59%.
First Wave. The first wave began in the early 1990s with the introduction of
the browser and the initial commercialization of the world wide web. Businesses
using the Internet in the first wave generally experimented with their websites
as marketing channels by posting static information and graphics known as
brochureware. To create these non-interactive websites, businesses generally
engaged professional service providers with graphic design skills, as the
implementation of these relatively simple websites involved limited
technological and strategic business input.
Second Wave. The second wave began during the mid-1990s with technological
innovations that enabled the development of transaction-oriented applications
for the Internet. These applications in turn led to greater commercial
acceptance of the Internet. Taking advantage of the second wave technological
innovations, businesses have focused on building discrete Internet software
applications to enhance traditional revenue generation channels or to effect
cost reductions through supply chain efficiencies. Most of these new
applications, such as online banking, online ordering and sales force
automation, have been transaction-oriented and tailored to specific business
processes, as opposed to directed at developing a comprehensive Internet
strategy. To implement these new and more complex applications, we believe
businesses have generally engaged professional service providers with not only
website design skills but also strong technology and project management
capabilities.
Third Wave. During the late 1990s, while some businesses continued to seek
first and second wave solutions, a third wave began as other businesses started
adopting Internet-based business models in response to the increasing number of
consumers and businesses using the Internet. According to International Data
Corporation, the number of Internet users will grow from 159 million in 1998 to
510 million in 2003, while worldwide e-commerce revenues will increase from
approximately $50 billion to more than $1.3 trillion over the same period.
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The growth in the use of the Internet has enabled entrepreneurial dot-com
companies, such as Amazon.com, to develop new Internet-based business models
that have fundamentally changed the economics of entire industries. In response
to these changes in industry economics, many traditional businesses are
adopting Internet-based business models or otherwise developing Internet
strategies that build on their existing assets to compete more effectively.
Third Wave Internet Professional Service Providers. We believe that third
wave Internet service providers must have the following skills:
. the strategy skills to identify and prioritize a portfolio of Internet
initiatives;
. the branding and experience design capabilities to distinguish a
business from its competitors and to provide a compelling online
customer experience;
. the technological skills to build and integrate complex, flexible and
scalable applications that incorporate cutting-edge technologies; and
. large-scale program management skills.
We believe that many Internet professional service providers do not offer
their customers a full range of strategy-led services. We further believe these
service providers often create solutions that are reactive to the client's
immediate business needs, rather than driven by the client's overall business
strategy. As a result, in our view, these service providers end up implementing
discrete business applications, which often are short-lived, instead of
scalable and adaptable business solutions. Moreover, we believe that these
service providers are less apt to understand the broader business strategy of
the customer and, therefore, are less likely to be in a position to continually
adapt an initial solution to the changing business environment.
In addition, we believe that traditional information technology service
providers often lack the integrated and multidisciplinary business strategy,
experience design, technology and program management skills required in the
third wave of the Internet economy or that they compartmentalize their
competencies throughout client engagements. As a result, multiple service
providers or multiple departments within the service provider participate in
developing and implementing a solution, which causes time delays and poorly
integrated solutions. In addition, in our experience, many traditional IT
service providers fail to establish the type of ongoing post-implementation
relationship with their clients that enables the clients to take immediate
advantage of Internet opportunities as they arise and evolve.
The ZEFER Approach
We formed our business for the express purpose of delivering strategy-led
Internet professional services to help companies compete successfully in the
third wave Internet economy. The key elements of our service offering are as
follows:
Strategy-led. We believe that our strategy-led approach is critical to
helping our clients develop and implement successful Internet strategies to
achieve a competitive advantage. This strategy-led approach includes:
. analyzing the client's industry, business model and goals;
. developing a portfolio of Internet initiatives in the context of an
overall business strategy; and
. developing and launching various Internet initiatives in a sequence that
maximizes business value over the long term.
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We involve our Internet strategists not only at the beginning of an
engagement, but during each phase of the project and even after initial
deployment. This allows us to continually improve the client solution by
reexamining strategic decisions in light of evolving markets and technologies.
Integrated and Multidisciplinary. We deliver our strategy-led service
offering through integrated, multidisciplinary teams of consultants with
backgrounds in business strategy, experience design, technology and program
management. These professionals bring skills in diverse areas, including dot-
com and traditional management consulting, digital branding and cognitive
engineering, and systems integration, customer relationship management and
Internet security. We define cognitive engineering, as applied to the Internet,
to be the process of making a website intuitive and easy to use.
This collaborative approach allows us to provide two key client benefits.
First, we believe that we are able to deliver higher quality Internet
initiatives because each discipline provides insight into the ultimate solution
during all phases of the project. Second, by staffing the engagement with a
multidisciplinary team, we develop and implement Internet initiatives without
the time delays and increased costs associated with handing off a project from
one team to another or among multiple service providers at the beginning and
end of discrete phases of a project.
Innovative. Our commitment to research and innovation allows us to provide
our clients with Internet professional services that are at the forefront of
Internet technologies and experience design. Our consultants are trained in the
latest practices and technologies in their disciplines. For example, one of our
research and innovation projects led to our developing an Internet application
that is able to deliver location-specific information by taking advantage of
the ability to identify the geographic location of a user accessing the web
through a cellular phone-enabled browser. During the period from our inception
through December 31, 1999, we spent $1.8 million on research and innovation. We
did not make any research and innovation expenditures during 1997 and 1998.
Adaptive. There are no permanent answers in the nascent and rapidly changing
Internet economy. Accordingly, we architect and build scalable, flexible
solutions that can be adapted over time in response to the client's changing
needs, technological innovations and consumer and business trends. This
adaptive approach also promotes long-term client relationships during which we
continue to generate and prioritize initiatives that address the dynamic and
ever-changing business landscape created by the Internet.
The ZEFER Strategy
Our objective is to become the leading provider of strategy-led Internet
professional services. Our business strategy for achieving this objective is as
follows:
Attract and Retain Outstanding Professionals. We believe that attracting and
retaining outstanding professionals is essential to our growth and the delivery
of high quality solutions to our clients. During the last nine months of 1999,
we hired an average of approximately 20 billable professionals per month. The
key elements of our hiring and retention program are as follows:
. Culture. We have a culture of collaboration, innovation and commitment
in an open work environment. We offer professionals the opportunity to
work with talented people in a variety of disciplines, which enhances
each professional's understanding of his or her own area of
concentration as well as the specialties of others.
. Training and Development. We have a comprehensive learning and
development program that focuses on professional and personal
development. This program includes the establishment of mentor
relationships with peers and senior professionals and a formal skills-
based curriculum. In addition, we are constructing a new innovation and
training center that we expect to complete by the second quarter of
2000.
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. Compensation. We pay competitive salaries, grant stock options to all
employees, award annual performance bonuses and authorize managers to
award cash and in-kind bonuses at any time for exemplary performance.
Serve Cutting-edge Dot-com Clients. We plan to continue to perform a
significant portion of our engagements for dot-com clients, some of which we
expect will become the leading businesses of the future. We believe that our
traditional clients value the experience that we gain from working with dot-com
clients. We also increase our internal intellectual capital by working with our
dot-com clients, which often are on the cutting edge of strategic and
technological innovations in the Internet arena. In addition, a strong client
base of dot-com businesses allows us to attract and retain talented
professionals who are eager to work with the latest technologies and business
models.
Enhance and Extend our Integrated Service Offering. We are continually
enhancing our integrated service offering through our research and innovation
efforts. These efforts are intended to ensure that our consultants are not only
trained in the latest Internet technologies and practices, but are at the
forefront in the development of new technologies and practices. In addition, we
are extending our service offering by hiring personnel with additional skills.
For example, during 1999 we added customer relationship management, or CRM,
capabilities. Our CRM consultants specialize in automating and integrating
customer management solutions to enable our clients to find, serve and retain
customers.
Further Develop Expertise in Targeted Industries. We are building our
expertise in serving selected key industries. We believe that this increased
expertise will enhance our ability to rapidly create solutions that are
tailored to the particular requirements of different industries. The key
industries that we have targeted are financial services, healthcare and
pharmaceuticals, technology, consumer packaged goods and retail, and media and
entertainment. We are focusing our efforts on these industries because we
believe that businesses in these industries are rapidly adopting Internet
business strategies in the third wave Internet economy.
Build the ZEFER Brand. We are building the ZEFER brand to establish our
presence in the competitive market for Internet professional services. We have
established a strategic marketing campaign to advertise and promote our
Internet service offering in newspapers, magazines and other media. We have
also conducted executive seminars with The Wall Street Journal Interactive and
are engaged in a direct mail campaign targeting executives of both dot-com
companies and traditional businesses. In addition, we have implemented a public
relations program consisting of media relations development, publication of
articles and participation in industry events and other speaking engagements.
Expand Alliances. We have selectively established alliances with software
and hardware vendors, including BroadVision, Microsoft, Siebel, Sun
Microsystems and Vantive. These relationships provide us with a range of
benefits, including access to the latest versions of technology developed by
our collaborators, training programs for our employees and new sales leads, co-
marketing opportunities and channels of distribution for our services. We
intend to enhance our existing alliances and establish additional alliances
with vendors that can offer us leading technologies and valuable marketing
opportunities.
The ZEFER Delivery Model
Our delivery model is based upon a proprietary methodology that we call
ENABLE. We use ENABLE to assist our clients in choosing and implementing
successful Internet strategies. Our ENABLE methodology is designed to ensure
that we:
. involve professionals from all of our competencies in each phase of our
engagements;
. take advantage of the standards, benchmarks and approaches that we have
developed so that we can deliver solutions in a rapid, repeatable and
efficient manner; and
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<PAGE>
. follow detailed control procedures that are designed to ensure that we
are delivering high quality solutions.
ENABLE consists of four phases that we refer to as ENvision, Architect,
Build and Launch, and Evolve.
ENvision. In the ENvision phase, we explore the client's business from the
perspective of its various constituencies, including its customers, employees,
vendors and other affected parties. We determine the business models that
competitors could pursue and design appropriate countermeasures. We also
consider the impact of emerging technologies and identify existing assets of
the client that are relevant to its Internet strategy.
After creating a portfolio of Internet initiatives for our clients, we work
with them to prioritize these initiatives on the basis of both quantitative
and qualitative metrics. These metrics include organizational readiness for
adoption of new technologies or a new business model, value creation
potential, complexity of implementation and resource requirements. We believe
prioritization of Internet initiatives enables our clients to maximize the
value of their Internet strategy by pursuing their initiatives in a logical
sequence. We further believe that this prioritization is essential to the
development of a long-term business strategy that will enable the client to
respond quickly and cost effectively in the evolving Internet economy.
Architect. In the Architect phase, we start to implement the client
strategy by preparing a blueprint to guide the construction of a new Internet
business model or solution. We begin by designing the functional aspects of
the Internet solution and creating the structural and technical design for the
application. We provide the client with a clear understanding of how the
Internet strategy will work, the resources needed to implement and manage the
strategy and the time required to launch the new business model or solution.
We specifically design technology architectures to be highly scalable, secure
and flexible so that solutions may ultimately extend to new devices and
technologies.
Build and Launch. In the Build and Launch phase, we implement the Internet
solution or new business model. Our services in the Build portion of this
phase include application development, systems integration, quality assurance
testing and initial launch in a test environment. Our services in the Launch
portion of this phase include development of marketing activities, design and
creation of customer service and technical support infrastructures,
implementation of training programs, and establishment of tracking mechanisms
to evaluate performance of the Internet solution or new business model.
Evolve. Following the Build and Launch phase, a client's success will
depend, in part, upon its ability to continually adapt its business model to
the changing requirements of the Internet economy. To help them succeed, our
methodology includes a post-Build and Launch phase that we call Evolve. In the
Evolve phase, we reexamine the prioritization of the Internet initiatives
developed during the ENvision phase, evaluate knowledge gained from the
Architect and Build and Launch phases of the engagement and examine the
applicability to the client of knowledge that we have developed in other
client engagements. We believe that the Evolve phase is central to fostering
long-term client relationships.
ZEFER Competencies
Our ENABLE delivery model integrates our competencies in the following four
areas:
Business Strategy. Our business strategy consultants have backgrounds in
both Internet and management consulting. We believe that this combination
brings our clients fresh perspectives as well as seasoned industry expertise.
These consultants develop strategies on an iterative basis with our clients to
address the full spectrum of the client's business strategy. They identify
initiatives for the client's Internet business model, position the business in
existing and new markets and establish financial metrics to measure the
success of the model.
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Experience Design. Our experience design consultants have backgrounds in
visual design, cognitive engineering and website architecture. These skillsets
enable our consultants to design Internet solutions that provide compelling
user experiences while accomplishing the business objectives of our clients.
Technology. Our team of technology experts is experienced at developing and
integrating complex Internet applications. These professionals include
technical architects, programmers, integration specialists, security experts
and planning and testing experts. Our technology consultants have expertise in
the latest Internet technologies, including programming languages such as EJB,
XML and Microsoft DCOM. They also have significant experience in integrating
Internet applications with existing computing architectures.
Program Management. Our program management professionals bring skills in the
management of large, complex client projects to our client engagements. These
professionals possess expertise in requirements management, project planning
and tracking, communications and risk management. As the scale of Internet
projects in the third wave increases, project managers play an increasingly
important role in the rapid delivery of high quality solutions.
Representative Client Engagements
The following case studies describe client engagements during 1999 that were
representative of the range of strategy-led Internet professional services that
we provide to our clients. The client engagements described below represent an
aggregate of 21% of our revenues for the period from our inception to December
31, 1999, with average revenues per engagement of approximately $887,000.
Publicaciones Semana is a Colombian publisher of
multiple information and entertainment magazines.
[LOGO OF SEMANA.COM]
Semana engaged us to help them analyze the fundamental business
ramifications of taking an information-based company online. The Internet
represents both an opportunity and a challenge to print-based publishing firms
such as Semana as the publishing industry becomes increasingly electronically
based. Other key aspects of this engagement included the need to address the
low level of penetration of the Internet in Latin America and to understand
local culture.
We developed a portfolio of strategic options for Semana after conducting a
comprehensive analysis to understand the needs of the end user and a detailed
process diagnosis to see where Semana could streamline or eliminate production
steps. For Semana's core media properties, we recommended and implemented a
comprehensive editorial process by which edits can be made via the web. This
editorial process is linked to Semana's internal computer systems such that the
transition from the old system to the new is seamless. We concurrently
identified an opportunity to take advantage of the Semana brand in new areas of
Internet business, including the introduction of the online magazine,
Semana.com. We also worked with Semana to acquire, build and extend a portal
search engine business based in Colombia, LaCiudad.com.
We worked with Semana to launch LaCiudad.com and Semana.com in 20 weeks. We
are now working with Semana to further enhance the sites' capabilities and
begin a strategy to build a portfolio of Latin American Internet properties.
foodline.com is a privately held telephone and online
restaurant guide and reservation network.
[LOGO OF FOODLINE]
foodline.com engaged us in early 1999 to assist it in developing its
Internet business. foodline's objective was to build on its existing electronic
restaurant guide by adding an online restaurant reservation system.
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We began this engagement by conducting a strategic study and analysis of
foodline's Internet vision and business model with the goal of helping it to
rapidly deploy a technically scalable and robust solution. We addressed the
strategic components and technical underpinnings that foodline's reservation
site would need, including a business model with multiple revenue streams and a
scalable information architecture.
We worked with foodline to develop and implement a solution that permits end
users to log onto foodline.com to research dining options according to their
preferences and seating availability. This application also confirms
reservation times online. Credit card processing is incorporated into the site
to guarantee reservations.
The scalable nature of this solution has allowed foodline to quickly expand
to new cities. After initial implementation in Boston, foodline introduced the
solution to New York, San Francisco and Philadelphia with relatively little
incremental cost. Anthony K. Tjan, our Executive Vice President and a member of
our board of directors, sits on the board of advisors of foodline. Mr. Tjan is
not compensated for his services on the board of advisors.
The Children's Place is a specialty retailer of high
quality, value-priced apparel and accessories for
children with over 280 stores in the United States.
[LOGO OF THE CHILDREN'S PLACE]
In July 1999, The Children's Place approached us with a twofold objective:
(1) create an overarching Internet vision and strategy and (2) develop and
launch the company's first e-commerce initiative, childrensplace.com, in time
for the holiday buying season. We began the engagement with an intensive
strategic planning and blueprinting phase in which we developed a staged e-
commerce strategy that would allow for a first phase launch in 16 weeks.
In the first phase launch, we integrated several vendor applications and a
technical architecture that we custom designed for The Children's Place. These
applications include such features as a mix-and-match capability that allows
the user to construct outfits, a magnifying feature that rolls a view enhancer
over the clothes and a gift registry, Additionally, the site uses dHTML
technology, thereby keeping the site easy to use.
Childrensplace.com enabled The Children's Place to reach a new customer base
outside of its traditional store-based customers in the eastern United States.
The site has received positive customer feedback and recently was featured on a
national television news program.
After the initial launch, we collaborated with The Children's Place to
change the site's look and feel to reflect the upcoming spring 2000 transition
fashion line. Because we had designed the site to be scalable and adaptive, we
were able to implement the release of an entirely refreshed site only weeks
after the initial launch. Part of the longer-term Internet strategy that we
have developed with The Children's Place is to evolve childrensplace.com into a
destination site for children.
Zuellig Pharma is a healthcare product distributor and
healthcare information delivery company in the Asia
Pacific region. Zuellig Pharma provides exclusive
distribution and information-based services for the
largest pharmaceutical manufacturers in the world and to
leading hospitals, pharmacies and clinics in 22 Asian
countries.
[LOGO OF ZUELLIG PHARMA]
Zuellig Pharma engaged us to develop an Internet-based strategy to secure
its position in the market and provide a foundation for future Internet
initiatives. We helped Zuellig Pharma define a strategy to better service
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its suppliers by providing real-time access to sales and supply chain
information about the thousands of products Zuellig Pharma distributes in the
region. In just 16 weeks, we designed a system that allows Zuellig Pharma's
internal computer network to tie into the internal computer networks of its
suppliers over the Internet. This type of system is called an "extranet."
We helped design Zuellig Pharma's business-to-business extranet with the
technical architecture needed to support a complex structure. The technical
architecture supports integration with the client's existing computer systems
to facilitate future enhancements or extensions. The web site functionality
permits a faster flow of information to users by incorporating a mechanism for
analyzing data in a secure fashion. This approach provides increased
flexibility and functionality by allowing users access to various levels of
online tools and catalog views based on their security level.
The site delivers a combination of real-time and historical sales
information to both the pharmaceutical manufacturers that supply Zuellig Pharma
and the company's sales teams and country managers. The site is designed with
multicurrency and multilingual functionality to accommodate Zuellig Pharma's
multinational operations.
Greenlight.com is an online automobile
retailer.
[LOGO OF GREENLIGHT.COM/TM/]
Greenlight.com engaged us to assist it in building a dot-com business that
would use the Internet to transform the entire car buying experience, from
model selection to delivery.
In just 10 weeks, we developed Greenlight.com's website in such a way as to
provide a satisfying customer car buying experience while maintaining a
technological infrastructure able to adapt to the aggressive growth targets
established by Greenlight.com. We designed a personalized area called My
Showroom that allows users to compare specific models in which they are
interested. My Showroom saves that information so that users may return to
check on price updates or to edit the vehicle configuration. In addition to
creating Greenlight's consumer website, we also developed a comprehensive
system to help account managers track customer orders, manage dealer
relationships, create vehicle options packages and edit pricing. We continue to
work with Greenlight.com to refine its business model and the functionality of
the site.
Sales and Marketing
Our marketing strategy is to build the ZEFER brand in order to solidify our
presence in the competitive market for Internet professional services. Our
strategic marketing programs include advertising in major publications, direct
mailings, Internet campaigns, speaking engagements and other sponsored
marketing events, including executive seminars with The Wall Street Journal
Interactive. We have also retained an outside public relations and advertising
firm to assist us with our marketing efforts. Our marketing efforts include the
use of such phrases as "from digital vision to business results."
Our direct field marketing and sales organization sells and promotes our
services to both dot-com and traditional businesses. In addition, our senior
consultants and members of our management, many of whom are well recognized in
the Internet and strategic consulting industries, frequently participate in
establishing contacts with potential clients and securing client engagements.
Many of our sales leads are also generated by our marketing initiatives or are
the result of referrals from the parties with whom we have alliances.
Clients
During the period from inception (March 18, 1999) through December 31, 1999,
we derived approximately 69% of our revenues from services performed for
traditional businesses and approximately 31% from dot-com businesses. Most of
our clients are located in the United States, although we have performed
engagements for international clients. Our clients listed below have worked
with our multidisciplinary teams and reflect our mix of traditional and dot-com
clients:
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<TABLE>
<S> <C>
Accompany IONA Technologies
Barclays MoveCentral
Eaton Vance Corp. Neopost Online
ebDirect Publicaciones Semana
enTotal.com Sachs
Federated Investors Siemens
foodline.com SimplyHealth.com
Gillette The Children's Place
Gordon Brothers Group Winebid.com
Greenlight.com Zuellig Pharma
Houston Cellular
</TABLE>
Knowledge Management
Our knowledge management system, which we call ZEFER 360(degrees), is an
internally developed software application that encompasses the Internet, our
internal intranet and extranets with clients and parties with whom we have
alliances. ZEFER 360(degrees) affords our employees, clients and vendors
customized access to our research, knowledge, expertise and tools.
ZEFER 360(degrees) improves productivity by:
. supporting knowledge capture and transfer;
. promoting experience sharing by accumulating and storing knowledge gained
from past and current projects, internal and external databases and
contact information from consultants with specific expertise;
. facilitating training with resource materials, handouts and training
sessions that can be carried live for remote users; and
. facilitating internal and external relationship building and innovation.
We have a dedicated knowledge management team to support and continually
develop ZEFER 360(degrees).
Talent, Career Development and Culture
Talent. We dedicate significant resources to identifying and recruiting
students from top educational institutions and professionals from other
businesses. Our corporate human resources staff focuses on executive,
managerial, business and technical recruiting, as well as college and MBA
recruiting, to identify professionals with the background and experience
required to provide our service offerings. Our corporate staff in turn supports
dedicated regional recruiters who manage the local recruiting process.
We hold onsite evening recruiting events, called "Z nights," on a regular
basis to allow candidates to experience our culture and to meet future co-
workers. We have established relationships with selected search firms, agencies
and contract recruiters who supplement our in-house recruiting efforts.
Approximately one-third of our employees are referred to us by existing
employees, whom we reward with cash incentives and special prizes.
Career Development. We believe that challenging work and continuing
education are critical to retaining talented employees. All new employees
participate in the ZEFER Acceleration Program, which is an intensive, week-long
orientation program that provides experience in our culture, values, management
practices and philosophy. We also regularly offer professional development
courses and a formal skills-based curriculum. We are constructing a 12,000
square foot innovation and training center in Boston. We expect to complete
this center by the second quarter of 2000.
Culture. We work in multi-disciplinary teams and support a culturally and
demographically diverse workplace. We respect individual expression, freedom of
thought and action. While we are passionate about our
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work, we value the other components of our lives and respect personal and
professional balance. We are committed to exceeding the expectations of our
clients and ourselves through the quality of our work, our focus on client
service and our investment in the professional development of our people.
Competition
We compete in the new and emerging Internet professional services market.
This market is highly competitive. Many of our competitors have longer
operating histories, better name recognition, larger client bases and greater
financial, technical, marketing and public relations resources than we. Because
the Internet professional services market has relatively low barriers to entry,
we believe competition will intensify as the market evolves.
Our principal competitors include:
. Internet-focused professional service firms, such as Proxicom,
Razorfish, Scient and Viant;
. strategic management consulting companies, such as Booz-Allen &
Hamilton, Boston Consulting Group, Andersen Consulting and McKinsey &
Company;
. traditional IT service and systems integration firms, such as the Big
Five accounting firms, Cambridge Technology Partners, Computer Sciences
Corporation, IBM and Sapient; and
. internal IT departments of our prospective clients.
We believe that the key competitive factors are integrated and
multidisciplinary business strategy, experience design and technology skills,
company reputation for Internet expertise, strategic insight and implementation
excellence, strategic project management and large-scale program management
capabilities and an ability to provide services in a timely and cost-effective
manner. We believe that we compete successfully with respect to each of these
competitive factors.
Proprietary Rights
We have developed processes, skillsets, technologies, software and
methodologies, including our ENABLE methodology, that we consider to be
proprietary. We have tried to protect our proprietary rights through reliance
on a combination of trade secret, copyright and trademark laws. In particular,
we require our employees to sign a confidentiality and invention assignment
agreement upon employment with us which provides that they must maintain the
confidentiality of our intellectual property and that any intellectual property
that they create while employed by us belongs to us.
We are in the process of registering the trademark "ZEFER" with the United
States Patent and Trademark Office. We intend to make such other state and
federal filings as we believe are appropriate to protect our intellectual
property rights.
Employees
As of December 31, 1999, we had a total of 481 employees, including 312
billable employees in our competencies of business strategy, experience design,
technology and program management. None of our employees is represented by a
labor union. We consider our employee relations to be good.
Facilities
Our principal executive offices are located in an 18,600 square foot leased
facility in Boston, Massachusetts. The lease for this facility expires in
August 2004. We also lease an additional 70,800 square feet of office space in
Boston. The leases of this additional space expire at various times through
December 2005. We also lease an aggregate of 142,600 square feet of office
space in Chicago, New York, Pittsburgh and San Francisco. We believe that our
facilities are satisfactory for our current needs.
Legal Proceedings
From time to time we may be involved in litigation that arises in the normal
course of business operations. As of the date of this prospectus, we are not
involved in any material litigation.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their respective ages and positions
as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
William A. Seibel............. 48 Chairman of the Board, President and Chief
Executive Officer
Gerard E. Dube................ 45 Executive Vice President, Client and Market
Development
Sean W. Mullaney.............. 39 Executive Vice President for Enterprise
Development, General Counsel, Secretary and
Assistant Treasurer
James H. Slamp................ 45 Executive Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary
Martha L. Stephens............ 41 Executive Vice President for People
Anthony K. Tjan............... 29 Executive Vice President and Director
Francis J. Torbey............. 42 Chief Technology Officer and Executive Vice
President of Unified Services
Thomas J. Waite............... 42 Executive Vice President of Business
Strategy and Strategic Marketing
Philip A. Canfield+........... 31 Director
Masood Jabbar*................ 50 Director
Catherine Viscardi Johnston+.. 46 Director
David A. Lubin+*.............. 49 Director
Timothy P. McAdam............. 31 Director
Richard L. Nolan*............. 58 Director
Bruce V. Rauner............... 43 Director
</TABLE>
- ---------------------
* Member of Audit Committee
+ Member of Compensation Committee
William A. Seibel has served as our President and Chief Executive Officer
and a Director since March 1999 and as Chairman of the Board since January
2000. Mr. Seibel was part of the original management team with Cambridge
Technology Partners, an international management consulting and systems
integration company, serving in various capacities from 1991 through March
1999, most recently as Executive Vice President of the Americas. Previously,
Mr. Seibel held various senior executive positions with Index Technologies, an
information technology services firm, and Dun & Bradstreet Software, Inc., a
software company. Mr. Seibel was elected to the board of directors pursuant to
the stockholders agreement described in "Certain Relationships and Related
Transactions" below.
Gerard E. Dube has served as our Executive Vice President, Client and Market
Development since August 1999. From April 1994 through July 1999, Mr. Dube was
with Computer Sciences Corporation, an information technology services company,
most recently serving as President, Integrated Business Services.
Sean W. Mullaney joined us in March 1999 as our Executive Vice President for
Enterprise Development, General Counsel, Secretary and Assistant Treasurer.
From February 1998 through February 1999, Mr. Mullaney was Vice President of
Mergers and Acquisitions for Renaissance Worldwide, Inc., an information
technology services firm. Mr. Mullaney was an attorney for Ropes & Gray, a
Boston law firm, specializing in mergers and acquisitions and securities law,
from 1993 through January 1998.
James H. Slamp has served as our Executive Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary since September 1999. From 1995
through August 1999, Mr. Slamp was Corporate Controller of Diamond Technology
Partners, Incorporated, a management and e-commerce consulting firm. Prior to
working at Diamond, Mr. Slamp was Corporate Controller of Ivex Packaging
Corporation, a manufacturer of paper and plastic products, from 1990 through
1995. Mr. Slamp is a certified public accountant formerly associated with
PricewaterhouseCoopers LLP.
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Martha L. Stephens has served as our Executive Vice President for People
since March 1999. Ms. Stephens founded the Green Leaf Consulting Group, Inc., a
consulting firm, in March 1997 and served as its President until February 1999.
Ms. Stephens also worked at International Data Group, Inc., an information
technology services group, where she served in several capacities from October
1987 to March 1997, most recently serving as the Corporate Vice President of
Human Resources. Ms. Stephens has also been an adjunct faculty member at
Bentley College since 1994 and taught classes at Babson College from 1997 to
1999.
Anthony K. Tjan has served as our Executive Vice President and a director
since May 1999. In March 1998, Mr. Tjan co-founded Original ZEFER and served as
its Chief Executive Officer until April 1999. From June 1994 through June 1996,
Mr. Tjan was a consultant with McKinsey & Company, a global strategic
management consulting firm. Prior to working at McKinsey & Company, Mr. Tjan
worked on the external staff of the World Economic Forum Foundation, an
international think tank, in Geneva, Switzerland on various projects from June
1992 through January 1995. Mr. Tjan also serves on the Board of Advisors for
several Internet companies, including Accompany, Foodline.com, Mexico.com and
Netyear. Mr. Tjan was elected to the board of directors pursuant to the
stockholders agreement described in "Certain Relationships and Related
Transactions" below.
Francis J. Torbey has served as our Chief Technology Officer and Vice
President of Unified Services since March 1999. From June 1996 through February
1999, Mr. Torbey served as the Senior Vice President, Application Development
with Infinium Software, an enterprise software company. Prior to joining
Infinium, he was a vice president at Landmark Systems Corporation, a software
company, from January 1993.
Thomas J. Waite has served as our Executive Vice President of Business
Strategy and Strategic Marketing since September 1999. Mr. Waite co-founded
Waite & Company, a strategic management consulting firm, in 1995 and served as
its Managing Partner. Prior to founding Waite & Company, he was Senior Vice
President of Innovation and Marketing for CSC Index, an information technology
services firm, from 1986 through 1995. Previously, he was with McKinsey &
Company.
Philip A. Canfield has been on our board of directors since April 1999. He
has been a principal at GTCR Golder Rauner, L.L.C., a private equity and
venture capital firm, since 1997 and was an associate from 1992 until 1997.
Mr. Canfield is also a director of AETEA Information Technology, Inc., VISTA
Information Technologies, Inc., AppNet, Inc., FutureNext Consulting, Inc.,
Metamor Software Solutions, Inc. and netASPx, Inc. Mr. Canfield was elected to
the board of directors pursuant to the stockholders agreement described in
"Certain Relationships and Related Transactions" below.
Masood Jabbar has been on our board of directors since December 1999. Mr.
Jabbar has held various positions at Sun Microsystems, Inc. since 1986, most
recently serving as the President of the Computer Systems Group. Mr. Jabbar was
elected to the board of directors pursuant to the stockholders agreement
described in "Certain Relationships and Related Transactions" below.
Catherine Viscardi Johnston has been on our board of directors since
February 2000. Since November 1999, Ms. Johnston has engaged in private
investing activities. Ms. Johnston served in a variety of positions with Conde
Nast Publications, a magazine publisher, from 1977 through 1993, and again from
March 1995 through November 1999, most recently serving as Publisher of
Mademoiselle and, since December 1996, as Executive Vice President. She also
serves on the Board of Directors of the Ad Council and on the Board of Trustees
of Manhattanville College. Ms. Johnston was elected to the board of directors
pursuant to the stockholders agreement described in "Certain Relationships and
Related Transactions" below.
David A. Lubin has been on our board of directors since June 1999. Since
January 1999, Mr. Lubin has engaged in private investing activities. From
August 1997 through December 1998, Mr. Lubin served as the Managing Director of
Renaissance Worldwide, Inc. From December 1993 through August 1997, Mr. Lubin
served as the Treasurer and Co-Chairman of Renaissance Solutions, Inc., a
strategy consulting firm. Mr. Lubin was elected to the board of directors
pursuant to the stockholders agreement described in "Certain Relationships and
Related Transactions" below.
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Timothy P. McAdam has been on our board of directors since April 1999. He
has been a vice president at GTCR since 1998 and was an associate from 1996 to
1998. Mr. McAdam worked as an analyst at Merrill Lynch, Pierce, Fenner & Smith
Incorporated, an investment bank, from 1990 through 1991 and as an associate at
TA Associates, a venture capital firm, from 1991 through 1994. He is a director
of International Computer Graphics and U.S. Fleet Services. Mr. McAdam was
elected to the board of directors pursuant to the stockholders agreement
described in "Certain Relationships and Related Transactions" below.
Richard L. Nolan has served as a member of our board of directors since June
1999. Mr. Nolan has served as the William Barclay Harding Professor of
Management of Technology at the Harvard Business School since 1991. Mr. Nolan
was elected to the board of directors pursuant to the stockholders agreement
described in "Certain Relationships and Related Transactions" below.
Bruce V. Rauner has served as a member of our board of directors since
February 2000. Mr. Rauner is the managing principal of GTCR and has been a
principal of GTCR since 1981. Mr. Rauner is also a director of AnswerThink
Consulting Group, Inc., AppNet, Inc., Coinmach Laundry Corporation, divine
interVentures, Inc., Polymer Group, Inc., Province Healthcare, Inc. and U.S.
Aggregates. Mr. Rauner was elected to the board of directors pursuant to the
stockholders agreement described in "Certain Relationships and Related
Transactions" below.
Executive Officers
Each officer serves at the discretion of our board of directors and holds
office until his successor is elected and qualified or until his earlier
resignation or removal. There are no family relationships among any of our
directors or executive officers.
Election of Directors
The board of directors is divided into three classes, each of whose members
serves for a staggered three-year term. Messrs. Seibel and Tjan and Ms.
Johnston serve in the class whose term expires in 2001, Messrs. Canfield,
McAdam and Rauner serve in the class whose term expires in 2002 and Messrs.
Jabbar, Lubin and Nolan serve in the class whose term expires in 2003. At each
annual meeting of stockholders, a class of directors will be elected for a
three-year term to succeed the directors of the same class whose terms are then
expiring.
The employment agreement that we entered into with Mr. Tjan on April 30,
1999 provides that we shall cause Mr. Tjan to be elected as a director of our
company. The stockholders agreement discussed in "Certain Relationships and
Related Transactions" below provides that, until the consummation of this
offering, each party to that agreement will vote all shares of our capital
stock held by such party to elect the following persons to our board of
directors: Mr. Seibel and one of our executives designated by the chief
executive officer, three representatives of GTCR and four independent persons
chosen jointly by GTCR and the chief excutive officer. Mr. Tjan has been
designated by our chief executive officer, Messrs. Rauner, Canfield and McAdam
have been designated by GTCR, and Messrs. Jabbar, Lubin and Nolan and Ms.
Johnston have been chosen jointly by GTCR and our chief executive officer.
Compensation of Directors
We provide non-employee directors with a per diem of $1,000 for each meeting
of the board of directors or its committees that they attend to reimburse them
for their expenses incurred. Upon his election to the board in June 1999, Mr.
Nolan received a nonstatutory stock option to purchase 30,000 shares of common
stock, which is now exercisable for 40,000 shares of common stock as a result
of our stock split effective as of December 1, 1999. Upon his election to the
board in mid-December 1999, Mr. Jabbar received a nonstatutory stock option to
purchase 30,000 shares of common stock. Upon her election to the board in
February 2000, Ms. Johnston received a nonstatutory stock option to purchase
30,000 shares of common stock. The options granted to these non-employee
directors, which have a weighted average exercise price of $5.10 per share,
vest over a four-year period in equal annual installments. All directors are
eligible to receive additional grants of options under our stock incentive
plans.
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Board Committees
Our board of directors has an audit committee and a compensation committee.
The audit committee consists of Messrs. Jabbar, Lubin and Nolan. The audit
committee makes recommendations to the board of directors regarding the
selection of independent accountants, reviews the results and scope of the
audit and other services provided by our independent accountants and reviews
and evaluates our audit and control functions. The compensation committee
consists of Messrs. Canfield and Lubin and Ms. Johnston. The compensation
committee administers our stock plans and makes decisions concerning salaries
and incentive compensation for our employees.
Innovation Advisory Board
We have established an Innovation Advisory Board to enhance the development
of intellectual capital for our service offering. Members have agreed to devote
up to 12 days per year to develop intellectual capital, participate in
educational forums and mentor our innovation team leaders. The current members
of the Innovation Advisory Board are:
Pamela Alexander is President and Chief Executive Officer for Alexander
Olgilvy Public Relations Worldwide. Ms. Alexander is a member of numerous
technology industry organizations and associations, including the editorial
board of Red Herring Communications and the board of directors of the
Technology Network, a bipartisan public policy and political advocacy
organization addressing the interests of the technology industry.
Ian O. Angell is Professor of Information Systems at the London School of
Economics. He is a lecturer and author on the subject of information systems
and their effect on social, economic and organizational issues whose work
includes the book Information Systems Management: Opportunities and Risks.
Peter Block is an author and consultant whose work centers on ways to bring
service and accountability to organizations and communities. He is the author
of Flawless Consulting: A Guide to Getting Your Expertise Used, The Empowered
Manager: Positive Political Skills at Work and Stewardship: Choosing Service
Over Self Interest. Mr. Block has joined with the Association for Quality and
Participation to create The School for Managing & Leading Change, a program
designed for the public and private sector to learn how to redesign the
workplace.
Miles Braffett is Vice President and Chief Information Officer of BMG
Entertainment and is responsible for worldwide information systems and
technology (IS&T). Prior to this position, Mr. Braffett served as Vice
President IS&T, North America. Prior to joining BMG in 1995, Mr. Braffett
served in various positions at EMI Music since 1986.
Jay Chiat co-founded Chiat/Day in 1962 and grew the business into an
advertising agency whose clients included Apple, Nike and Energizer.
Advertising Age named Chiat/Day Agency of the Year in 1980 and 1988, and Agency
of the Decade in 1989. Mr. Chiat has been Chief Executive Officer of Screaming
Media, an Internet company that distributes custom-filtered content to web
sites, since 1998.
Clayton Christensen is a Professor of Business Administration at the Harvard
Business School with a joint appointment in Technology and Operations
Management and General Management. Mr. Christensen is an award-winning
researcher and writer who focuses on developing organizational capabilities and
finding markets for new technologies. Mr. Christensen is the author of The
Innovator's Dilemma: When New Technologies Cause Great Firms to Fail.
Eric K. Clemons is Professor of Operations, Information Management and
Management at The Wharton School, where he has been a researcher and educator
since 1976 in the areas of information technology and business strategy. He
works with major corporations to study impacts of information technology on the
future of their firms and industries and is the author of many papers in these
fields.
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Jeffrey Dunn has served as Chief Operating Officer of Nickelodeon since
1996. Prior to joining Nickelodeon in 1993, Mr. Dunn served in a variety of
marketing and general management positions for Arthur D. Little, Bank of Boston
and Time magazine.
Christopher Gopel was partner and head of Ernst & Young LLP's global and
national supply chain services. He was also Vice President of Worldwide
Operations at Dell Computer. Mr. Gopel is the author of three books and several
articles dealing with information management, e-commerce and supply chain
management. Mr. Gopel is currently the Vice President, Information and Services
at Cmetric, Inc., a communications company.
Clive Holtham is Bull Information Systems Professor of Information
Management and head of the Department of Management Systems and Information at
the City University Business School of London. He has served as an expert
advisor to the European Parliament and authored Executive Information Systems
and Decision Support. Mr. Holtham has also authored numerous white papers and
research studies in the areas of application of information management,
flexible learning infrastructure and applied knowledge management.
Rolf Jensen is Director of the Copenhagen Institute for Future Studies,
where he lectures and orchestrates strategic scenarios. Mr. Jensen is a speaker
at international conferences and other seminars, including McKinsey & Company
and the Stockholm Business School, and he recently published The Dream Society:
From Information to Imagination.
Robert Johansen has been the President of the Institute for the Future since
1996. He was one of the first social scientists to explore the human and
organizational impacts of new communications and computing innovations. He is
the principal author of Teleconferencing and Beyond: Communications in the
Office of the Future and a frequent speaker on topics relating to emerging
information technologies and their potential advantages and disadvantages to
users.
Jason Pontin is an editor of Red Herring magazine. He is responsible for
guiding all aspects of the magazine toward its vision of covering business and
technology convergence while also contributing regular monthly columns. He was
formerly senior editor at InfoWorld magazine where he covered operating systems
and wrote the Robert X. Cringely column. He also wrote for Financial Times and
Euromoney.
Moshe Rubinstein is a professor at the University of California at Los
Angeles School of Engineering and Applied Science, director of the "A-B-C"
Corporate Network at the Anderson School at UCLA and faculty director of the
Creativity and Innovation in the Organization Program. Mr. Rubinstein is a
Fulbright Hays Fellow and has written eight books, including Patterns of
Problem Solving and Tools for Thinking and Problem Solving, as well as over 100
articles. His latest book is The Minding Organization, which he co-authored.
Bo Saxberg is Vice President, Advanced Communications at Johnson & Johnson,
where he leads efforts in medical informatics and focuses on current and future
new business opportunities related to the management of information to health
care delivery. Prior to joining Johnson & Johnson in 1995, Mr. Saxberg was
Director of Information Sciences at Eli Lilly. There he led the development of
Eli Lilly's Internet home page and interactive health models and other
applications of medical informatics.
Donald Schultz is Professor of Integrated Marketing Communications at
Northwestern University, where he has been a professor since 1977. He has
consulted, lectured and held seminars throughout the world on integrated
marketing communication, marketing, advertising, sales promotion and
communication management. His articles have appeared in numerous marketing and
advertising publications and he is author or co-author of seven books,
including Integrated Marketing Communications, Strategic Advertising Campaigns,
Essentials of Advertising Strategy and Strategic Newspaper Marketing. He was
the founding editor of the Journal of Direct Marketing.
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Michael Shamos is Co-Director of the Institute for eCommerce at Carnegie
Mellon University, and is the principal systems scientist for the School of
Computer Science. He has received numerous awards and co-authored Computational
Geometry: An Introduction. He has been a member of the editorial board for
Journal of Electronic Commerce Technology and Pittsburgh Journal of Technology,
Law and Policy and has held president positions for Unus, Inc., a database
publishing software company, and Lexeme Corporation, a software language
translation products company.
Robert Tien is a founder and Chairman of the Board of Electronic Business
International. He is Vice President of the International Scientific Advisory
Board for the American Academy of Anti-Aging Medicine and serves on the board
of directors of Orchid BioSciences, Inc. He has several academic and hospital
appointments, including a tenured Professorship at Duke University Medical
Center, where he was Director of Neuroradiology and Director of Neuro-MR from
1991-1996. He has authored or co-authored more than 160 papers.
Hal Varian is the Dean of the School of Information Management and Systems
at the University of California at Berkeley and also holds joint appointments
in the Haas School of Business and the Department of Economics. Mr. Varian has
published numerous papers in economic theory, econometrics, industrial
organization, public finance and the economics of information technology, and
has received several awards and honors.
Arnold Wasserman is a design management consultant specializing in
innovation strategy for corporations in the U.S., Europe and Asia. He has held
positions of Vice President of Corporate Industrial Design/Human Factors at
NCR, Xerox and Unisys Corporation. Mr. Wasserman is the former Dean of the
Pratt Institute's School of Design. Mr. Wasserman writes regularly on design,
strategy, management and innovation and he has received numerous awards for his
designs of business equipment and consumer products.
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Executive Compensation
The following table sets forth the total compensation paid or accrued for
the year ended December 31, 1999 to our Chairman of the Board, President and
Chief Executive Officer and four other most highly compensated executive
officers at year end. We refer to all of these officers collectively as our
Named Executive Officers. We have not yet determined performance bonuses to be
awarded to our Named Executive Officers for services performed in 1999. The
$4,212 in "All Other Compensation" represents the payment of a term life
insurance premium. Please see "--Senior Management Agreements."
Summary Compensation Table
<TABLE>
<CAPTION>
Annual
Compensation
----------------
All Other
Name and Principal Position Salary Bonus Compensation
- --------------------------- -------- ------- ------------
<S> <C> <C> <C>
William A. Seibel................................ $267,921 $80,000 $4,212
Chairman of the Board, President
and Chief Executive Officer
Sean W. Mullaney................................. 152,300 -- --
Executive Vice President for Enterprise
Development
and General Counsel
Martha L. Stephens............................... 143,000 -- --
Executive Vice President for People
Anthony K. Tjan.................................. 143,300 -- --
Executive Vice President
Francis J. Torbey................................ 143,100 -- --
Chief Technology Officer
and Executive Vice President of Unified Services
</TABLE>
Benefit Plans
1999 Stock Incentive Plan. Our 1999 Stock Incentive Plan was adopted by our
board of directors and approved by our stockholders in June 1999. In February
2000, our board of directors approved an amendment to our incentive plan
increasing the shares available for issuance under the plan to 22,666,666.
This incentive plan provides for the grant of options intended to qualify as
incentive stock options, or ISOs, under Section 422 of the Internal Revenue
Code, nonstatutory stock options, restricted stock awards and other stock and
non-stock based awards.
Officers, employees and other persons who provide services to us are
eligible to receive awards under the this incentive plan. No participant may
receive any award for more than 1,000,000 shares in any calendar year.
Optionees receive the right to purchase a specified number of shares of
common stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. The board of
directors or an appointed committee may grant options at an exercise price less
than, equal to or greater than the fair market value of our common stock on the
date of grant, which in no event may be less than the par value of the
underlying stock.
The board of directors has directed the compensation committee to administer
this incentive plan. The board of directors has the authority to adopt, amend
and repeal the administrative rules, guidelines and practices relating to the
plan and to interpret its provisions. Subject to any applicable limitations
contained in this incentive plan, the compensation committee:
. determines eligibility for and selects the recipients of awards;
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. determines, modifies and waives the terms and conditions of any award;
. prescribes forms, rules and procedures, which it may modify or waive;
. interprets the plan; and
. otherwise does all things necessary to carry out the purposes of the
plan.
In the event of mergers, liquidations or other acquisition events described
in the plan, our board of directors may do any or all of the following:
. cause any or all outstanding awards to be exercisable;
. vest all awards;
. accelerate all deferrals;
. make a cash payment to settle the award; or
. provide for the assumption or substitution of all awards with that of
the acquiring or surviving entity.
No ISOs may be granted under this incentive plan after May 21, 2009, but the
vesting and effectiveness of ISOs previously granted may extend beyond that
date. The compensation committee may at any time amend, suspend or terminate
this incentive plan, except that no such amendment will, without the approval
of our stockholders, effectuate a change for which stockholder approval is
required in order for this incentive plan to continue to qualify under Section
422 of the Internal Revenue Code and for awards to be eligible for the
performance-based exception under Section 162(m) of the Internal Revenue Code.
1999 Stock Option Plan. Our 1999 Stock Option Plan was adopted by our board
of directors and approved by our stockholders in June 1999. Up to 2,000,000
shares of common stock, subject to adjustment in the event of stock splits and
other similar events, may be issued pursuant to awards granted under this
option plan. Employees, consultants and advisers of businesses that we acquire
are eligible to receive nonstatutory stock options under this option plan.
Optionees receive the right to purchase a specified number of shares of
common stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. The board of
directors or an appointed committee may grant options at an exercise price less
than, equal to or greater than the fair market value of our common stock on the
date of grant, which in no event may be less than the par value of the
underlying stock.
The board of directors has directed the compensation committee to administer
this option plan. The board of directors has the authority to adopt, amend and
repeal the administrative rules, guidelines and practices relating to the plan
and to interpret its provisions. Subject to any applicable limitations
contained in this option plan, this compensation committee:
. selects the recipients of options;
. determines the number of shares of stock subject to each option;
. determines the terms and conditions of each option;
. adopts, amends and rescinds rules and regulations for the administration
of the plan; and
. interprets the plan, decides any questions and settles all controversies
and disputes that may arise in connection with the plan.
In the event of a merger, liquidation or other acquisition event, our board
of directors may do any or all of the following:
. cause any or all outstanding options to be exercisable immediately prior
to the consummation of such transaction;
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. make a cash payment to settle the option; or
. provide for the assumption or substitution of all options by the
acquiring or surviving entity.
No award may be granted under this option plan after June 2009, but the
vesting and effectiveness of options previously granted may extend beyond that
date. Our board of directors may at any time amend, suspend or terminate the
option plan.
2000 Employee Stock Purchase Plan. Our 2000 Employee Stock Purchase Plan was
adopted by our board of directors and approved by our stockholders in February
2000. The purchase plan authorizes the issuance of up to a total of 500,000
shares of our common stock to participating employees.
Employees who are customarily employed for more than 30 hours per week and
for more than five months per year, including our directors who are employees
and employees of any participating subsidiaries, are eligible to participate in
the purchase plan.
Employees who would immediately after the grant own 5% or more of the total
combined voting power or value of our stock or any subsidiary are not eligible
to participate. As of December 31, 1999, approximately 480 of our employees
would have been eligible to participate in the purchase plan.
On the first day of a designated payroll deduction period, or "offering
period," we will grant to each eligible employee who has elected to participate
in the purchase plan an option to purchase shares of our common stock as
follows: the employee may authorize between 1% to 10% of his or her base pay to
be deducted by us from his or her base pay during the offering period. On the
last day of the offering period, the employee is deemed to have exercised the
option, at the option exercise price, to the extent of accumulated payroll
deductions. Under the terms of the purchase plan, the option price is an amount
equal to 85% of the per share closing price of our common stock on either the
first day or the last day of the offering period, whichever is lower. In no
event may an employee purchase under the purchase plan in any year a number of
shares which exceeds the number of shares determined by dividing $25,000 by the
average market price of a share of common stock on the commencement date of the
offering period.
The first offering period under the purchase plan will be one year long. The
board of directors will choose the timing and length of subsequent offering
periods.
An employee who is not a participant on the last day of the offering period
is not entitled to exercise any option and the employee's accumulated payroll
deductions will be refunded. An employee's rights under the purchase plan
terminate upon voluntary withdrawal from the purchase plan at any time, or when
the employee ceases employment for any reason.
401(K) Plan. In June 1999, we adopted an employee savings and retirement
plan qualified under Section 401 of the Internal Revenue Code and covering all
of our employees. Pursuant to the 401(k) plan, employees may elect to reduce
their current compensation by up to the statutorily prescribed annual limit and
have the amount of such reduction contributed to the 401(k) plan.
Senior Management Agreements
William A. Seibel. On March 23, 1999, we entered into a senior management
agreement with Mr. Seibel which provides for his employment as President and
Chief Executive Officer. Under the terms of this agreement, Mr. Seibel's
employment will continue until he resigns or we terminate his employment.
Mr. Seibel's initial base salary was $325,000 per year and was increased to
$375,000 per year in October 1999. Mr. Seibel is eligible to receive an annual
performance bonus of up to 50% of his base salary. The board of
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directors may increase Mr. Seibel's base salary in its discretion based upon
our achievement of specified objectives. Mr. Seibel received a one-time special
bonus of $80,000 when he joined us. We also provide Mr. Seibel with medical
insurance benefits, a $2,000,000 term life insurance policy and other benefits
generally made available to our senior management.
Mr. Seibel's senior management agreement contains provisions requiring him
to protect the confidentiality of our proprietary and confidential information.
In addition, Mr. Seibel is prohibited during the term of his employment and for
a period of two years after from competing with us, soliciting any of our
employees or interfering with any of our business relationships. If Mr.
Seibel's employment is terminated by us without cause or by him for good
reason, he will be entitled to receive his base salary and medical insurance
benefits as severance for a period of two years thereafter.
In connection with the execution of his senior management agreement, Mr.
Seibel purchased 3,040,000 shares of restricted common stock from us on March
23, 1999, for which he paid a total of $380,000, $1,900 in cash and $378,100 in
the form of a recourse promissory note. Mr. Seibel's senior management
agreement provides us with rights to purchase all of his restricted stock if
his employment with us terminates for any reason. If we do not exercise our
purchase right, some of the other members of our management team have the right
to purchase these shares. These purchase rights will terminate upon the
consummation of this offering with respect to stock that has vested on the date
that the purchase right is triggered.
Mr. Seibel's restricted stock vests on a daily basis over five years, so as
to vest in full on March 23, 2004. Upon the consummation of this offering, Mr.
Seibel's restricted stock shall immediately vest as to an aggregate of 33% of
such stock, additional shares of restricted stock shall vest on a daily basis
so that an additional 7% of Mr. Seibel's restricted stock will be vested on
March 23, 2001, and thereafter the remaining 60% of such stock shall vest on a
daily basis so as to be fully vested on March 23, 2004. Mr. Seibel's stock will
vest in full in the event of a change in control or sale of our company. The
purchase price for Mr. Seibel's vested shares is the fair market value of the
stock on the date of repurchase. The purchase price for Mr. Seibel's unvested
shares is the original purchase price paid by Mr. Seibel.
The promissory note issued by Mr. Seibel to purchase the restricted stock
bears interest at a rate of 5% per year, compounded annually, and is not
repayable until the fifth anniversary of the date the note was issued, at which
time it is repayable in full as to both principal and accrued interest. Mr.
Seibel must make prepayments on the note when we raise additional equity
funding from GTCR. In the event Mr. Seibel receives any cash dividend on the
restricted stock or proceeds from the sale of the restricted stock, such
proceeds must be applied to principal outstanding and unpaid accrued interest
on his notes. In the event of the sale of our company, Mr. Seibel must repay
the entire principal amount then outstanding and all accrued interest on his
note. We have the right to offset any amounts owed to us by Mr. Seibel against
any amounts payable to him by us pursuant to his senior management agreement.
Other Senior Executive Officers. We have also entered into senior management
agreements with the other named executive officers. These senior management
agreements and the associated restricted stock arrangements are substantially
similar to those of Mr. Seibel, except that these agreements:
. did not provide for a signing bonus or the $2,000,000 life insurance
policy;
. provide that the rights of repurchase will terminate only upon changes
in control described in these agreements;
. provide that the restricted stock will vest 20% per year, with the first
vesting to occur on March 31, 2000, so as to vest in full on March 31,
2004;
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. provide that upon the consummation of this offering, the restricted
stock will continue to vest at the same rate, but on a quarterly basis;
. accelerate the vesting of the restricted stock in the event that Mr.
Seibel is no longer serving as our President or Chief Executive Officer
and we terminate the executive's employment without cause or the
executive resigns for good reason; and
. prohibit the executive from competing with us, soliciting any of our
employees or interfering with any of our business relationships for a
period of one year after the termination of employment, which period is
reduced to six months if the executive's employment is terminated
without cause within two years of a change in control of our company.
Additional differences are described below.
Under a senior management agreement entered with us on August 19, 1999, Mr.
Dube receives a base salary of $300,000 per year, is eligible to receive an
annual performance bonus of up to 66.67% of base salary, has a severance period
of six months, and purchased 800,000 shares of restricted common stock for
which he paid $21,400 in cash and $80,600 in the form of a recourse promissory
note. The period of Mr. Dube's noncompetition, nonsolicitation and
noninterference covenant is six months.
Under a senior management agreement entered with us on May 21, 1999, Mr.
Mullaney receives a base salary of $165,000 per year, is eligible to receive an
annual performance bonus of up to 35% of base salary, has a severance period of
six months, and purchased 420,000 shares of restricted common stock for which
he paid $4,600 in cash and $47,900 in the form of a recourse promissory note.
Additionally, Mr. Mullaney is entitled to receive a bonus of $50,000 in 2000.
Under a senior management agreement entered with us on August 25, 1999, Mr.
Slamp receives a base salary of $175,000 per year, is eligible to receive an
annual performance bonus of up to 35% of base salary, has a severance period of
six months, and purchased 400,000 shares of restricted common stock for which
he paid $27,200 in cash and $74,800 in the form of a recourse promissory note.
We also provided Mr. Slamp with a one-time special moving expense reimbursement
of $70,800 when he joined us.
Under a senior management agreement entered with us on May 21, 1999, Ms.
Stephens began to receive a base salary of $170,000 per year in May 1999, which
was increased to $200,000 per year in October 1999. Ms. Stephens is eligible to
receive an annual performance bonus of up to 35% of base salary, has a
severance period of six months, and purchased 420,000 shares of restricted
common stock for which she paid $4,600 in cash and $47,900 in the form of a
recourse promissory note.
Under an employment agreement entered with us on April 30, 1999, Mr. Tjan
began to receive a base salary of $165,000 per year in May 1999, which was
increased to $190,000 in October 1999. Mr. Tjan is eligible to receive an
annual performance bonus of up to 35% of base salary and has a severance period
of two years. The period of Mr. Tjan's noncompetition, nonsolicitation and
noninterference covenant is one year. In addition, Mr. Tjan received 844,800
shares of restricted common stock from us in connection with a Section 351
reorganization of Original ZEFER for the purpose of continuing the business of
Original ZEFER, and therefore did not execute a promissory note in connection
with his acquisition of these shares. We have the right to repurchase only Mr.
Tjan's shares of restricted stock that have not vested. Mr. Tjan's restricted
stock vests as to 20% of the shares on the first anniversary of April 30, 1999,
40% on the second anniversary, 70% on the third anniversary and will be fully
vested on the fourth anniversary. If Mr. Tjan terminates his employment
voluntarily, the repurchase price will be $0.125 per share, the fair market
value of the shares on April 30, 1999. In the event that Mr. Tjan is terminated
by us without cause, the repurchase price will be the fair market value of such
shares as of the date of termination. See "Certain Relationships and Related
Transactions--Original ZEFER."
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Under a senior management agreement entered with us on May 21, 1999, Mr.
Torbey began to receive a base salary of $160,000 per year in May 1999, which
was increased to $200,000 per year in October 1999. Mr. Torbey is eligible to
receive an annual performance bonus of up to 35% of base salary, has a
severance period of six months, and purchased 440,000 shares of restricted
common stock for which he paid $4,800 in cash and $50,200 in the form of a
recourse promissory note.
Under a senior management agreement entered with us on September 13, 1999,
Mr. Waite receives a base salary of $225,000 per year, is eligible to receive
an annual performance bonus of up to 35% of base salary and has a severance
period of six months. The period of Mr. Waite's noncompetition, nonsolicitation
and noninterference covenant is six months. In addition, Mr. Waite received
263,200 shares of restricted common stock from us in connection with our
acquisition of Waite & Company, and therefore did not execute a promissory note
in connection with his acquisition of these shares. We have the right to
repurchase only Mr. Waite's shares of restricted stock that have not vested at
a price equal to $0.75 per share, the fair market value of the shares on
September 13, 1999. Mr. Waite's restricted stock vests as to 30% on the first
anniversary of March 31, 1999, 60% on the second anniversary, 73% on the third
anniversary, 86% on the fourth anniversary and will be fully vested on the
fifth anniversary. If Mr. Waite is terminated by us without cause or if Mr.
Waite resigns for good reason, all of the restricted shares shall be
automatically released from our rights of repurchase. See "Certain
Relationships and Related Transactions --Waite & Company, Inc."
Please refer to "Certain Relationships and Related Transactions--Additional
Equity Purchases by Management" for a description of additional equity
investments that each of the above executives has made in us.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 1999, Messrs. Canfield, Lubin and
Nolan served as members of our compensation committee. During that fiscal year,
none of our executive officers or employees served as a director or as a member
of the compensation committee of any entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GTCR Golder Rauner, L.L.C.
Immediately, prior to this offering, the GTCR Funds will beneficially own
66.8% of our common stock and 97.6% of our class A preferred stock. All of the
class A preferred stock held by the GTCR Funds will be exchanged into common
stock in connection with this offering. After this offering, based on the
assumptions described in the "Prospectus Summary," the GTCR Funds will
beneficially own 63.3% of our common stock. Messrs. Rauner, Canfield and
McAdam, three of our directors, are managing principal, principal and vice
president of GTCR, respectively.
Securities Purchase Agreement. On March 23, 1999, we entered into a
securities purchase agreement with the GTCR Funds pursuant to which the GTCR
Funds agreed to provide our company with up to $65.3 million in cash equity
financing. Pursuant to this agreement, the GTCR Funds have purchased an
aggregate of 26,640,000 shares of our common stock for a purchase price of
$0.125 per share, or $3.3 million in the aggregate, and an aggregate of
39,074.661 shares of our class A preferred stock for a purchase price of $1,000
per share, or $39.1 million in the aggregate. Under the terms of the agreement,
all future sales of equity to the GTCR Funds must be in the form of class A
preferred stock at a purchase price of $1,000 per share. We and GTCR have
agreed that upon the completion of this offering, we will terminate this
agreement and we will exchange shares of our common stock for all class A
preferred stock held by the GTCR Funds, including related accrued and unpaid
dividends. This exchange rate is based on an assumed initial public offering
price of $12.00 per share. For additional information about the exchange of the
class A preferred stock, please refer to "Exchange of Class A Preferred Stock"
below.
Loan Agreement. On November 24, 1999, we entered into a loan agreement with
GTCR Capital Partners, an affiliate of GTCR. The loan agreement provides for up
to $32.2 million of borrowings by us, of which we borrowed $12.8 million on
November 24, 1999 to fund operations. We have incurred an additional $7.4
million of indebtedness through the date of this prospectus. Principal and
unpaid accrued interest are repayable in full on the first anniversary of the
effective date of this offering. GTCR Capital Partners will have no obligation
to make additional loans to us under the loan agreement after the consummation
of this offering. Borrowings under this loan agreement bear interest at 12% per
annum and are secured by substantially all of our assets. Interest is payable
quarterly in arrears. As of March 1, 2000, approximately $295,000 in unpaid
interest had accrued under the loan. In the event that the net proceeds of this
offering are greater than $42.8 million but less than or equal to $76.0
million, we will use one half of such net proceeds to repay the loan. To the
extent net proceeds are greater than $76.0 million, we will first apply such
net proceeds to repay the remaining $3.6 million balance of the loan. See "Use
of Proceeds."
Concurrently with the execution of the loan agreement, we repurchased from
the GTCR Funds 1,650,450 shares of common stock for a purchase price of $0.125
per share, or $206,300 in the aggregate, and 1,499 shares of class A preferred
stock for a purchase price of $1,000 per share, or $1,499,000 in the aggregate.
We also issued GTCR Capital Partners, the lender, a warrant to purchase
1,650,450 shares of common stock and a warrant to purchase 1,499 shares of
class A preferred stock, each at a purchase price of $0.01 per share. GTCR
Capital Partners exercised both warrants in full in November 1999 for an
aggregate purchase price of $16,500. Additionally, as we made additional
borrowings under the loan agreement, we issued to GTCR Capital Partners
warrants to purchase up to an additional 1,792.5376 shares of class A preferred
stock at a price of $0.01 per share, all of which have been exercised for an
aggregate purchase price of $17.93.
Guarantee. GTCR has also guaranteed all of our borrowings under a $20.0
million line of credit with Harris Bank and Trust Company. We intend to repay
the outstanding borrowings under the Harris Bank line with net proceeds of this
offering and the guarantee will be terminated. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Professional Services Agreement. On March 23, 1999, we entered into a
professional services agreement with GTCR pursuant to which GTCR provides us
with financial and management consulting services. We pay
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GTCR an annual management fee of $150,000 for these services, payable in equal
monthly installments, upon the achievement of financial targets set forth in
the agreement that have not been met. In the event we engage in any equity or
debt financing, other than this offering and the other GTCR financing
arrangements, we must pay GTCR a placement fee equal to 1% of the aggregate
gross proceeds of such financing. This agreement will terminate upon the
consummation of this offering.
Additional Equity Purchases by Management
We have entered into agreements with some of our executives and directors
whereby the executives and directors have agreed to invest in our stock on a
proportionate basis at any time that the GTCR Funds make an investment in us.
Since our inception in March 1999, the following executive officers and
directors have made the following equity investments pursuant to these
agreements:
<TABLE>
<CAPTION>
Aggregate Purchase Average Per
Name Security Shares Price Share Price
---- -------- ------ ------------------ -----------
<S> <C> <C> <C> <C>
William A. Seibel*....... Common 95,817 $ 11,978 $0.125
A Preferred 141 141,000 1,000
Gerard E. Dube........... Common 82,256 23,443 0.285
A Preferred 121 121,000 1,000
Sean W. Mullaney**....... Common 54,837 6,855 0.125
A Preferred 80 80,000 1,000
James H. Slamp........... Common 27,418 7,814 0.285
A Preferred 40 40,000 1,000
Martha L. Stephens....... Common 27,418 3,427 0.125
A Preferred 40 40,000 1,000
Francis J. Torbey........ Common 27,418 3,427 0.125
A Preferred 40 40,000 1,000
Thomas J. Waite.......... Common 38,160 10,876 0.285
A Preferred 56 56,000 1,000
David A. Lubin........... Common 47,771 5,971 0.125
A Preferred 70 70,000 1,000
Richard L. Nolan......... Common 27,418 3,427 0.125
A Preferred 40 40,000 1,000
</TABLE>
- --------
* Carol Boudreau, Mr. Seibel's wife, is the purchaser of record of these
shares. Mr. Seibel beneficially owns a total of 3,148,042 shares of our
common stock and less than 1% of our class A preferred stock, all of which
will be exchanged into common stock or redeemed in connection with this
offering. After this offering, Mr. Seibel will beneficially own 6.6% of our
common stock.
** An investment partnership in which Mr. Mullaney exercises voting and
investment control is the purchaser of record of these shares.
Mr. Jabbar purchased 100,000 shares of common stock from us in December 1999
for which he paid $10.00 per share, or an aggregate of $1,000,000, in cash.
Mr. Lubin purchased 400,000 shares of common stock from us in May 1999 for
which he paid $0.125 per share, or an aggregate of $50,000, $4,400 in cash and
$45,600 in the form of a recourse promissory note. We entered into a stock
restriction agreement with Mr. Lubin providing us with the right to repurchase
unvested shares of restricted stock if Mr. Lubin's relationship with us ceases
at a price equal to $0.125 per share. The stock vests 20% per year, with the
first vesting date occurring on March 31, 2000, so as to vest in full on March
31, 2004. Upon consummation of this offering, this stock will continue to vest
at the same rate, but on a quarterly basis. Mr. Lubin's stock will vest in full
in the event of a change in control or sale of our company.
The above investments are in addition to the restricted stock purchases
described under "Management--Senior Management Agreements." All of the above
shares of stock are fully vested. All of the above purchases were financed by
interest free loans made by us to the executives, which have been paid in full.
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Exchange of Class A Preferred Stock
Upon the consummation of this offering, all of the holders of our class A
preferred stock have agreed with us to exchange all shares of class A preferred
stock held by them, including related accrued and unpaid dividends, for that
number of shares of common stock determined by dividing the class A preferred
liquidation value by the initial public offering price. An aggregate of
41,869.1986 shares of class A preferred stock would be exchanged for an
aggregate of 3,632,222 shares of common stock, based on an assumed initial
public offering price of $12 per share and a liquidation value for all class A
preferred stock, including accrued and unpaid dividends of $1,718,500 as of
March 31, 2000. In the event that the net proceeds to us of this offering
exceed $79.6 million, we will apply the additional net proceeds received by us
to redeem on a pro rata basis shares of common stock that are received by the
holders of class A common stock in connection with the exchange at a price per
share equal to the initial public offering price. The holders of such common
stock must surrender their shares for redemption in this event. See "Use of
Proceeds."
Original ZEFER
In April 1999, we consummated a reorganization under Section 351 of the
Internal Revenue Code for the purpose of continuing the business of Original
ZEFER. The stockholders of Original ZEFER received an aggregate of $7,100,000
in cash and 3,456,000 shares of common stock in connection with the
reorganization. Anthony K. Tjan, our Executive Vice President and one of our
directors, was the President and Chief Executive Officer and a principal
stockholder of Original ZEFER. Mr. Tjan received $2.4 million in cash and
844,800 shares of our restricted common stock in connection with the
transaction. Concurrently, Mr. Tjan was elected to our board of directors. The
shares of common stock issued to Mr. Tjan are subject to our right, which
expires incrementally over a four-year period, to repurchase these shares if
Mr. Tjan ceases to be employed by us. Additionally, Mr. Tjan has agreed to a
noncompetition, nonsolicitation and noninterference covenant of two years from
the closing of the reorganization. For more information on our rights to
repurchase these shares, please see the description of Mr. Tjan's senior
management agreement under "Management--Senior Management Agreements" above.
Waite & Company
In September 1999, we acquired Waite & Company, Inc., a Boston,
Massachusetts-based strategic marketing and management consulting firm. The
stockholders of Waite & Company, Inc. received an aggregate of $8,034,100 in
cash and 1,200,000 shares of common stock in connection with the acquisition.
Thomas J. Waite, our Executive Vice President of Business Strategy and
Strategic Marketing, was the President and a principal shareholder of Waite &
Company, Inc. Mr. Waite received $5.3 million in cash and 263,200 shares of our
restricted common stock in connection with the transaction. The shares issued
to Mr. Waite are subject to our right, which expires incrementally over a five-
year period, to purchase these shares at a price equal to their fair market
value at the time of the acquisition if Mr. Waite ceases to be employed by us.
Additionally, Mr. Waite has agreed to a noncompetition, nonsolicitation and
noninterference covenant of one year from the closing of that transaction, and
has agreed that in the event of the termination of his employment with us, he
will not perform work for our customers for a period of eighteen months from
the closing of the acquisition. For more information on our right to purchase
these shares, please see the description of Mr. Waite's senior management
agreement under "Management--Senior Management Agreements" above.
The acquisition prices of the above entities were determined by arms' length
negotiation.
Stockholders Agreement
We have entered into to a stockholders agreement with GTCR, Mr. Seibel, Mr.
Dube, Mr. Mullaney, Mr. Slamp, Ms. Stephens, Mr. Tjan, Mr. Torbey, Mr. Waite,
Mr. Jabbar, Mr. Lubin and Mr. Nolan. Each party to the stockholders agreement
has agreed to vote all shares held by such party to elect the following persons
to
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our board of directors: Mr. Seibel and one executive of the company designated
by our chief executive officer, two representatives of GTCR, and three
independent persons chosen jointly by GTCR and the chief executive officer. The
voting provisions terminate upon the consummation of this offering. In general,
the stockholders agreement also provides that each stockholder has the right to
participate in specified types of sales of our stock made by GTCR, and that we
and each stockholder have a right of first refusal in shares of stock being
transferred by a stockholder. All of the above restrictions on transfer shall
terminate upon the consummation of this offering. Additionally, the parties to
the stockholders agreement have agreed to approve and to take actions with
respect to changes in control of our company. Also, the parties have agreed to
take actions in connection with this offering that may be requested by our
board of directors or the managing underwriter.
Employment Agreements
We have entered into employment agreements with all of our executive
officers. See "Management--Senior Management Agreements."
Director Compensation
Please see "Management--Compensation of Directors" for a discussion of
options granted to three of our non-employee directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 31, 2000, after giving effect to the
assumptions described in the "Prospectus Summary," and as adjusted to reflect
the sale of the shares of common stock in this offering, by:
. each person we know to own beneficially more than 5% of our common
stock;
. each of our directors and Named Executive Officers; and
. all directors and executive officers as a group.
Unless otherwise indicated, each person named in the table has sole voting
power and investment power, or shares such power with his or her spouse, with
respect to all shares of capital stock listed as owned by such person. See
"Certain Relationships and Related Transactions."
<TABLE>
<CAPTION>
Percentage of Shares
Outstanding
Number of Shares ------------------------------
Name of Beneficial Owner Beneficially Owned Before Offering After Offering
------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
GTCR Funds (1)........... 30,185,624 69.1% 63.3%
William A. Seibel (2)..... 3,148,042 7.2 6.6
Gerard E. Dube............ 892,636 2.0 1.9
Sean W. Mullaney.......... 481,773 1.1 1.0
James H. Slamp............ 430,848 1.0 *
Martha L. Stephens........ 450,883 1.0 *
Anthony K. Tjan........... 844,800 1.9 1.8
Francis J. Torbey......... 470,883 1.1 1.0
Thomas J. Waite........... 306,163 * *
Philip A. Canfield (1)
(3)...................... 30,185,624 69.1 63.3
Masood Jabbar............. 100,000 * *
Catherine Viscardi
Johnston................. -- -- --
David A. Lubin ........... 453,837 1.0 1.0
Timothy P. McAdam (1)
(3)...................... 30,185,624 69.1 63.3
Richard L. Nolan ......... 30,883 * *
Bruce V. Rauner (1) (3)... 30,185,624 69.1 63.3
All executive officers and
directors as a group
(15 persons) (3)......... 37,796,372 86.5% 79.2%
</TABLE>
- ---------------------
* Less than 1%.
(1) The address of each of the GTCR Funds and Messrs. Canfield, McAdam and
Rauner is 6100 Sears Tower, Chicago, Illinois 60606.
(2) Includes 108,042 shares of common stock held by Mr. Seibel's wife. Mr.
Seibel's address is c/o ZEFER Corp., 711 Atlantic Avenue, Boston,
Massachusetts 02111.
(3) Includes 30,185,624 shares of common stock held by GTCR. Messrs. Canfield
and Rauner are Principals and Mr. McAdam is a Vice President of GTCR and
each of them may be deemed to share investment and voting control over the
shares of our common stock held, directly or indirectly, by GTCR. Each of
Messrs. Canfield, McAdam and Rauner disclaims beneficial ownership of the
shares held by GTCR.
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DESCRIPTION OF CAPITAL STOCK
After this offering, our authorized capital stock will consist of
150,000,000 shares of common stock, $.001 par value per share and 5,000,000
shares of preferred stock, $0.01 par value per share, all of which remain
undesignated. After giving effect to this offering, we will have outstanding
47,694,823 shares of common stock.
The following description reflects the filing, immediately upon the closing
of this offering, of our amended and restated certificate of incorporation and
the adoption of our amended and restated by-laws.
Common Stock
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any dividends as may be declared by our board of directors,
subject to any preferential dividend rights of outstanding preferred stock.
Upon our liquidation, dissolution or winding up, the holders of common stock
are entitled to receive proportionately our net assets available after the
payment of all debts and other liabilities and subject to the prior rights of
any outstanding preferred stock. Holders of common stock have no preemptive,
subscription, redemption or conversion rights. Our outstanding shares of common
stock are and the shares offered by us in this offering will be, when issued
and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of common stock are subject to and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock which we may designate and issue in the future.
Undesignated Preferred Stock
Under the terms of our certificate of incorporation, our board of directors
is authorized to issue shares of preferred stock in one or more series without
stockholder approval. Our board of directors has the discretion to determine
the rights, preferences, privileges and restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, of each series of preferred stock.
The purpose of authorizing our board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire, or could discourage a third party from seeking to
acquire, a majority of our outstanding voting stock. We have no present plans
to issue any shares of preferred stock.
Delaware Law and Charter and By-Law Provisions
We are subject to the provisions of Section 203 of the General Corporation
Law of Delaware. Section 203 prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for
a period of three years after the person became an interested stockholder,
unless the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to the interested stockholder. In general, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within the prior three years did own, 15% or more of the corporation's voting
stock.
Our certificate of incorporation divides our board of directors into three
classes with staggered three-year terms. In addition, our certificate of
incorporation provides that directors may be removed only for cause by the
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<PAGE>
affirmative vote of the holders of a majority of our shares of capital stock
entitled to vote. Under our certificate of incorporation, any vacancy on our
board of directors, including a vacancy resulting from an enlargement of our
board of directors, may only be filled by vote of a majority of our directors
then in office. The classification of our board of directors and the
limitations on the removal of directors and filling of vacancies could make it
more difficult for a third party to acquire, or discourage a third party from
seeking to acquire, control of our company. See "Management."
Our by-laws provide that stockholders must follow an advance notification
procedure for stockholder nominations of candidates for the board of directors
and for other stockholder business to be conducted at stockholder meetings. Our
by-laws further provide that special meetings of the stockholders may only be
called by our Chairman of the Board, President or the board of directors. These
provisions could have the effect of delaying until the next stockholder meeting
stockholder actions which are favored by the holders of a majority of our
outstanding voting securities.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. Our certificate of incorporation and by-laws
require the affirmative vote of the holders of at least two-thirds of the
shares of our capital stock issued and outstanding and entitled to vote to
amend or repeal any of the provisions described in the prior two paragraphs.
Our certificate of incorporation contains provisions permitted under the
General Corporation Law of Delaware relating to the liability of directors. The
provisions eliminate a director's liability for monetary damages for a breach
of fiduciary duty, except in limited circumstances involving wrongful acts,
such as the breach of a director's duty of loyalty or acts or omissions that
involve intentional misconduct or a knowing violation of law. Further, our
certificate of incorporation contains provisions to indemnify our directors and
officers to the fullest extent permitted by the General Corporation Law of
Delaware. We believe that these provisions will assist us in attracting and
retaining qualified individuals to serve as directors.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our securities.
After we complete this offering, there will be 47,694,823 shares of our common
stock outstanding, assuming no exercise of outstanding options or warrants to
purchase common stock. Of these outstanding shares, the 4,000,000 shares sold
in this offering will be freely tradeable without restriction or further
registration under the Securities Act of 1933, except that any shares purchased
by our "affiliates," as that term is defined in Rule 144 under the Securities
Act, may generally only be sold in compliance with the limitations of Rule 144
described below.
Sales of Restricted Shares
The remaining 43,694,823 shares of common stock outstanding after this
offering are deemed "restricted securities" under Rule 144. Of these
securities,
. 4,527,843 shares may be sold 90 days after the effective date of this
offering; and
. 32,979,366 additional shares may be sold upon expiration of the 180-day
lock-up agreements described below.
All of our existing stockholders have agreed that, for a period of 180 days
after the date of this prospectus, they will not dispose of any shares of our
common stock, or any shares convertible into or exchangeable for shares of our
common stock, without the prior written consent of Credit Suisse First Boston
Corporation, acting on behalf of the representatives of the underwriters.
However, the GTCR Funds will be released from these lock-up restrictions as to
4,527,843 shares of common stock 90 days after the date of this prospectus.
In general, under Rule 144 a stockholder, including one of our affiliates,
who has beneficially owned his or her restricted securities for at least one
year is entitled to sell, within any three-month period commencing 90 days
after the date of this prospectus, a number of shares that does not exceed the
greater of 1% of the then outstanding shares of our common stock or the average
weekly trading volume in our common stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided requirements concerning availability of public information, manner of
sale and notice of sale are satisfied. In addition, a stockholder that is not
one of our affiliates at any time during the three months preceding a sale and
who has beneficially owned the shares proposed to be sold for at least two
years is entitled to sell the shares immediately under Rule 144(k) without
compliance with the above described requirements under Rule 144.
Securities issued in reliance on Rule 701, such as shares of our common
stock acquired pursuant to the exercise of certain options granted under our
stock plans, are also restricted securities. Beginning 90 days after the date
of this prospectus, 381,920 shares issuable upon the exercise of vested stock
options may be sold under Rule 701 by stockholders other than our affiliates
subject only to the manner of sale provisions of Rule 144 without compliance
with its one-year holding period requirement.
Stock Options
We intend to file registration statements on Form S-8 under the Securities
Act to register an aggregate of 25,166,666 shares of common stock issuable
under the incentive plan, the option plan and the purchase plan promptly
following the date of this prospectus. Shares issued upon the exercise of stock
options after the effective date of the Form S-8 registration statements will
be eligible for resale in the public market without restriction, subject to
Rule 144 limitations applicable to affiliates and lock-up restrictions.
Registration Rights
After this offering, the holders of 35,019,414 shares of common stock will
be entitled to rights with respect to the registration of those shares under
the Securities Act of 1933. Under the terms of the agreement between us and the
holders of those registrable shares, the holders of a majority of those shares
may at any
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<PAGE>
time require us to file a registration statement under the Securities Act with
respect to shares of common stock owned by them having an aggregate offering
price of at least $5.0 million and we are required to use our reasonable best
efforts to effect that registration. Also, if we propose to register any of our
securities under the Securities Act, other than demand registrations,
registrations on Form S-8 or in connection with our initial public offering,
those holders are entitled to notice of and to include shares of common stock
in the registration. All of these registration rights are subject to various
conditions and limitations, among them rights of the underwriters of an
offering to limit the number of shares included in a registration and our right
not to effect a requested registration within 90 days after the effective date
of a previous registration on a Form S-1 or within 90 days after the effective
date of a registration which included all shares requested by holders of
registrable shares. We will bear all of the expenses incurred in connection
with all exercises of these registration rights.
Effect of Sales of Shares
Prior to this offering, there has been no public market for our common stock
and no prediction can be made as to the effect, if any, that market sales of
shares of common stock or the availability of shares for sale will have on the
market price of our common stock prevailing from time to time. Nevertheless,
sales of significant numbers of shares of our common stock in the public market
could adversely affect the market price of the common stock and could impair
our future ability to raise capital through an offering of our equity
securities.
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U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of the principal United States federal
income and estate tax consequences of the ownership and disposition of common
stock by a non-U.S. holder. As used in this prospectus, a non-U.S. holder is
defined as a holder that for United States federal income tax purposes is an
individual or entity other than:
. a citizen or individual resident of the United States;
. a corporation or partnership created or organized in or under the laws
of the United States or of any political subdivision thereof, other than
a partnership treated as foreign under U.S. Treasury regulations;
. an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
. a trust if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the trust.
An individual may, subject to a number of exceptions, be deemed to be a
resident alien, as opposed to a nonresident alien, by virtue of being present
in the United States for at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three-year period ending in the current
calendar year, counting for such purposes all of the days present in the
current year, one-third of the days present in the immediately preceding year
and one-sixth of the days present in the second preceding year. Resident aliens
are subject to U.S. federal tax as if they were U.S. citizens.
This discussion does not address all aspects of United States federal income
and estate taxes that may be relevant to non-U.S. holders in light of their
personal circumstances, including the fact that in the case of a non-U.S.
holder that is a partnership, the U.S. tax consequences of holding and
disposing of shares of common stock may be affected by determinations made at
the partner level, or that may be relevant to non-U.S. holders which may be
subject to special treatment under United States federal income tax laws such
as insurance companies, tax-exempt organizations, financial institutions,
dealers in securities and holders of securities held as part of a "straddle,"
"hedge" or "conversion transaction." This discussion also does not address U.S.
state or local or foreign tax consequences. Furthermore, this discussion is
based on provisions of the Internal Revenue Code of 1986, existing and proposed
regulations promulgated thereunder and administrative and judicial
interpretations thereof, all as of the date hereof, and all of which are
subject to change, possibly with retroactive effect. The following summary is
included herein for general information. Accordingly, investors are urged to
consult their tax advisers regarding the United States federal, state, local
and non-U.S. income and other tax consequences of acquiring, holding and
disposing of shares of common stock.
Dividends
We do not anticipate paying cash dividends on our common stock in the
foreseeable future. In the event, however, that dividends are paid on shares of
our common stock, dividends paid to a non-U.S. holder of common stock generally
will be subject to withholding of United States federal income tax at a 30%
rate, or such lower rate as may be provided by an applicable income tax treaty.
Non-U.S. holders should consult their tax advisers regarding their entitlement
to benefits under a relevant income tax treaty.
Dividends that are effectively connected with a non-U.S. holder's conduct of
a trade or business in the United States or, if an income tax treaty applies,
attributable to a permanent establishment in the United States, are generally
subject to U.S. federal income tax on a net income basis at regular graduated
rates, but are not generally subject to the 30% withholding tax if the non-U.S.
holder complies with applicable certification and disclosure requirements. Any
such U.S. trade or business income received by a non-U.S. holder that is a
corporation may also be subject to an additional "branch profits tax" at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
56
<PAGE>
Under currently applicable U.S. Treasury regulations, dividends paid to an
address in a foreign country are presumed, absent actual knowledge to the
contrary, to be paid to a resident of such country for purposes of the
withholding discussed above and for purposes of determining the applicability
of a tax treaty rate. Under U.S. Treasury regulations generally effective for
payments made after December 31, 2000, however, a non-U.S. holder of our common
stock who wishes to claim the benefit of an applicable treaty rate generally
will be required to satisfy applicable certification and other requirements. In
addition, under these regulations, in the case of our common stock held by a
foreign partnership, the certification requirement will generally be applied to
the partners of the partnership and the partnership will be required to provide
specified information, including a United States taxpayer identification
number. The regulations generally effective for payments made after December
31, 2000 also provide look-through rules for tiered partnerships. Further, the
Internal Revenue Service may issue regulations under which a foreign trustee or
foreign executor of a U.S. or foreign trust or estate, depending on the
circumstances, will be required to furnish the appropriate withholding
certificate on behalf of the beneficiaries, grantor trust or estate, as the
case may be.
A non-U.S. holder of our common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for a refund with the
Internal Revenue Service.
The U.S. Treasury regulations generally effective for payments made after
December 31, 2000 also provide special rules for dividend payments made to
foreign intermediaries, U.S. or foreign wholly owned entities that are
disregarded for U.S. federal income tax purposes and entities that are treated
as fiscally transparent in the United States, the applicable income tax treaty
jurisdiction, or both. In addition, in specified circumstances, income tax
benefits may be denied to non-U.S. holders receiving income derived through a
partnership, or otherwise fiscally transparent entity.
Gain on Disposition of Common Stock
A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of our common stock unless:
. the gain is U.S. trade or business income, in which case, the branch
profits tax described above may also apply to a corporate non-U.S.
holder;
. the non-U.S. holder is an individual who holds our common stock as a
capital asset within the meaning of Section 1221 of the Internal Revenue
Code, is present in the United States for 183 or more days in the
taxable year of the sale or other disposition and meets other
requirements;
. the non-U.S. holder is subject to tax under the provisions of the U.S.
tax law applicable to some United States expatriates; or
. we are or have been a "U.S. real property holding corporation" for
federal income tax purposes at any time during the shorter of the five-
year period preceding such disposition or the period that the non-U.S.
holder held our common stock.
Generally, a corporation is a "U.S. real property holding corporation" if
the fair market value of its "U.S. real property interests" equals or exceeds
50% of the sum of the fair market value of its worldwide real property
interests plus its other assets used or held for use in a trade or business. We
believe that we have not been, are not currently, and do not anticipate
becoming, a "U.S. real property holding corporation" for U.S. federal income
tax purposes. The tax with respect to stock in a "U.S. real property holding
corporation" does not apply to a non-U.S. holder whose holdings, direct and
indirect, at all times during the applicable period, constituted 5% or less of
our common stock, provided that our common stock was regularly traded on an
established securities market.
57
<PAGE>
If a non-U.S. holder who is an individual is subject to tax on gain which is
U.S. trade or business income, such individual generally will be taxed on the
net gain derived from a sale of common stock under regular graduated United
States federal income tax rates. If an individual non-U.S. holder is subject to
tax because such individual holds our common stock as a capital asset, is
present in the United States for 183 or more days in the taxable year of the
sale or other disposition and meets other requirements, such individual
generally will be subject to a flat 30% tax on the gain derived from a sale,
which may be offset by United States capital losses, notwithstanding the fact
that such individual is not considered a resident alien of the United States.
Thus, individual non-U.S. holders who have spent, or expect to spend, more than
a de minimis period of time in the United States in the taxable year in which
they contemplate a sale of common stock are urged to consult their tax advisers
prior to the sale concerning the U.S. tax consequences of such sale.
If a non-U.S. holder that is a foreign corporation is subject to tax on gain
which is U.S. trade or business income, it generally will be taxed on its net
gain under regular graduated United States federal income tax rates and, in
addition, will be subject to the branch profits tax equal to 30% of its
"effectively connected earnings and profits," within the meaning of the
Internal Revenue Code for the taxable year, as adjusted for specific items,
unless it qualifies for a lower rate under an applicable tax treaty.
Federal Estate Tax
Common stock owned or treated as owned by an individual who is neither a
United States citizen nor a United States resident, as defined for United
States federal estate tax purposes, at the time of death will be included in
the individual's gross estate for United States federal estate tax purposes,
unless an applicable estate tax or other treaty provides otherwise and,
therefore, may be subject to United States federal estate tax.
Information Reporting and Backup Withholding Tax
Under U.S. Treasury regulations, we must report annually to the Internal
Revenue Service and to each non-U.S. holder the amount of dividends paid to
such holder and the tax withheld with respect to such dividends. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the non-U.S. holder is
a resident under the provisions of an applicable income tax treaty or
agreement.
Currently, United States backup withholding, which generally is a
withholding tax imposed at the rate of 31% on payments to persons that fail to
furnish specified information under the United States information reporting
requirements, generally will not apply:
. to dividends paid to non-U.S. holders that are subject to the 30%
withholding discussed above, or that are not so subject because a tax
treaty applies that reduces or eliminates such 30% withholding; or
. before January 1, 2001, to dividends paid to a non-U.S. holder at an
address outside of the United States unless the payor has actual
knowledge that the payee is a U.S. holder.
Backup withholding and information reporting generally will apply to
dividends paid to addresses inside the United States on shares of our common
stock to beneficial owners that are not "exempt recipients" and that fail to
provide identifying information in the manner required.
The payment of the proceeds of the disposition of our common stock by a
holder to or through the U.S. office of a broker or through a non-U.S. branch
of a U.S. broker generally will be subject to information reporting and backup
withholding at a rate of 31% unless the holder either certifies its status as a
non-U.S. holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a non-U.S. holder
of common stock to or through a non-U.S. office of a non-U.S. broker will not
be subject to backup withholding or information reporting unless the non-U.S.
broker has particular types of U.S. relationships. In the case of the payment
of proceeds from the disposition of our common stock effected by a foreign
office of a broker that is a U.S. person or a U.S. related person, existing
regulations require
58
<PAGE>
information reporting on the payment unless the broker receives a statement
from the owner, signed under penalty of perjury, certifying its non-U.S. status
or the broker has documentary evidence in its files as to the non-U.S. holder's
foreign status and the broker has no actual knowledge to the contrary. For this
purpose, a U.S. related person is defined as:
. a "controlled foreign corporation" for U.S. federal income tax purposes;
or
. a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year
preceding the payment, or for such part of the period that the broker
has been in existence, is derived from activities that are effectively
connected with the conduct of a U.S. trade or business.
The U.S. Treasury regulations generally effective for payments made after
December 31, 2000 alter the foregoing rules. Among other things, such
regulations provide presumptions under which a non-U.S. holder is subject to
backup withholding at the rate of 31% and information reporting unless we
receive certification from the holder of non-U.S. status. Depending on the
circumstances, this certification will need to be provided:
. directly by the non-U.S. holder;
. in the case of a non-U.S. holder that is treated as a partnership or
other fiscally transparent entity, by the partners, stockholders or
other beneficiaries of such entity; or
. by qualified financial institutions or other qualified entities on
behalf of the non-U.S. holder.
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be refunded or credited against the holder's U.S. federal
income tax liability, if any, provided that the required information is
furnished to the Internal Revenue Service.
59
<PAGE>
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, First Union Securities,
Inc. and FleetBoston Robertson Stephens Inc. are acting as representatives, the
following respective numbers of shares of our common stock:
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Credit Suisse First Boston Corporation...........................
First Union Securities, Inc. ....................................
FleetBoston Robertson Stephens Inc. .............................
---------
Total.......................................................... 4,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares of our common stock at the initial
public offering price less the underwriting discounts and commissions. The
option may be exercised only to cover any over-allotments of the common stock.
The underwriters propose to offer the shares of 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 compensation we will pay to the underwriters will consist solely of the
underwriting discount, which is equal to the public offering price per share of
common stock less the amount the underwriters pay to us per share of common
stock. The underwriters have not received and will not receive from us any
other item of compensation or expense in connection with this offering
considered by the National Association of Securities Dealers, Inc. to be
underwriting compensation under its rules of fair practice. The underwriting
fee will be determined based upon our negotiations with the underwriters at the
time the initial public offering price of our common stock is determined. The
following table summarizes the compensation and estimated expenses we will pay.
<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.. $0.45 $0.39 $1,800,000 $1,800,000
</TABLE>
60
<PAGE>
We are required to pay all expenses in connection with this offering. The
principal components of the offering expenses payable by us will include the
fees and expenses of our accountants and attorneys, the fees of our registrar
and transfer agent, the cost of printing this prospectus, liability insurance
for our directors and officers, Nasdaq Stock Market listing fees and filing
fees paid to the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc.
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the common stock being offered.
We, our officers and directors and all of our existing stockholders have
agreed not to dispose of any additional shares of our common stock or
securities convertible into or exchangeable or exercisable for any of our
common stock without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus,
provided that the GTCR Funds will be released from these lock-up restrictions
as to 4,571,761 shares of common stock 90 days after the date of this
prospectus. However, we may issue shares of common stock pursuant to the
exercise of employee stock options, employee stock purchases pursuant to the
terms of the employee stock purchase plan or the issuance of shares pursuant to
the exercise of any outstanding warrants.
The underwriters have reserved for sale, at the initial public offering
price, up to approximately 400,000 shares of common stock for our employees,
directors, customers, vendors and friends and family members of these
individuals. The number of shares of common stock available for sale to the
general public in the offering will be reduced to the extent these persons
purchase these 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 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 common stock on The Nasdaq Stock Market's
National Market under the symbol "ZEFR".
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters, and does not reflect the market price for the
common stock following the offering. The principal factors considered in
determining the public offering price will be:
. 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;
. our prospects for 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.
The initial offering price may not correspond to the price at which our
common stock will trade in the public market subsequent to this offering, and
an active trading market for our common stock may not develop or continue after
this offering.
61
<PAGE>
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 common stock 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 shares of common stock originally sold
by such syndicate member are purchased in a stabilizing transaction or 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 National Market or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives 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 underwriters that will make internet distributions on the
same basis as other allocations.
Other than the prospectus in electronic format, the information contained on
any underwriter's web site and any information contained on any other web site
maintained by an underwriter is not part of this prospectus or the registration
statement of which this prospectus forms a part, has not been approved or
endorsed by us or any underwriter in its capacity as an underwriter and should
not be relied upon by investors.
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the 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 the 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 the common stock.
Representation of Purchasers
Each purchaser of 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 such common stock without the
benefit of a prospectus qualified under such securities laws; (2) where
required by law, that 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 of rights of action under the civil liability provisions
of the U.S. federal securities laws.
62
<PAGE>
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 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.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Hale and Dorr LLP, Boston, Massachusetts. Cravath, Swaine &
Moore, New York, New York, has represented the underwriters.
EXPERTS
The financial statements of a) ZEFER Corp. as of December 31, 1999 and for
the period from inception (March 18, 1999) to December 31, 1999, b) the
financial statements of Original ZEFER as of December 31, 1998 and April 30,
1999 and for the period from inception (March 19, 1998) to December 31, 1998
and four months ended April 30, 1999, c) the financial statements of Spyplane,
LLC as of December 31, 1998 and for the period from inception (May 7, 1998) to
December 31, 1998, d) the financial statements of the Divisions of Renaissance
as of December 31, 1998 and May 31, 1999 and for the year ended December 31,
1998 and for the five months ended May 31, 1999, included in the registration
statement of which this prospectus forms a part 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 pro forma combined financial statements for the year ended December 31,
1999 included in this prospectus have been reviewed by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving such report.
The financial statements of Neoglyphics Media Corporation as of December 31,
1997 and for the year ended December 31, 1997, included in the registration
statement of which this prospectus forms a part have been audited by Katch,
Tyson & Company, independent public accountants, as indicated in their report
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said report.
63
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission for the stock we are offering by this prospectus. This
prospectus does not include all of the information contained in the
registration statement. You should refer to the registration statement and its
exhibits for additional information. Whenever we make reference in this
prospectus to any of our contracts, agreements or other documents, the
references are not necessarily complete and you should refer to the exhibits
attached to the registration statement for copies of the actual contract,
agreement or other document. When we complete this offering, we will also be
required to file annual, quarterly and special reports, proxy statements and
other information with the SEC. You can read our SEC filings, including the
registration statement, over the Internet at the SEC's website at
http://www.sec.gov. You may also read and copy any document we file with the
SEC at its public reference facilities at
. 450 Fifth Street, N.W., Washington, D.C. 20549;
. Seven World Trade Center, Suite 1300, New York, New York 10048; and
. Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511.
You may also obtain copies of the documents at prescribed rates by writing
to the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference facilities. You should
rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. We are offering to sell shares of common stock and seeking
offers to buy shares of common stock only in jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or any sale of the common stock.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
ZEFER CORP.:
<S> <C>
Reports of Independent Public Accountants................................ F-2
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Redeemable Preferred Stock and Stockholders' Deficit....... F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
SPYPLANE, LLC:
Report of Independent Public Accountants................................. F-24
Balance Sheets........................................................... F-25
Statements of Income..................................................... F-26
Statements of Members' Equity............................................ F-26
Statements of Cash Flows................................................. F-27
Notes to Financial Statements............................................ F-28
THE DIVISIONS OF RENAISSANCE:
Report of Independent Public Accountants................................. F-31
Combined Balance Sheets.................................................. F-32
Combined Statements of Operations and Parent Company Equity (Deficit).... F-33
Combined Statements of Cash Flows........................................ F-34
Notes to Combined Financial Statements................................... F-35
NEOGLYPHICS MEDIA CORPORATION:
Report of Independent Accountants........................................ F-39
Statement of Financial Position.......................................... F-40
Statement of Income...................................................... F-41
Statement of Cash Flows.................................................. F-42
Notes to Financial Statements............................................ F-43
WAITE & COMPANY, INC.:
Report of Independent Public Accountants................................. F-50
Balance Sheets........................................................... F-51
Statements of Operations................................................. F-52
Statements of Stockholders' Equity....................................... F-52
Statements of Cash Flows................................................. F-53
Notes to Financial Statements............................................ F-54
INDEX TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
ZEFER CORP.:
Review Report of Independent Public Accounts............................. F-57
Overview................................................................. F-58
Pro Forma Combined Condensed Statement of Operations for the Year Ended
December 31, 1999....................................................... F-60
Notes to Pro Forma Combined Condensed Financial Statements............... F-61
</TABLE>
F-1
<PAGE>
REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS
To ZEFER Corp.:
We have audited the accompanying balance sheet of ZEFER Corp. (a Delaware
Corporation) as of December 31, 1999, and the related statements of operations,
redeemable preferred stock and stockholders' deficit and cash flows for the
period from inception (March 18, 1999) through 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 audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ZEFER Corp. as of December
31, 1999, and the results of its operations and its cash flows for the period
from inception (March 18, 1999) through December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 31, 2000 (except for the matters discussed in Note 16, as to which the
date is March 14, 2000)
To ZEFER Corp.:
We have audited the accompanying balance sheets of ZEFER Corp. (a Delaware
Corporation herein referred to as Original ZEFER) as of December 31, 1998 and
April 30, 1999, and the related statements of operations, redeemable
convertible preferred stock and stockholders' deficit and cash flows for the
period from inception (March 19, 1998) through December 31, 1998 and for the
four months ended April 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the 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 audits 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 ZEFER Corp. as of December
31, 1998 and April 30, 1999, and the results of its operations and its cash
flows for the period from inception (March 19, 1998) through December 31, 1998
and for the four months ended April 30, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Arthur Andersen LLP
Boston, Massachusetts
October 15, 1999
F-2
<PAGE>
ZEFER CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
Original ZEFER The Company
----------------------- ------------
December 31, April 30, December 31,
1998 1999 1999
------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equiva-
lents.................... $ 538,917 $ 143,490 $ 1,271,105
Accounts receivable, net.. 121,993 577,505 7,093,223
Unbilled receivables...... -- -- 3,311,605
Prepaid expenses and other
current assets........... 6,510 -- 1,497,668
---------- ---------- -----------
Total current assets.... 667,420 720,995 13,173,601
Property and Equipment, net
(Note 2).................. 342,518 391,292 8,590,549
Goodwill, net.............. -- -- 8,921,882
Other Intangible Assets,
net....................... -- -- 15,782,639
Other Assets............... 16,500 23,563 4,467,300
---------- ---------- -----------
$1,026,438 $1,135,850 $50,935,971
========== ========== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Current Liabilities:
Lines of credit........... $ -- $ -- $19,566,122
Accounts payable.......... 121,897 215,249 5,149,890
Accrued expenses.......... 29,125 1,014,860 9,922,939
Deferred revenue.......... 46,805 344,763 720,960
Current portion of notes
payable.................. -- -- 930,000
Current portion of capital
lease obligations........ 83,582 139,792 260,536
---------- ---------- -----------
Total current liabili-
ties................... 281,409 1,714,664 36,550,447
Notes Payable, net of cur-
rent portion.............. -- -- 2,050,000
Capital Lease Obligations,
net of current portion.... 153,551 148,785 436,937
Subordinated Debt Payable
to Majority Stockholder
(Note 9).................. -- -- 11,119,385
Commitments and Contingen-
cies (Note 10)
Redeemable Preferred Stock
(Note 11)................. -- -- 25,803,156
Redeemable Convertible Pre-
ferred Stock (Note 13).... 1,200,000 1,200,000 --
Stockholders' Deficit:
Common stock (Notes 11 and
13)...................... 474 571 39,854
Additional paid-in capi-
tal...................... -- 1,122,659 10,437,552
Subscriptions receivable.. -- -- (1,137,942)
Deferred compensation..... -- -- (3,790,580)
Accumulated deficit....... (608,996) (3,050,829) (30,572,838)
---------- ---------- -----------
Total stockholders' def-
icit................... (608,522) (1,927,599) (25,023,954)
---------- ---------- -----------
$1,026,438 $1,135,850 $50,935,971
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ZEFER CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Original ZEFER The Company
---------------------------- -------------
Period from Period from
Inception Inception
(March 19, (March 18,
1998) through Four Months 1999) through
December 31, Ended December 31,
1998 April 30, 1999 1999
------------- -------------- -------------
<S> <C> <C> <C>
Revenues........................... $ 620,733 $ 491,141 $ 25,276,935
Operating Expenses:
Cost of services.................. 469,147 589,140 15,736,322
Hiring and training............... 7,441 9,958 5,542,624
Research and innovation........... -- -- 1,832,039
Sales and marketing............... 140,310 124,540 7,055,712
General and administrative........ 510,749 1,973,489 18,420,098
Depreciation and amortization..... 54,706 55,839 10,649,558
Compensation expense.............. -- -- 120,771
--------- ----------- ------------
Total operating expenses........ 1,182,353 2,752,966 59,357,124
--------- ----------- ------------
Loss from operations............ (561,620) (2,261,825) (34,080,189)
Interest Income.................... 11,502 6,858 44,383
Interest and Other Expense......... (5,058) (25,510) (2,297,432)
--------- ----------- ------------
Loss Before Income Taxes........ (555,176) (2,280,477) (36,333,238)
Benefit from Income Taxes.......... -- -- 5,760,400
--------- ----------- ------------
Net loss........................ $(555,176) $(2,280,477) $(30,572,838)
========= =========== ============
Basic and Diluted Net Loss Per
Share............................. $ (1.14)
============
Basic and Diluted Weighted Average
Shares Outstanding................ 26,793,270
============
Pro Forma Basic and Diluted Net
Loss Per Share.................... $ (1.02)
============
Pro Forma Basic and Diluted
Weighted Average Shares
Outstanding....................... 28,943,533
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ZEFER CORP.
STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Redeemable
Preferred Stock Common Stock
--------------------- --------------------
Additional Total
Number of Redemption Number of Paid-in Subscriptions Deferred Accumulated Stockholders'
Shares Value Shares Par Value Capital Receivable Compensation Deficit Deficit
--------- ----------- ---------- --------- ----------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
Inception,
March 19, 1998
(Original
ZEFER)......... -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ --
Sale of common
stock to
Founders....... -- -- 47,400 474 -- -- -- -- 474
Sale of Series A
redeemable
convertible
preferred
stock, net of
issuance costs
of $53,819..... 12,000 1,200,000 -- -- -- -- -- (53,819) (53,819)
Net loss........ -- -- -- -- -- -- -- (555,177) (555,177)
------ ----------- ---------- ------- ----------- ----------- ----------- ------------ ------------
Balance at
December 31,
1998 (Original
ZEFER)......... 12,000 1,200,000 47,400 474 -- -- -- (608,996) (608,522)
Stock dividend
paid to
Investor....... -- -- 1,391 14 161,342 -- -- (161,356) --
Stock issuance
to employee.... -- -- 8,310 83 961,317 -- -- -- 961,400
Net loss........ -- -- -- -- -- -- -- (2,280,477) (2,280,477)
------ ----------- ---------- ------- ----------- ----------- ----------- ------------ ------------
Balance at April
30, 1999
(Original
ZEFER)......... 12,000 $ 1,200,000 57,101 $ 571 $ 1,122,659 $ -- $ -- $ (3,050,829) $ (1,927,599)
====== =========== ========== ======= =========== =========== =========== ============ ============
Balance at
Inception,
March 18, 1999
(the Company).. -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ --
Private
placement of
common stock... -- -- 26,640,000 26,640 3,303,360 -- -- -- 3,330,000
Private
placement of
redeemable
preferred
stock.......... 24,195 24,195,000 -- -- -- -- -- -- --
Issuance of
common stock
and redeemable
preferred stock
to management.. 619 619,000 8,677,144 8,677 2,380,737 (1,675,524) (184,500) -- 529,390
Issuance of
common stock
for
professional
services....... -- -- 81,124 81 10,060 -- -- -- 10,141
Issuance of
common stock
for
acquisitions
(Note 4)....... -- -- 4,456,000 4,456 616,544 -- -- -- 621,000
Beneficial
conversion
feature of
Renaissance
Note (see Note
8(b)).......... -- -- -- -- 400,000 -- -- -- 400,000
Accretion of
dividends on
redeemable
preferred
stock.......... -- 989,156 -- -- -- -- -- -- --
Repayment of
subscriptions
receivable..... -- -- -- -- -- 537,582 -- -- 537,582
Deferred
compensation on
stock options.. -- -- -- -- 3,726,851 -- (3,726,851) -- --
Amortization of
deferred
compensation... -- -- -- -- -- -- 120,771 -- 120,771
Net loss........ -- -- -- -- -- -- -- (30,572,838) (30,572,838)
------ ----------- ---------- ------- ----------- ----------- ----------- ------------ ------------
Balance at
December 31,
1999 (the
Company)....... 24,814 $25,803,156 39,854,268 $39,854 $10,437,552 $(1,137,942) $(3,790,580) $(30,572,838) $(25,023,954)
====== =========== ========== ======= =========== =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ZEFER CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Original ZEFER The Company
---------------------------- -------------
Period from Period from
Inception Inception
(March 19, (March 18,
1998) through Four Months 1999) through
December 31, Ended December 31,
1998 April 30, 1999 1999
------------- -------------- -------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss........................... $ (555,177) $(2,280,477) $(30,572,838)
Adjustments to reconcile net loss
to net cash used in operating
activities--
Depreciation and amortization..... 54,706 55,839 10,649,558
Stock-based compensation.......... -- 961,317 120,771
Deferred tax benefit.............. -- -- (5,760,400)
Noncash interest expense.......... -- -- 1,424,663
Common stock issued for services.. -- -- 10,141
Gain on sale of property and
equipment........................ 6,282 -- --
Changes in current assets and
liabilities--
Accounts receivable.............. (121,993) (455,512) (416,328)
Unbilled receivables............. -- -- (3,014,062)
Prepaid expenses and other
current assets.................. (6,510) 6,510 (1,367,204)
Accounts payable................. 121,897 93,339 4,644,053
Accrued expenses................. 29,125 985,735 5,475,533
Deferred revenue................. 46,805 297,958 263,578
---------- ----------- ------------
Net cash used in operating
activities...................... (424,865) (335,291) (18,542,535)
---------- ----------- ------------
Cash flows from investing
activities:
Cash paid for acquisitions, net of
cash acquired..................... -- -- (26,268,090)
Purchases of property and
equipment......................... (124,311) (2,556) (9,004,944)
Proceeds from sales of property and
equipment......................... 81,848 -- --
Increase in other assets........... (16,500) (7,063) (4,467,300)
---------- ----------- ------------
Net cash used in investing
activities...................... (58,963) (9,619) (39,740,334)
---------- ----------- ------------
Cash flows from financing
activities:
Net borrowings on line of credit... -- -- 19,366,122
Net borrowings on subordinated debt -- -- 11,083,878
Proceeds from issuance of
redeemable preferred stock........ 1,146,181 -- 24,195,000
Proceeds from issuance of common
stock............................. 474 97 4,478,391
Principal payments on capital lease
obligations....................... (35,780) (50,614) (106,999)
Purchase of equipment under
financing agreement............... (88,130) -- --
Repayment of subscriptions
receivable........................ -- -- 537,582
---------- ----------- ------------
Net cash provided by (used in)
financing activities............ 1,022,745 (50,517) 59,553,974
---------- ----------- ------------
Increase (decrease) in cash and cash
equivalents........................ 538,917 (395,427) 1,271,105
Cash and cash equivalents, beginning
of period.......................... -- 538,917 --
---------- ----------- ------------
Cash and cash equivalents, end of
period............................. $ 538,917 $ 143,490 $ 1,271,105
========== =========== ============
Supplemental cash flow information:
Cash paid for interest............ $ 5,058 $ 25,210 $ 457,879
========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(1) The Company and Summary of Significant Accounting Policies
ZEFER Corp. (the Company) was incorporated in Delaware on March 18, 1999 and
is an Internet consulting and implementation firm. Since its inception, the
Company has grown its business principally through certain strategic
acquisitions (see Note 4).
The accompanying financial statements include the financial statements of a
predecessor company also named ZEFER Corp. (Original ZEFER). The Company was
formed for the purpose of continuing the business of Original ZEFER, which was
incorporated in Delaware on March 19, 1998 as an Internet professional services
firm. On April 30, 1999, the Company effected a reorganization whereby all of
the outstanding capital stock of Original ZEFER was exchanged for 3,456,000
shares of Company common stock valued at $432,000 and $7.1 million in cash. In
accordance with Accounting Principles Board (APB) Opinion No. 16, Accounting
for Business Combinations, this transaction has been accounted for using the
purchase method of accounting (see Note 4). For purposes of continuity of
operations, the accompanying financial statements include the results of
operations of Original ZEFER from inception (March 19, 1998) through the date
of its reorganization (April 30, 1999) and the results of operations of the
Company from inception (March 18, 1999) through December 31, 1999. The results
of operations of the Company for the period from inception (March 18, 1999)
through April 30, 1999 were not significant.
The Company is subject to risks common to rapidly growing, technology
companies, including limited operating history, integration of acquisitions,
dependence on key personnel, rapid technological change, competition from
substitute services and larger companies, and the need for continued market
acceptance of the Company's services.
The accompanying financial statements reflect the application of the
accounting policies as described below and elsewhere in these notes to
financial statements. Unless otherwise noted, references in these notes to
financial statements of the Company relate to both the Company and Original
ZEFER.
(a) 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 reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(b) Revenue Recognition--Revenue is derived from professional service
agreements. Due to the significant production and customization element of our
professional service arrangements, we recognize revenue in accordance with
Accounting Research Bulletin No. 45, Long-term Construction-type Contracts,
using the relevant guidance in Statement of Position (SOP) No. 81-1, Accounting
for Performance of Construction-type and Certain Production-type Contracts.
Revenues pursuant to time and materials contracts are generally recognized as
services are performed. Revenues pursuant to fixed-fee contracts are generally
recognized as services are rendered and are determined based on the percentage-
of-completion method of accounting (based on the ratio of costs incurred to
total estimated project costs). Contracts generally extend over a three-to-six-
month period. The cumulative impact of any revisions in estimates of the
percent complete is reflected in the period in which the changes become known.
Revenues exclude reimbursable expenses charged to and collected from clients.
Provisions for estimated losses on uncompleted contracts are made on a
contract-by-contract basis and are recognized in the period in which such
losses become probable and can be reasonably estimated. As of December 31,
1999, the Company had a provision for estimated losses of approximately
$374,000 related to uncompleted contracts.
F-7
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
(c) Cost of Revenues--Cost of revenues consists primarily of compensation
and benefits of employees engaged in the delivery of professional services and
non-reimbursable expenses related to client projects.
(d) Cash and Cash Equivalents--All highly liquid investments purchased with
an original maturity of 90 days or less are considered to be cash equivalents.
The Company invests excess cash primarily in money market accounts, U.S.
Treasury securities, certificates of deposit and short-term commercial paper
which are subject to minimal credit and market risks.
(e) Unbilled Receivables and Deferred Revenue--Unbilled accounts receivable
represent amounts recognized as revenue in advance of the scheduled billing for
such services. Billings received in advance of services are classified as
deferred revenue.
(f) Concentration of Credit Risk and Significant Customers--Financial
instruments that potentially subject the Company to a concentration of credit
risk consist of cash and cash equivalents and accounts receivable. Cash and
cash equivalents are deposited with high-credit quality financial institutions.
The Company's accounts receivable are derived from revenue earned from clients
located predominantly in the United States. The Company performs ongoing credit
evaluations of its clients' financial condition and maintains reserves for
potential credit losses based on the expected collectibility of total accounts
receivable. To date, the Company has not experienced any material credit
losses.
For the period from inception through December 31, 1999, the Company did not
have any one customer who accounted for greater than 10% of total revenues. For
the period from inception through December 31, 1998, the Company recorded
revenues from three customers who individually represented 58%, 19% and 11% of
total revenues. For the four months ended April 30, 1999, the Company recorded
revenues from four customers who individually represented 30%, 20%, 17% and 15%
of total revenues.
At December 31, 1999, the Company did not have any one customer who
represented greater than 10% of total accounts receivable. At December 31,
1998, the Company had accounts receivable from four customers who individually
represented 44%, 22%, 14% and 12% of total accounts receivable. At April 30,
1999, the Company had accounts receivable from four customers who individually
represented 28%, 26%, 23% and 16% of total accounts receivable.
(g) Prepaids and Other Current Assets--Prepaid expenses and other current
assets consist of prepaid rent, recruiting costs, contract costs and employee
receivables at December 31, 1999.
(h) Fair Value of Financial Instruments--The financial instruments of the
Company, including cash and cash equivalents, accounts receivable, accounts
payable, line-of-credit obligations, notes payable and subordinated debt are
carried at cost, which approximates their fair value because of the short-term
nature of these instruments.
(i) Property and Equipment--Property and equipment are stated at cost less
accumulated depreciation. The Company provides for depreciation and
amortization by charges to operations using the straight-line method, which
allocates the cost of property and equipment over their estimated useful lives
of two to three years for computer equipment and software, three to five years
for furniture and fixtures and the life of the related lease for equipment
under capital lease and leasehold improvements.
F-8
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
(j) Goodwill and Other Intangible Assets, Net--Goodwill and other intangible
assets associated with acquisitions (see Note 4) and with the reorganization of
Original ZEFER (see Note 1) consist of the following at December 31, 1999:
<TABLE>
<S> <C>
Goodwill:
Goodwill..................................................... $10,271,721
Less--Accumulated amortization............................... 1,349,839
-----------
$ 8,921,882
===========
Other Intangible Assets:
Assembled workforce.......................................... $ 8,001,000
Noncompetition agreements.................................... 14,500,000
-----------
22,501,000
Less--Accumulated amortization............................... 6,718,361
-----------
$15,782,639
===========
</TABLE>
(k) Long-Lived Assets--The Company reviews its long-lived assets, including
goodwill and other intangible assets, for impairment as changes in events and
circumstances indicate the carrying amount of an asset may not be recoverable.
In assessing whether there has been an impairment of goodwill and other
intangible assets, the Company first reviews several qualitative factors
related to the acquired businesses, including turnover of the acquired
workforce and a comparison of budgeted revenues versus actual revenues of the
acquired businesses. If the Company's assessment of these qualitative factors
indicates the possibility of an impairment, the Company measures such
impairment using the undiscounted future cash flows of the related asset or
group of assets. If the sum of the undiscounted future cash flows is less than
the carrying amount of the asset or group of assets, the Company will recognize
an impairment loss equal to the excess carrying amount. Based upon the review
of qualitative factors, management believes that, as of December 31, 1999, none
of the Company's long-lived assets have been impaired.
(l) Other Long-term Assets--Other long-term assets consist of security
deposits for the Company's facilities at December 31, 1999.
(m) Stock Compensation--The Company accounts for employee stock compensation
arrangements in accordance with provisions of APB Opinion No. 25, Accounting
for Stock Issued to Employees, and complies with the disclosure provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation. Under APB Opinion No. 25, compensation expense is
based on the difference, if any, on the date of grant between the fair value of
the stock and the exercise price.
(n) Income Taxes--The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes, which requires the recognition of
taxes payable or refundable for the current year and deferred tax liabilities
and assets for the future tax consequences of events that have been recognized
in the financial statements or tax returns. The measurement of current and
deferred tax liabilities and assets is based on provisions of the enacted tax
law; the effects of future changes in tax laws or rates are not anticipated.
(o) Net Loss per Share--In accordance with SFAS No. 128, Earnings per Share,
basic and diluted net loss per share is computed by dividing the net loss
available to common stockholders for the period by the weighted average number
of shares of common stock outstanding during the period. The calculation of
basic and diluted weighted average shares outstanding for the period from
inception through December 31, 1999 excludes 9,314,467 shares of unvested
restricted common stock issued to management and in connection with
F-9
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
acquisitions (see Note 11(d)). For periods in which a net loss has been
incurred, the calculation of diluted net loss per share excludes potential
common stock as their effect is antidilutive. Potential common stock is
composed of (i) incremental shares of common stock issuable upon the exercise
of stock options and warrants and upon the exchange or conversion of preferred
stock and (ii) unvested restricted common stock subject to repurchase by the
Company. For the period from inception through December 31, 1999, the
calculation of diluted weighted average shares outstanding excludes the
following potential common stock:
<TABLE>
<S> <C>
Exercise of outstanding stock options........................ 4,627,111
Unvested restricted common stock............................. 9,314,467
----------
13,941,578
==========
</TABLE>
In accordance with the Securities and Exchange Commission's Staff Accounting
Bulletin No. 98, Earnings per Share in an Initial Public Offering, the Company
determined that there were no nominal issuances of common stock prior to the
Company's initial public offering (IPO).
(p) Software Development Costs--SFAS No. 86, Accounting for the Costs of
Computer Software To Be Sold, Leased or Otherwise Marketed, requires the
capitalization of certain computer software development costs incurred after
technological feasibility is established. The Company believes that once
technological feasibility of a software product has been established, the
additional development costs incurred to bring the product to a commercially
acceptable level are not significant. To date, the Company has not incurred or
capitalized any software development costs.
(q) Internal-Use Computer Software--In accordance with SOP 98-1, Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use, the
Company capitalizes costs related to software and implementation in connection
with its internal-use software systems. As of December 31, 1999, the Company
had not capitalized any internal-use computer-software costs.
(r) Pro Forma Net Loss per Share (Unaudited)--The Company's historical
capital structure at December 31, 1999 is not indicative of its capital
structure prior to the closing of the IPO due to the assumed exchange of all
shares of Class A redeemable convertible preferred stock into common stock
concurrent with the closing of the Company's IPO at a conversion ratio equal to
the total outstanding balance of Class A preferred stock, including accrued but
unpaid dividends, divided by the assumed IPO price of $12.00 per share.
Accordingly, pro forma net loss per share is presented for the period from
inception through December 31, 1999 assuming (i) the net loss before the
accretion of preferred stock dividends, discount and offering costs and (ii)
the exchange of all outstanding shares of Class A redeemable convertible
preferred stock into common stock using the as-converted method and an assumed
conversion based on $12 per share from their respective dates of issuance, but
excluding shares of common stock to be issued in the IPO. A reconciliation of
the numerators and denominators used in computing historical and pro forma net
loss per share is as follows:
<TABLE>
<CAPTION>
Net loss................................................. $(30,572,838)
<S> <C>
Class A preferred stock dividends........................ 989,156
------------
Pro forma net loss....................................... $(29,583,682)
============
Weighted average shares outstanding...................... 26,793,270
Exchange of Class A preferred stock...................... 2,150,263
------------
Pro forma weighed average shares outstanding............. 28,943,533
============
</TABLE>
F-10
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
(s) Comprehensive Income--Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. The only component of
comprehensive income (loss) of the Company for the period from inception is net
loss. Therefore, comprehensive loss is the same as the reported loss for all
periods presented.
(t) Disclosures About Segments of an Enterprise and Related Information--
Operating segments are identified as components of an enterprise about which
separate discrete financial information is available for evaluation by the
chief operating decision maker, or decision making group, in making decisions
how to allocate resources and assess performance. The Company's chief decision
making group consists of the chief executive officer and the chief financial
officer. Based on the criteria established by SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, the Company has one
reportable operating segment, the results of which are disclosed in the
accompanying financial statements. Substantially all of the operations and
assets of the Company have been derived from and are located in the United
States.
Revenues by country in total and as a percentage of total revenues are as
follows for the period from inception through December 31, 1998, the four
months ended April 30, 1999 and the period from inception through December 31,
1999, respectively:
<TABLE>
<CAPTION>
Original ZEFER The Company
--------------------------------------- ----------------------
December 31, 1998 April 30, 1999 December 31, 1999
------------------- ------------------- ----------------------
Percent of Percent of Percent of
Country Revenue Revenue Revenue Revenue Revenue Revenue
------- -------- ---------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Canada.................. $ 34,737 6% $ -- -- $ -- --
United States........... 585,996 94 491,141 100% 24,101,682 95%
Other................... -- -- -- -- 1,175,253 5
-------- --- -------- --- ----------- ---
$620,733 100% $491,141 100% $25,276,935 100%
======== === ======== === =========== ===
</TABLE>
(u) Recent Accounting Pronouncements--In June 1998, the Financial Accounting
Standards Board (FASB) issued SFAS No. 133, Accounting for Derivatives and
Hedging Activities. SFAS No. 133, as amended by SFAS No. 137, is effective for
all fiscal quarters beginning with the quarter ending September 30, 2000. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The Company will adopt SFAS No. 133 in
its quarter ending September 30, 2000 and does not expect that such adoption to
have an impact on the Company's results of operations, financial position or
cash flows.
(v) Stock Splits--On June 15, 1999, the Company declared a three-for-one
stock split. On November 30, 1999, the Company declared an additional four-for-
three stock split and increased the authorized number of shares of common stock
to 100,000,000. All share and per share amounts in the accompanying financial
statements and notes have been retroactively adjusted in all periods presented
to reflect these stock splits.
F-11
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
(w) Supplemental Disclosure of Non-Cash Investing and Financing Activities--
The following table summarizes the supplemental disclosures of the Company's
non-cash investing and financing activities for the periods ended on the dates
indicated below:
<TABLE>
<CAPTION>
Original ZEFER The Company
----------------------- ------------
December 31, April 30, December 31,
1998 1999 1999
------------ ---------- ------------
<S> <C> <C> <C>
Acquisition of fixed assets under capital
leases.................................. $267,344 $ 102,057 $ 224,371
======== ========== ============
Proceeds from issuance of stock to
employees and payment of dividend to
investor................................ $ -- $1,122,659 $ --
======== ========== ============
Deferred compensation related to issuance
of common stock to management and stock
options to employees.................... $ -- $ -- $ 3,911,351
======== ========== ============
On April 30, 1999, the Company
reorganized Original ZEFER, as follows--
Fair value of assets acquired.......... $ -- $ -- $ 12,382,047
Cash paid for reorganization........... -- -- (7,225,000)
Common stock issued.................... -- -- (432,000)
-------- ---------- ------------
Liabilities assumed.................... $ -- $ -- $ 4,725,047
======== ========== ============
On May 14, 1999, the Company acquired
Spyplane, as follows--
Fair value of assets acquired.......... $ -- $ -- $ 2,709,107
Cash paid for acquisition.............. -- -- (1,100,000)
Promissory note issued................. -- -- (980,000)
Common stock issued.................... -- -- (25,000)
-------- ---------- ------------
Liabilities assumed.................... $ -- $ -- $ 604,107
======== ========== ============
On May 28, 1999, the Company acquired the
Divisions of Renaissance, as follows--
Fair value of assets acquired.......... $ -- $ -- $ 14,104,748
Cash paid for acquisition.............. -- -- (10,160,000)
Promissory notes issued................ -- -- (1,600,000)
Beneficial conversion feature.......... -- -- (400,000)
Common stock issued.................... -- -- (50,000)
-------- ---------- ------------
Liabilities assumed.................... $ -- $ -- $ 1,894,748
======== ========== ============
On September 13, 1999, the Company ac-
quired Waite, as follows--
Fair value of assets acquired.......... $ -- $ -- $ 12,949,964
Cash paid for acquisition.............. -- -- (8,109,052)
Common stock issued.................... -- -- (114,000)
-------- ---------- ------------
Liabilities assumed.................... $ -- $ -- $ 4,726,912
======== ========== ============
</TABLE>
F-12
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
(2) Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Original ZEFER The Company
---------------------- ------------
December 31, April 30, December 31,
1998 1999 1999
------------ --------- ------------
<S> <C> <C> <C>
Computer equipment and software........ $ 11,632 $ 13,606 $7,932,515
Equipment under capital leases......... 236,195 338,252 591,380
Furniture and fixtures................. 36,718 36,401 1,204,309
Leasehold improvements................. 112,679 113,578 1,282,678
Construction in progress............... -- -- 161,025
-------- -------- ----------
397,224 501,837 11,171,907
Less--Accumulated depreciation and am-
ortization............................ 54,706 110,545 2,581,358
-------- -------- ----------
$342,518 $391,292 $8,590,549
======== ======== ==========
</TABLE>
(3) Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
Original ZEFER The Company
----------------------- ------------
December 31, April 30, December 31,
1998 1999 1999
------------ ---------- ------------
<S> <C> <C> <C>
Accrued employee costs................ $ -- $ 96,687 $5,056,724
Accrued loss contracts................ -- 369,547 373,685
Professional fees and transaction
costs................................ 9,000 41,500 997,662
Software license fees................. -- -- 1,022,042
Other................................. 20,125 507,126 2,472,826
------- ---------- ----------
$29,125 $1,014,860 $9,922,939
======= ========== ==========
</TABLE>
(4) Acquisitions
(a) Spyplane, LLC--On May 14, 1999, the Company acquired all of the LLC
units of Spyplane, LLC (Spyplane), for $2,005,000 plus acquisition costs of
approximately $100,000. The total consideration consisted of 200,000 shares of
restricted common stock, valued at $25,000, a promissory note in the amount of
$980,000 and $1,000,000 in cash.
(b) Divisions of Renaissance--On May 28, 1999, the Company acquired certain
assets and assumed certain liabilities of two divisions of Renaissance
Worldwide, Inc. (Renaissance): Customer Management Solutions, Inc. (CMS) and
Neoglyphics Media Corporation (NMC) (collectively, the Divisions of
Renaissance). The total consideration of $12,210,000 consisted of 400,000
shares of the Company's unrestricted common stock, valued at $50,000, a
promissory note in the amount of $2,000,000, $10,000,000 in cash, and
acquisition costs of approximately $160,000.
(c) Waite & Company, Inc.--On September 13, 1999, the Company acquired all
of the common stock of Waite & Company, Inc. (Waite), for approximately
$8,148,000 plus acquisition costs of approximately $75,000. The total
consideration consisted of 400,000 shares of restricted common stock, valued at
$114,000, and approximately $8,034,000 in cash.
F-13
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
(d) Allocation of Purchase Consideration--All of the 1999 acquisitions,
including the reorganization of Original ZEFER, have been accounted for using
the purchase method of accounting in accordance with APB Opinion No. 16,
Business Combinations and, accordingly, the purchase price has been allocated
to the tangible assets acquired and liabilities assumed and, with the advice of
independent valuation experts, to the identifiable intangible assets. The
results of operations of the acquired entities are included in those of the
Company beginning on the respective dates of acquisition. The Company allocated
total consideration from the 1999 acquisitions and from the reorganization of
Original ZEFER to the fair value of the assets acquired and liabilities assumed
on the dates of acquisition as follows:
<TABLE>
<CAPTION>
Original Divisions of
ZEFER Spyplane Renaissance Waite
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Current assets........... $ 744,558 $ 375,155 $ 4,754,576 $1,556,264
Property and equipment... 391,292 49,537 1,206,133 295,630
Goodwill................. 4,092,197 702,415 1,626,039 3,851,070
Assembled workforce...... 894,000 362,000 5,018,000 1,727,000
Noncompetition agree-
ments................... 6,260,000 1,220,000 1,500,000 5,520,000
Current liabilities...... (1,714,662) (604,107) (1,894,748) (1,565,730)
Noncurrent liabilities... (3,010,385) -- -- (3,161,182)
---------- ---------- ----------- ----------
$7,657,000 $2,105,000 $12,210,000 $8,223,052
========== ========== =========== ==========
</TABLE>
The noncurrent liabilities referred to in the above table include noncurrent
portions of assumed capital lease obligations and long-term deferred tax
liabilities in the amount of $5,760,400 for the income tax effect of basis
differences on the nondeductible intangible assets (see Note 6). Assembled
workforce is being amortized over a period of 36 months; noncompetition
agreements are being amortized over periods of 12 to 24 months. The purchase
price in excess of identified tangible and intangible assets acquired and
liabilities assumed was allocated to goodwill. As a result of the early stage
of development of the Internet and electronic commerce, the dynamics of this
rapidly evolving industry and the expectation of increasing competition, the
recorded goodwill is being amortized on a straight-line basis over four years,
the estimated period of its benefit. Through December 31, 1999, the Company has
recorded accumulated amortization related to its goodwill and other intangible
assets of approximately $8,068,000.
(e) Pro Forma Disclosures (Unaudited)--The following unaudited pro forma
consolidated amounts for the period from inception through December 31, 1999
give effect to the 1999 acquisitions and the reorganization of Original ZEFER
as if they had all occurred on the Company's date of inception (March 18,
1999), by consolidating the results of operations of the 1999 acquired entities
with the pre-acquisition results of the Company for the period from inception
through December 31, 1999. The pro forma amounts do not purport to be
indicative of the results of operations that would have been achieved had the
transactions been in effect as of the inception of the Company and should not
be construed as being representative of future results of operations.
<TABLE>
<S> <C>
Revenues.................................................... $33,084,042
Net loss.................................................... (45,440,896)
Basic and diluted net loss per share........................ (1.50)
</TABLE>
F-14
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
(5) Related Party Professional Services Agreement
Effective March 23, 1999, the Company entered into a professional services
agreement with GTCR Golder Rauner, L.L.C. (GTCR), a stockholder that owns 97.5%
of the outstanding redeemable preferred stock and 66.8% of the outstanding
common stock of the Company (see Note 11(c)) and with whom the Company has a
subordinated debt agreement (see Note 9). Under the terms of the agreement,
GTCR will provide financial and management consulting to the Company. At the
time of any equity or debt financing of the Company other than the purchase of
stock or issuance of debt by GTCR or other GTCR financings, the Company shall
pay to GTCR a placement fee equal to 1% of the gross amount of such financing
(including the committed amount of any revolving credit facility). In addition
to the placement fee, the Company shall pay GTCR an annual management fee of
$150,000, payable in equal monthly installments, provided, however, that such
management fee shall not commence until the Company determines (i) that its
earnings before interest, taxes, depreciation and amortization (EBITDA) for the
previous 30 days has been sufficient to cover the payment of such management
fee together with any increases in the annual base salary of the Company's
executives as required by such executives' respective management agreements and
(ii) that its pro forma projections for the next 12 months show that the
Company's EBITDA is likely to continue to be sufficient to cover such
management fee together with such increases in annual base salary. For the
period from inception to December 31, 1999, no amounts have been payable under
the management fee arrangement. This management fee agreement terminates upon
the consummation of an IPO and no amounts become payable upon an IPO or other
event that terminates the agreement.
(6) Income Taxes
At December 31, 1999, the Company had approximately $26.7 million of federal
and state net operating loss carryforwards available to offset future taxable
income, which expire in varying amounts beginning in 2019. Under the Tax Reform
Act of 1986, the amounts of and benefits from net operating loss carryforwards
may be impaired or limited in certain circumstances. Events which cause
limitations in the amount of net operating losses that the Company may utilize
in any one year include, but are not limited to, a cumulative ownership change
of more than 50%, over a three-year period, as defined.
At December 31, 1998 and April 30, 1999, Original ZEFER had net operating
loss carryforwards for federal and state income tax purposes of approximately
$555,000 and $2,208,000, respectively. These carryforwards expire through 2018
and are subject to review and possible adjustment by the Internal Revenue
Service. Upon the acquisition of Original ZEFER by the Company, Original
ZEFER's net operating loss carryforward was acquired by the Company. Under
Section 382 of the Internal Revenue Code, the amount that may be utilized by
the Company to offset future taxable income on an annual basis is limited to
approximately $400,000 per year.
For the period from inception through December 31, 1999, the Company
incurred losses before benefit from income taxes of approximately $36.3
million, which is the primary component of the Company's deferred tax asset at
December 31, 1999. In connection with the stock acquisitions discussed in Note
4, the Company established a deferred tax liability for the income tax effect
of basis differences on the non-deductible intangible assets (exclusive of
goodwill), with a corresponding increase in goodwill. The Company has
recognized in the statement of operations the tax benefit of a portion of the
current period net operating losses as an offset to this deferred tax
liability.
F-15
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
The approximate income tax effect of each type of temporary difference and
carryforward of Original ZEFER and the Company is as follows:
<TABLE>
<CAPTION>
Original ZEFER The Company
---------------------- ------------
December 31, April 30, December 31,
1998 1999 1999
------------ --------- ------------
<S> <C> <C> <C>
Deferred tax assets (liabilities)--
Net operating loss carryforwards.... $222,000 $883,000 $10,939,000
Intangible assets--Temporary differ-
ences.............................. -- -- 948,000
Nondeductible accruals and re-
serves............................. -- -- 906,000
Less--Valuation allowance........... (222,000) (883,000) (7,751,000)
-------- -------- -----------
-- -- 5,042,000
Intangible assets--Basis differences.. -- -- (5,042,000)
-------- -------- -----------
Net deferred tax asset............ $ -- $ -- $ --
======== ======== ===========
</TABLE>
A reconciliation of the federal statutory rate to the effective tax rate for
the period from inception through December 31, 1998, the four months ended
April 30, 1999 and the period from inception through December 31, 1999, is as
follows:
<TABLE>
<CAPTION>
Original ZEFER The Company
---------------------- ------------
December 31, April 30, December 31,
1998 1999 1999
------------ --------- ------------
<S> <C> <C> <C>
Federal statutory rate.................. (34)% (34)% (34)%
State taxes, net of federal benefit..... (6) (6) (5)
Nondeductible amortization.............. -- -- 4
Increase in valuation allowance......... 40 40 21
Reduction in deferred tax liability..... -- -- (2)
--- --- ---
Effective rate........................ --% --% (16)%
=== === ===
</TABLE>
(7) Lines of Credit
(a) Unsecured Demand Line of Credit--In July 1999, the Company entered into
a $20,000,000 unsecured demand line of credit (the Demand Line) with a bank.
Borrowings on the Demand Line accrue interest at the prime lending rate (8.5%
at December 31, 1999) and interest is payable monthly. All borrowings under the
Demand Line are guaranteed by GTCR. At December 31, 1999, the Company had
$19,416,122 outstanding under the Demand Line.
(b) Revolving Line of Credit--In December 1998, Original ZEFER obtained a
revolving line of credit facility (the Revolving Line) from a bank which
provides for borrowings up to $200,000. Borrowings were limited to 80% of
eligible accounts receivable, as defined, and bear interest at the prime
lending rate plus 0.5% and interest is payable monthly. Original ZEFER was
required to comply with certain restrictive covenants under this agreement,
including minimum levels of working capital and tangible net worth, and the
line was collateralized by all assets, as defined. The Revolving Line expires
on March 15, 2000 and all outstanding borrowings thereunder are payable on that
date. There were no borrowings outstanding under the Revolving Line at December
31, 1998 or April 30, 1999.
F-16
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
In connection with the acquisition of Original ZEFER by the Company, the
Company assumed the Revolving Line. At December 31, 1999, the Company was not
in compliance with either of its financial covenants and was in receipt of a
waiver from the bank. At December 31, 1999, the Company had $150,000
outstanding under the Revolving Line.
(c) Equipment Lease Line of Credit--In June 1998, Original ZEFER entered
into a $250,000 equipment lease line of credit (the Equipment Line) designated
for the acquisition of computer and office equipment. In January 1999, the
Equipment Line was amended to allow for an additional $500,000 in borrowings by
January 2000. In connection with the acquisition of Original ZEFER by the
Company, the Company assumed Original ZEFER's obligations under the Equipment
Line, as amended. Principal and interest are payable over 36 months, and
interest accrues at a rate of 11%. At December 31, 1998, April 30, 1999 and
December 31, 1999, the Company had $237,133, $288,577 and $414,536,
respectively, outstanding under the Equipment Line, which is included in
capital lease obligations in the accompanying financial statements.
(8) Notes payable
(a) Spyplane Notes--As part of the consideration for the acquisition of
Spyplane (Note 4(a)), the Company issued to the former members of Spyplane
promissory notes in the aggregate principal amount of $980,000 (the Spyplane
Notes). The Spyplane Notes bear interest at a rate of 8% per year. One half of
the interest accruing on the Spyplane Notes is payable on May 14, 2000. Also on
May 14, 2000, the Company shall pay an aggregate of $180,000 of the outstanding
principal amount. All remaining unpaid principal and interest on the Spyplane
Notes will be payable on May 14, 2001.
(b) Renaissance Note--As part of the consideration for the acquisitions of
the Divisions of Renaissance (Note 4(b)), the Company issued to Renaissance a
promissory note in the principal amount of $2,000,000 (the Renaissance Note).
The Renaissance Note bears interest at a rate equal to the 30-day LIBOR (5.8%
at December 31, 1999) plus 2.0% per annum and interest is payable quarterly for
the period extending from August 1999 through May 2002. Principal is payable in
eight quarterly installments commencing May 2000. The Renaissance Note is
subordinate to any senior indebtedness, as defined.
At the option of Renaissance, the principal amount outstanding under the
Renaissance Note is convertible to common stock of the Company at a conversion
price equal to 80% of the per share price to the public of the Company's common
stock in an IPO. The Company has valued this beneficial conversion feature at
$400,000, which has been recorded as additional interest expense in the
accompanying statement of operations.
(c) Future Maturities--Future maturities of the principal obligation under
the Spyplane and Renaissance Notes are as follows:
<TABLE>
<S> <C>
Year Ending December 31,
2000............................................................ $ 930,000
2001............................................................ 1,800,000
2002............................................................ 250,000
----------
$2,980,000
==========
</TABLE>
(9) Subordinated Debt Financing
On November 24, 1999, the Company entered into a loan agreement with GTCR,
the majority investor in the Company. The loan agreement provides for up to
$32,196,296 of borrowings, of which the Company borrowed $12,789,175 on
November 24, 1999 to fund operations. The Company, at its discretion, may make
additional borrowings from time to time.
F-17
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Borrowings under the loan agreement bear interest at 12% per annum and
interest is payable quarterly in arrears beginning December 31, 1999. The loan
agreement matures on November 24, 2004. Upon a change in control, as defined,
or upon an IPO, the Company is required to repay all unpaid principal and
interest. In addition, should the Company dispose of any assets or subsidiaries
for net proceeds in excess of $100,000, the Company is required to prepay the
loans in an amount equal to such net proceeds. Borrowings are secured by
substantially all assets of the Company.
Concurrent with the loan agreement, the Company repurchased from GTCR
1,650,405 shares of common stock at the issuance price of $0.125 per share and
1,499 shares of redeemable preferred stock at the issuance price of $1,000 per
share. Simultaneously, the Company issued to GTCR the lender, a warrant to
purchase 1,650,405 shares of common stock and a warrant to purchase 1,499
shares of redeemable preferred stock, each at an exercise price of $.001 per
share. GTCR exercised both warrants in full at the time of the transaction. The
Company has recorded the value of this beneficial exercise price (approximately
$1,705,000) as an original issuance discount on the subordinated debt financing
and has presented in the Statement of Stockholder's Deficit the net effect of
the purchase of the treasury stock and the respective sale of stock upon
exercise of the warrants, and is amortizing this discount as additional
interest expense over the term of the loan agreement. Additionally, the Company
agreed to issue GTCR warrants to purchase up to an additional 4,720 shares of
class A preferred stock as we make additional borrowings under the loan
agreement.
Under the loan agreement, the Company must maintain compliance with certain
negative covenants and financial covenants. The negative covenants include
limits on indebtedness, certain investments, capital expenditures and lease
payments. The financial covenants are effective for the quarter ending June 30,
2000 and include a minimum required level of pre-corporate EBITDA and a minimum
required level of fixed charge coverage.
(10) Commitments and Contingencies
(a) Leases--Future minimum lease payments under noncancelable operating and
capital leases at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- -----------
<S> <C> <C>
Twelve Months Ending December 31,
2000................................................ $342,226 $ 4,305,020
2001................................................ 269,024 4,991,220
2002................................................ 111,126 5,115,460
2003................................................ 71,992 5,207,318
2004................................................ 25,057 5,117,120
Thereafter.......................................... -- 2,438,609
-------- -----------
Total minimum lease payments...................... 819,425 $27,174,747
===========
Less--Amount representing interest.................... 121,952
--------
Present value of capital lease obligations........ 697,473
Less--Current portion................................. 260,536
--------
Capital lease obligations, net of current
portion.......................................... $436,937
========
</TABLE>
F-18
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
(b) Contingencies--From time to time, the Company may have certain
contingent liabilities that arise in the ordinary course of its business
activities. The Company accrues contingent liabilities when it is probable that
future expenditures will be made and such expenditures can be reasonable
estimated. In the opinion of management, there are no pending claims of which
the outcome is expected to result in a material adverse effect in the financial
position or results of operations of the Company.
(11) Capital Stock
(a) Redeemable Preferred Stock--As of December 31, 1999, the Company has
authorized a total of 96,632 shares of Class A redeemable preferred stock
(Class A Preferred Stock), of which 24,814 shares have been issued at a per
share price of $1,000. The Class A Preferred Stock is entitled to the following
rights and preferences:
Redemption--The Company shall have the option to redeem, subject to
certain conditions, all or any portion of the Class A Preferred Stock
outstanding before an IPO or change in control, as defined. Upon the
occurrence of an IPO, the holders of a majority of the Class A Preferred
Stock have the option to force redemption of the Class A Preferred Stock
with the proceeds from the offering. Upon a change in control, as defined,
the Class A Preferred Stock is redeemable at the option of the holder. In
connection with the proposed IPO, the Company expects to enter into a share
exchange agreement with GTCR, who holds the majority of the outstanding
shares of Class A Preferred Stock, whereby all shares of Class A Preferred
Stock, including accrued but unpaid dividends, will be exchanged for common
stock at the IPO price.
Dividends--The holders of Class A Preferred Stock are entitled to
receive cumulative dividends when and if declared by the Board of Directors
(the Board) of the Company. Dividends accrue from the date of the share
issuance at a daily compounded rate of 8% of the liquidation value ($1,000
per share) and are cumulative. Dividends are payable upon redemption of the
Class A Preferred Stock or liquidation of the Company. Due to the fact that
the Class A Preferred Stock is non-convertible, non-voting and redeemable
at the option of the holder upon the closing of an IPO or change in
control, the 8% dividend has been recorded as interest expense rather than
a reduction of stockholders' equity in the accompanying financial
statements.
Voting Rights--Except under certain defined conditions and otherwise
required by applicable law, the Class A preferred stockholders shall have
no voting rights, provided that each holder of Class A Preferred Stock
shall be entitled to notice of all stockholders meetings.
Liquidation--In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, as defined, the holders of the
Class A Preferred Stock then outstanding will be entitled to $1,000 per
share plus all dividends that have accrued and any other dividends declared
but unpaid. Amounts remaining after payment to the Class A preferred
stockholders, if any, will be shared among all stockholders.
(b) Common Stock--The Company's Certificate of Incorporation, as amended,
authorizes the Company to issue up to 100,000,000 shares of $.001 par value
common stock. A portion of the shares issued are subject to the right of
repurchase by the Company at the original purchase price prior to vesting,
which generally occurs over a period of four to five years from the issuance
date until vesting is complete (see Note 11(d)).
(c) GTCR Investment--On March 23, 1999, the Company entered into a stock
purchase agreement with GTCR, as amended whereby GTCR would provide up to
$97,500,000 in equity financing to fund acquisitions and internal growth (the
GTCR Investment). The equity to be issued to GTCR is a combination of common
F-19
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
stock and Class A Preferred Stock. On November 24, 1999 this agreement was
amended to provide up to $65.3 million in cash equity financing and $32.2
million of subordinated debt (see Note 9). The Company is not required to
issue, and GTCR is not required to purchase, all of the shares of common and
preferred stock contemplated in the stock purchase agreement. Under the
agreement, upon the approval of the Board and at the request of GTCR, GTCR may
purchase up to 26,640,000 shares of common stock at a price of $0.13 per share
and up to 94,170 shares of Class A Preferred Stock at a price of $1,000 per
share. Through December 31, 1999, GTCR has provided equity financing in the
amount of $27,525,000, consisting of 26,640,000 shares of common stock and
24,195 shares of Class A Preferred Stock.
In connection with the GTCR Investment, the Company entered into a
management services agreement described in Note 5 above and on November 24,
1999, the Company consummated a subordinated debt financing with GTCR,
described in Note 9 above.
(d) Restricted Common Stock--At various dates from the period of inception
(March 18, 1999) through December 31, 1999, the Company entered into restricted
common stock agreements with members of management and senior management under
which a total of 7,893,667 shares of common stock were issued at prices ranging
from $0.13 to $5.00 per share. In connection with the reorganization of
Original ZEFER and the acquisitions described in Note 4 to the financial
statements, the Company also issued as part of the purchase consideration a
total of 1,420,800 shares of restricted common stock. The restricted common
stock vests on various dates over a period of four to five years; vesting
accelerates partially upon an IPO and fully upon the sale or liquidation of the
Company, as defined. If an employee terminates employment prior to vesting, the
Company has the option to repurchase the unvested portion of common stock at
its original purchase price.
As consideration for the restricted common stock issued to management, the
employees paid cash and executed promissory notes payable to the Company in the
aggregate amount of $945,670 (the Subscription Notes), which have been
classified as subscriptions receivable in the accompanying financial
statements. The Subscription Notes bear interest at 5% per annum and all unpaid
principal and interest are due upon the fifth anniversary date. The
Subscription Notes are payable in full should the employee receive any proceeds
from the sale or transfer of the restricted common stock. Additionally, the
employees are required to make mandatory prepayments equal to the unpaid
principal balance multiplied by a percentage calculated as the amount of GTCR
Investment made to date divided by the total GTCR commitment of $97,500,000.
(e) Sales to Management--During the period from inception (March 18, 1999)
through December 31, 1999, the Company sold 683,488 shares of unrestricted
common stock to management at prices ranging from $0.13 to $0.29 per share and
619 shares of unrestricted Class A Preferred Stock at a price of $1,000 per
share for total proceeds of $730,844. As consideration for the unrestricted
common and preferred stock, the employees paid $103,388 in cash and issued
promissory notes payable to the Company in the amount of $627,456, which has
been classified as subscriptions receivable in the accompanying financial
statements.
(f) Deferred Compensation--In cases where options are granted or stock is
issued at a price below fair market value, the Company calculates compensation
as the difference between the fair market value, as determined by the Board of
Directors and/or an appraisal by an independent third party, and the exercise
or issuance price. The Company recognizes compensation expense over the vesting
term of the related instrument.
In connection with the issuance of restricted common stock to management
during 1999, the Company issued 1,275,667 shares at prices below the then
current fair market value, resulting in deferred compensation of $184,500 that
will be charged to operations over the vesting term of the related restricted
common stock. Also during 1999, the Company granted stock options to employees
at prices below the then-current fair
F-20
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
market value, resulting in deferred compensation of $3,726,851 that will be
charged to operations over the vesting term of the underlying options.
Compensation expense for the period from inception through December 31, 1999
should be allocated to the following departments:
<TABLE>
<S> <C>
Cost of Services.................... $ 49,096
Hiring and Training................. --
Research and Innovation............. 6,111
Sales and Marketing................. 41,119
General and Administration.......... 24,445
--------
$120,771
========
</TABLE>
(12) Stock Options
(a) Equity Incentive Plans--In June 1999, the Company adopted the 1999 Stock
Option Plan (the Option Plan), which provides for granting up to 2,000,000
shares of common stock to employees, consultants and advisors of businesses or
entities that the Company acquires who, in the opinion of the Board, are in a
position to make a significant contribution to the success of the Company and
its subsidiaries. Options granted pursuant to the Option Plan will be non-
qualified options.
In June 1999, the Company adopted the 1999 Incentive Plan (the Incentive
Plan). The Incentive Plan may be administered by the Board or by an option
committee, as defined (in either case, the Administrator), to grant incentive
stock options, nonqualified stock options, restricted stock, unrestricted
stock, convertible securities, performance awards and cash performance awards.
The Company has reserved a total of 2,666,666 shares of common stock for future
grant under the Incentive Plan. No more than $1,000,000 may be paid to any
individual with respect to any cash performance award and the maximum number of
shares of stock subject to other awards that may be delivered to any person in
any calendar year shall be 1,000,000.
The following table summarizes stock option activity under the Company's
Option Plan and the Incentive Plan through December 31, 1999:
<TABLE>
<CAPTION>
Weighted
Range of Average
Exercise Exercise
Options Prices price
--------- ------------ --------
<S> <C> <C> <C>
Granted..................................... 5,089,226 $0.75-$10.00 $1.32
Exercised................................... -- -- --
Canceled.................................... (462,115) $0.75-$ 2.25 0.78
--------- ------------ -----
Outstanding, December 31, 1999.............. 4,627,111 $0.75-$10.00 $1.38
========= ============ =====
Exercisable, December 31, 1999.............. -- $ -- $ --
========= ============ =====
</TABLE>
During 1999, the Company granted 5,035,893 options to purchase common stock
at an exercise price equal to the fair market value of the common stock with a
weighted average exercise price of $1.32 per share. During 1999, the Company
also granted 53,333 options to purchase common stock at an exercise price below
the fair market value of the common stock with a weighted average grant date
fair value of $1.50 per share, for which compensation expense has been recorded
in accordance with APB Opinion No. 25. There were no
F-21
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
options issued to non-employees during 1999. The following table summarizes
information regarding the Company's stock options outstanding and exercisable
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------ ----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Contractual Exercise Exercise
Prices Number Life Price Number Price
-------- --------- ----------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
$ 0.75-$ 1.50 3,515,815 9.6 $0.79 -- $ --
$ 2.25-$ 3.75 897,630 9.9 2.79 -- --
$ 5.00-$10.00 213,666 9.9 5.05 -- --
--------- ----- --------- ----------
4,627,111 $1.38 -- $ --
========= ===== ========= ==========
</TABLE>
(b) Fair Value Disclosures--The Company applies the measurement principles
of APB Opinion No. 25 in accounting for issuances of employee stock options and
SFAS No. 123 for all other stock options. Had compensation expense for employee
stock options granted been determined based on the fair value at the date of
grant as prescribed by SFAS No. 123, the net loss and net loss per share for
the period from inception through December 31, 1998, the four months ended
April 30, 1999 and the period from inception through December 31, 1999,
respectively, would have been increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
Original ZEFER The Company
------------------------ ------------
December 31, April 30, December 31,
1998 1999 1999
------------ ----------- ------------
<S> <C> <C> <C>
Net loss--
As reported...................... $(555,177) $(2,280,477) $(30,572,838)
========= =========== ============
Pro forma........................ $(555,631) $(2,280,931) $(30,709,371)
========= =========== ============
Basic and diluted net loss per
share--
As reported...................... $ (1.14)
============
Pro forma........................ $ (1.14)
============
</TABLE>
For the periods indicated above, the Company calculated the minimum fair
value of each option grant on the date of grant using the Black-Scholes option
pricing model as prescribed by SFAS No. 123 using the following assumptions:
<TABLE>
<CAPTION>
Original ZEFER The Company
---------------------- ------------
December 31, April 30, December 31,
1998 1999 1999
------------ --------- ------------
<S> <C> <C> <C>
Risk-free interest rates................. 5.6% 5.6% 6.1%
Expected lives (in years)................ 5.0 5.0 5.0
Dividend yield........................... -- -- --
Expected volatility...................... -- -- 70.0%
</TABLE>
Based on these assumptions, the minimum fair value of options calculated
using the Black-Scholes option pricing model, granted in the periods indicated
above was $2,272, $0 and $5,701,849, respectively. No options were granted by
Original ZEFER in the four months ended April 30, 1999. Because the
determination of fair value of all options granted after such times as the
Company becomes a public entity will include an expected volatility factor in
addition to the factors described in the preceding paragraph, the above results
may not be representative of future periods.
F-22
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
(13) Authorized Capital Stock--Original ZEFER
(a) Redeemable Convertible Preferred Stock--Original ZEFER had authorized a
total of 20,000 shares of redeemable convertible preferred stock, of which
12,000 shares were designated Series A and 8,000 shares were designated Series
B. At December 31, 1998 and April 30, 1999, 12,000 shares of Series A were
issued and outstanding with an aggregate liquidation value of $1,200,000, and
no shares of Series B were issued or outstanding. The Series A was convertible
to Class B common stock of Original ZEFER on a one-for-one basis and had voting
rights. The Series A was entitled to receive quarterly dividends of $1.50 per
share, whether or not declared by the Board of Directors. The Series A was
redeemable on or before March 25, 2003.
(b) Common Stock--Original ZEFER had authorized 168,000 shares of $.01 par
value common stock, of which 47,400 and 57,501 shares were issued and
outstanding at December 31, 1998 and April 30, 1999, respectively. All shares
of Original ZEFER common stock were subject to stock restriction agreements
whereby Original ZEFER could repurchase unvested shares of common stock for the
original purchase price of $.01 per share in the event of termination of
employment by the holder. At December 31, 1998 and April 30, 1999, 31,300
shares of common stock were vested.
In connection with the acquisition of Original ZEFER by the Company on April
30, 1999, all outstanding shares of Series A redeemable convertible preferred
stock and common stock were exchanged for the purchase consideration described
in Note 1 to the financial statements.
(14) Employee Benefit Plans
The Company has a 401(k) savings plan (the Savings Plan) that qualifies as a
defined contribution arrangement under Section 401(a), 401(k) and 501(a) of the
Internal Revenue Code. Under the Savings Plan, participating employees may
defer a percentage (not to exceed 25%) of their eligible pretax earnings up to
the Internal Revenue Service's annual contribution limit. All employees on the
U.S. payroll of the Company are eligible to participate in the Plan. The
Company will determine its contributions, if any, based on its current profits
and/or retained earnings; however, no contributions have been made since the
inception of the Savings Plan.
(15) Valuation and Qualifying Accounts
A rollforward of the Company's allowance for doubtful accounts is as
follows:
<TABLE>
<CAPTION>
Balance at Balance at
Beginning of End of
Period Additions Deductions Period
------------ --------- ---------- ----------
<S> <C> <C> <C> <C>
Period from inception through
December 31, 1998
(Original ZEFER)............. $ -- $ -- $ -- $ --
==== ======== ======== ========
Four months ended April 30,
1999 (Original ZEFER)........ $ -- $ -- $ -- $ --
==== ======== ======== ========
Period from inception through
December 31, 1999 (the Compa-
ny).......................... $ -- $312,199 $(31,962) $280,237
==== ======== ======== ========
</TABLE>
(16) Subsequent Events
(a) Subordinated Debt Financing
Subsequent to year end the Company borrowed an additional $7,370,389 of
subordinated debt under its agreement with GTCR. See Note 9 for the terms
of the subordinated debt.
(b) Issuance of Class A Preferred Stock with Warrants
Subsequent to year end the Company issued an additional 15,263 shares of
Class A Preferred Stock at $1,000 per share for gross proceeds of
approximately $15,263,000. In addition, the Company issued a warrant to
purchase 1,793 shares of Class A preferred stock at an exercise price of
$.001 per share. The Company valued the warrant and recorded interest
expense of approximately $1,793,000. See Note 11 for the Class A rights
and preferences.
F-23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
Spyplane, LLC:
We have audited the accompanying balance sheet of Spyplane, LLC (a
California limited liability company) as of December 31, 1998, and the related
statements of income, members' equity and cash flows for the period from
inception (May 7, 1998) to December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Spyplane, LLC as of
December 31, 1998, and the results of its operations and its cash flows for the
period from inception (May 7, 1998) to December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
October 4, 1999
F-24
<PAGE>
SPYPLANE, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
As of As of
December 31, March 31,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash................................................. $33,859 $ 48,787
Accounts receivable.................................. 15,650 258,530
------- --------
Total current assets............................... 49,509 307,317
Property and Equipment, Net
Computer equipment................................... 42,938 53,486
Furniture and fixtures............................... 9,664 9,664
------- --------
52,602 63,150
Less--Accumulated depreciation....................... 4,868 11,087
------- --------
47,734 52,063
------- --------
$97,243 $359,380
======= ========
LIABILITIES AND MEMBERS' EQUITY:
Current Liabilities:
Accounts payable..................................... $13,847 $ 11,174
Accrued compensation................................. 9,975 --
Accrued accounts payable............................. -- 7,107
Accrued revenue reserve.............................. -- 20,000
Unearned revenue..................................... 8,566 --
------- --------
Total current liabilities.......................... 32,388 38,281
Members' Equity........................................ 64,855 321,099
------- --------
$97,243 $359,380
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
SPYPLANE, LLC
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Period from
Inception
(May 7, 1998) Three Months
to Ended
December 31, March 31,
1998 1999
------------- ------------
(Unaudited)
<S> <C> <C>
Revenues............................................. $314,675 $375,159
Operating Expenses:
Cost of services................................... 66,006 46,627
Sales and marketing................................ 8,437 5,452
General and administrative......................... 28,657 23,955
Depreciation and amortization...................... 4,868 6,219
-------- --------
Total operating expenses......................... 107,968 82,253
-------- --------
Income from operations........................... 206,707 292,906
Interest Expense..................................... 76 307
-------- --------
Net income....................................... $206,631 $292,599
======== ========
</TABLE>
STATEMENTS OF MEMBERS' EQUITY
<TABLE>
<CAPTION>
Members'
Equity
---------
<S> <C>
Balance, May 7, 1998 (inception)..................................... $ --
Net income......................................................... 206,631
Members' draw...................................................... (141,776)
---------
Balance, December 31, 1998........................................... 64,855
Net income......................................................... 292,599
Members' draw...................................................... (36,355)
---------
Balance, March 31, 1999 (unaudited).................................. $ 321,099
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
SPYPLANE, LLC
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Period from
Inception
(May 7, 1998) Three Months
to Ended
December 31, March 31,
1998 1999
------------- ------------
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income......................................... $206,631 $292,599
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation expense.............................. 4,868 6,219
Changes in current assets and liabilities--
Accounts receivable.............................. (15,650) (242,880)
Accounts payable................................. 13,847 (2,673)
Accrued expenses................................. 9,975 17,132
Unearned revenue................................. 8,566 (8,566)
-------- --------
Net cash provided by operating activities....... 228,237 61,831
-------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment................ (52,602) (10,548)
-------- --------
Cash Flows from Financing Activities:
Members' draw...................................... (141,776) (36,355)
-------- --------
Net Increase In Cash................................ 33,859 14,928
Cash, Beginning of Period........................... -- 33,859
-------- --------
Cash, End of Period................................. $ 33,859 $ 48,787
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest............................. $ 148 $ 316
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
SPYPLANE, LLC
NOTES TO FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)
(1) Operations and Sale of the Company
Spyplane, LLC (Spyplane) began operations as a California limited liability
company during May 1998. Spyplane offers integrated Internet services,
including brand creation and Web site development, to its clients.
Spyplane is subject to risks common to rapidly growing, technology-based
companies, including limited operating history, dependence on key personnel,
rapid technological change, competition from substitute services and larger
companies and the need for continued market acceptance of Spyplane's services.
On May 14, 1999, ZEFER Corp., Inc. (ZEFER) purchased all of the LLC Units of
Spyplane from the unit holders for $2,005,000 (the Acquisition) plus
acquisition costs of approximately $100,000. The Acquisition was accounted for
using the purchase method of accounting in accordance with the requirement of
Accounting Principles Board (APB) Opinion No. 16, Business Combinations, and,
accordingly, Spyplane's results of operations are included in those of ZEFER
beginning on May 14, 1999. The total consideration consisted of 200,000 shares
of ZEFER common stock, a promissory note in the amount of $980,000 and $1.0
million in cash.
(2) Summary of Significant Accounting Policies
(a) Interim Financial Statements The accompanying balance sheet as of March
31, 1999 and the statements of operations, cash flows and members' equity for
the three months ended March 31, 1999 are unaudited, but, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation of results for the interim
period. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted, although Spyplane believes that the disclosures
included are adequate to make the information presented not misleading. The
results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the year.
(b) Management 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.
(c) Revenue Recognition Spyplane's revenues are derived from professional
services that are generally provided to clients on a fixed-fee basis. Revenues
from branding and Web site design, development and implementation contracts are
recognized primarily on the percentage-of-completion method. Contracts
generally extend over a two-to-four month period. The cumulative impact of any
revision in estimates of the percent complete is reflected in the period in
which the changes become known. When the revised estimates indicate a loss,
such loss is currently provided for in its entirety. Revenues exclude
reimbursed expenses charged to and collected from clients. Unearned revenue
relates to advanced service billings.
(d) Depreciation Spyplane provides for depreciation by charging to
operations amounts that allocate the cost of property and equipment over their
estimated useful lives using the straight-line method, using an estimated
useful life of 2 years for computers and equipment and five years for furniture
and fixtures.
(e) Income Taxes Spyplane is treated as a limited liability company for
federal and state income tax purposes, whereby the membership owners are taxed
on their proportionate share of Spyplane's income. As a result, Spyplane does
not need to provide for federal or state income taxes.
F-28
<PAGE>
SPYPLANE, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Data Applicable to Unaudited Periods)
(f) Concentration of Credit Risk Statement of Financial Accounting Standards
(SFAS) No. 105, Disclosure of Information About Financial Instruments with Off-
Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. Spyplane has no significant off-balance-sheet risk or credit
risk concentrations. Financial instruments that subject Spyplane to credit risk
consist primarily of accounts receivable. Spyplane has not experienced any
significant losses related to its accounts receivable. During the period from
inception to December 31, 1998 and the three months ended March 31, 1999, the
Company had four significant customers representing 79% and 89% of the
revenues, respectively. As of the December 31, 1999 and March 31, 1999, these
same customers had balances representing 98% and 99% of accounts receivable,
respectively.
(g) Financial Instruments Financial instruments consist primarily of cash,
accounts receivable and accounts payable. The estimated fair value of these
instruments approximates their carrying value at December 31, 1998 and March
31, 1999 because of the short-term nature of these instruments.
(h) Long-lived Assets Spyplane's long-lived assets consist primarily of
property and equipment. Spyplane has assessed the realizability of these assets
and believes that there is no material impairment of these assets to date.
(i) Comprehensive Income Comprehensive income represents net income plus the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources. The only component of
comprehensive income for the period from inception to December 31, 1998 and for
the three months ended March 31, 1999 is net income.
(j) New Accounting Standards In June 1998, the Financial Accounting
Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133, as amended by SFAS No. 137,
is effective for all fiscal quarters beginning with the quarter ending
September 30, 2000. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. The Company will adopt SFAS No.
133 in its quarter ending September 30, 2000, and does not expect such adoption
will have an impact on the Company's results of operations, financial position
or cash flows.
(3) Commitments
Spyplane leases its facility under an operating lease agreement that expires
on November 29, 2000. Future minimum rental payments due under this agreement
are approximately as follows:
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
Year Ending December 31,
1999............................................................... $ 71,200
2000............................................................... 105,600
--------
Total future minimum lease payments.............................. $176,800
========
</TABLE>
Total rental expense included in the accompanying statements of income was
approximately $18,400 for the period from inception to December 31, 1998 and
$5,400 for the unaudited three months ended March 31, 1999.
F-29
<PAGE>
SPYPLANE, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Data Applicable to Unaudited Periods)
(4) Members' Equity
At December 31, 1998, Spyplane's membership consisted of two members,
Gregory Hipwell and Jason Zada. Each member owned a 50% share of Spyplane.
Income is allocated to each of the two members equally, based on the operating
agreement. Total members' draw was $141,776 for the period from inception to
December 31, 1998 and $36, 355 for the unaudited three months ended March 31,
1999.
(5) Line of Credit
On March 18, 1999, Spyplane established a line-of-credit agreement with a
bank in the amount of $10,000. Spyplane has not borrowed against the line of
credit through October 4, 1999.
F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Divisions of Renaissance:
We have audited the accompanying combined balance sheets of Neoglyphics
Media Corporation (an Illinois corporation) and Customer Management Solutions
(a division of Renaissance Worldwide, a Massachusetts corporation),
collectively the Company, as of December 31, 1998 and May 28, 1999, and the
related combined statements of operations and parent company equity (deficit)
and cash flows for the three months ended March 31, 1998, the nine-months ended
December 31, 1998, and the five months ended May 28, 1999. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1998 and May 28, 1999, and the results of its operations and cash
flows for the three months ended March 28, 1998, the nine months ended December
31, 1998, and the five months ended May 28, 1999, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
November 19, 1999
F-31
<PAGE>
DIVISIONS OF RENAISSANCE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, May 28,
1998 1999
------------ ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................... $ 311,564 $ 56,773
Accounts receivable, net of allowance for doubtful
accounts of $112,000 and $114,000 at December 31,
1998 and May 28, 1999, respectively................ 6,208,444 4,525,283
Due from related parties............................ -- 531,637
Prepaid expenses and other current assets........... 57,078 186,416
---------- ----------
Total current assets.............................. 6,577,086 5,300,109
Property and Equipment:
Computer equipment and software..................... 1,494,238 1,542,664
Office furniture and equipment...................... 137,845 164,323
Leasehold improvements.............................. 211,550 211,550
---------- ----------
1,843,633 1,918,537
Less-Accumulated depreciation....................... 522,739 712,404
---------- ----------
1,320,894 1,206,133
Other Assets.......................................... 47,975 42,877
---------- ----------
$7,945,955 $6,549,119
========== ==========
LIABILITIES AND PARENT COMPANY EQUITY (DEFICIT)
Current Liabilities:
Line of credit...................................... $1,734,489 $1,747,558
Current portion of long-term debt................... 89,085 35,143
Accounts payable.................................... -- 39,138
Due to related party................................ 759,683 4,053,001
Accrued expenses.................................... 2,462,702 2,023,636
Deferred revenue.................................... 49,476 55,073
---------- ----------
Total current liabilities......................... 5,095,435 7,953,549
Long-term Debt, net of current portion................ 251,558 262,755
Commitments (Note 6)
Parent Company Equity (Deficit) (Note 7).............. 2,598,962 (1,667,185)
---------- ----------
$7,945,955 $6,549,119
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-32
<PAGE>
DIVISIONS OF RENAISSANCE
COMBINED STATEMENTS OF OPERATIONS AND PARENT COMPANY EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Three Months Nine Months Five Months
Ended Ended Ended
March 31, December 31, May 28,
1998 1998 1999
------------ ------------ -----------
<S> <C> <C> <C>
Revenues.............................. $2,348,418 $11,449,911 $ 3,886,424
Operating Expenses:
Cost of services.................... 1,437,832 8,618,164 4,781,116
Hiring and training................. 13,410 182,266 160,165
Selling and marketing............... 409,758 3,715,967 1,012,552
General and administrative.......... 1,412,543 1,771,100 2,650,780
---------- ----------- -----------
Total operating expenses.......... 3,273,543 14,287,497 8,604,613
---------- ----------- -----------
Loss from operations.............. (925,125) (2,837,586) (4,718,189)
Interest Expense...................... 8,070 129,640 86,474
Other Expense......................... -- 293,824 238,054
---------- ----------- -----------
Net loss.......................... $ (933,195) $(3,261,050) $(5,042,717)
========== =========== ===========
Parent Company Equity, beginning of
period............................... $1,995,057 $ 1,339,000 $ 2,598,962
Net Loss.............................. (933,195) (3,261,050) (5,042,717)
Net Transfers from Parent............. 277,138 4,521,012 776,570
---------- ----------- -----------
Parent Company Equity (Deficit), end
of period............................ $1,339,000 $ 2,598,962 $(1,667,185)
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-33
<PAGE>
DIVISIONS OF RENAISSANCE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Nine Months Five Months
Ended Ended Ended
March 31, December 31, May 28,
1998 1998 1999
------------ ------------ -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss............................... $(933,195) $(3,261,050) $(5,042,717)
Adjustments to reconcile net income to
net cash used in operating activities--
Depreciation and amortization......... 106,936 233,617 189,665
Changes in operating assets and
liabilities--
Accounts receivable.................. 193,197 (3,241,444) 1,683,161
Due from related parties............. 23,811 -- (531,637)
Prepaid expenses and other current
assets.............................. 60,142 (38,078) (129,338)
Due to related party................. (93,100) 759,683 3,293,318
Accounts payable..................... (103,609) (118,000) 39,138
Accrued expenses..................... 212,495 1,816,702 (439,066)
Deferred revenue..................... (10,434) 49,476 5,597
Deferred income taxes................ (257,679) (497,698) --
--------- ----------- -----------
Net cash used in operating
activities......................... (801,436) (4,296,792) (931,879)
--------- ----------- -----------
Cash Flows from Investing Activities:
Purchases of property and equipment.... (265,071) (141,511) (74,904)
Decrease in other assets............... 88,461 3,025 5,098
--------- ----------- -----------
Net cash used in operating
activities......................... (176,610) (138,486) (69,806)
--------- ----------- -----------
Cash Flow from Financing Activities:
Net borrowings (payments) on debt...... 295,214 30,643 (42,745)
Net borrowings on line of credit....... 304,000 730,489 13,069
Contributions by parent................ 277,138 4,521,012 776,570
--------- ----------- -----------
Net cash provided by financing
activities......................... 876,352 5,282,144 746,894
--------- ----------- -----------
Net (Decrease) Increase in Cash and Cash
Equivalents............................ (101,694) 311,564 (254,791)
Cash and Cash Equivalents, beginning of
period................................. 101,694 -- 311,564
--------- ----------- -----------
Cash and Cash Equivalents, end of
period................................. $ -- $ 311,564 $ 56,773
========= =========== ===========
Supplemental Disclosures of Cash Flow
Information:
Cash paid for interest................. $ 34,428 $ 103,282 $ 86,474
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-34
<PAGE>
DIVISIONS OF RENAISSANCE
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) Operations and Sale of the Company
On May 28, 1999, ZEFER Corp. (ZEFER) completed its acquisition of the
Internet development and applications business of Renaissance Worldwide, Inc.,
a Massachusetts corporation (Renaissance). The acquired businesses consist of
Neogplyphics Media Corporation (NMC) and Customer Management Solutions (CMS),
collectively, the Divisions of Renaissance or the Company.
NMC was organized under the laws of the state of Illinois in February 1995,
and is an Internet development and applications company which develops Web
sites under contractual agreements with various customers located primarily in
the United States. CMS was organized as an operating division of Renaissance in
March of 1998, and is an Internet development and applications company that
develops Web-based front-office systems for various customers located primarily
in the United States.
In May 1999, ZEFER acquired certain net assets of the Company for
approximately $12.3 million. The consideration consisted of $10 million of
cash, 100,000 shares of ZEFER common stock valued at $50,000, a promissory note
of $2 million, plus acquisition costs of approximately $160,000. The
acquisition was accounted for using the purchase method of accounting, in
accordance with APB Opinion No. 16. The purchase price was allocated based on
the estimated fair market value of assets and liabilities assumed on the date
of acquisition.
The accompanying combined financial statements reflect a carveout of the
Company from the consolidated financial statements of Renaissance. Prior to the
acquisition by ZEFER, the Divisions of Renaissance were operated as separate
divisions. The statements of operations for the Company reflects allocations of
the cost of shared facilities and certain administrative costs. Such costs and
expenses have been allocated to the Company based on actual usage or other
methods that approximate actual usage. Management believes that the allocation
methods are reasonable. The financial information included herein may not
necessarily reflect the financial position, results of operations or cash flows
of the Company in the future, nor what the financial position, results of
operations or cash flows would have been had it been a separate, stand-alone
company throughout the periods covered.
(2) Summary of Significant Accounting Policies
The accompanying combined financial statements reflect the application of
certain significant accounting policies, as described in this note and
elsewhere in the notes to combined financial statements.
(a) Management 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 periods. Actual results could differ from those estimates.
(b) Cash and Cash Equivalents Cash equivalents are stated at cost, which
approximates fair market value. The Company considers highly liquid investments
with original maturities of 90 days or less to be cash equivalents. As of
December 31, 1998 and May 28, 1999, cash equivalents consisted of money market
accounts and commercial paper that are readily convertible to cash.
(c) Fair Value of Financial Instruments Financial instruments consist
principally of cash and cash equivalents, accounts receivable, and accounts
payable, line of credit and long-term debt and obligations. The estimated fair
value of these instruments approximates their carrying value.
F-35
<PAGE>
DIVISIONS OF RENAISSANCE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(d) Revenue Recognition Revenues are derived from professional services,
which are provided to clients on a time and materials or fixed-fee basis.
Revenues pursuant to time and materials contracts are generally recognized as
services are performed. Revenues pursuant to fixed-fee contracts to provide
services are recognized using the percentage-of-completion method (based on the
ratio of costs included to total estimated project costs). Contracts generally
extend over a three-to-six-month period. The cumulative impact of any revision
in estimates of the percent complete is reflected in the period in which
changes become known. When the revised estimates indicate a loss, such loss is
currently provided for in its entirety. Revenues exclude reimbursed expenses
charged to and collected from clients. Deferred revenue relates to advanced
service billings.
(e) Due from (to) Related Party Due from (to) related parties consists of
amounts due from (to) Renaissance and other divisions within Renaissance.
(f) Property and Equipment Depreciation is provided for using the straight-
line method, by charges to operations in amounts estimated to allocate the cost
of property and equipment over their estimated useful life of 3-5 years for
computer equipment and software, 5-10 years for office furniture and equipment
and the life of the lease for leasehold improvements.
(g) Long-Lived Assets The Company evaluates the realizability of its long-
lived assets based on profitability and cash flow expectations for the related
asset. Management believes that, as of each of the balance sheet dates
presented, none of the Company's long-lived assets was impaired.
(h) Concentration of Credit Risk The Company has no significant off-balance
sheet concentration of credit risks such as foreign exchange contracts, options
contracts or other foreign hedging arrangements. Financial instruments that
potentially expose the Company to concentrations of credit risk consist
primarily of cash and cash equivalents, accounts receivable, due from (to)
related parties, and long-term debt. Concentrated credit risk with respect to
accounts receivable is limited to certain customers to whom the Company makes
substantial sales. During the three months ended March 31, 1998, the nine
months ended December 31, 1998 and the five months ended May 28, 1999, the
Company had three, four and two customers representing 45%, 56% and 22% of the
revenues, respectively. As of December 31, 1998 and May 28, 1999, these same
customers had balances representing 53% and 19% of accounts receivable,
respectively.
(i) Earnings per Share SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. As the Company does not have any common stock
or potential common stock during the periods presented, as the Company is
funded through investments by parent, the Company has not disclosed earnings
per share.
(j) Comprehensive Income SFAS No. 130, Reporting Comprehensive Income,
establishes standards for reporting comprehensive income and its components in
the financial statements. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. The only component of
comprehensive income (loss) of the Company for the periods presented is net
income (loss).
(k) Disclosure About Segment of an Enterprise and Related Information The
Company views its operations and business as principally one segment, Web site
design. Through May 28, 1999, substantially all of the Company's operations and
assets have been derived from and are located in the U.S.
(l) New Accounting Standards In June 1998, the Financial Accounting
Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments
F-36
<PAGE>
DIVISIONS OF RENAISSANCE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. Pursuant to SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133, SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 is
not expected to have a material impact on the Company's financial statements.
(3) Income Taxes
For the periods presented, the results of the Company were included in the
consolidated tax return of Renaissance. The Company's policy is to record
income taxes as if it were a separate company. Accordingly, no tax benefit has
been recorded for the net losses because of uncertainty of future realization.
A full valuation allowance was recorded against the Company's net operating
loss carryforwards.
(4) Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31, May 28,
1998 1999
------------ ----------
<S> <C> <C>
Salaries and related costs.......................... $1,467,045 $ 980,358
Professional and consulting fees.................... 687,734 611,945
Other............................................... 307,923 213,240
---------- ----------
$2,462,702 $1,805,543
========== ==========
</TABLE>
(5) Long-term Debt
(a) Line of Credit The Company had a line-of-credit agreement with a bank
for $2,000,000 dated December 31, 1998, which was collateralized by a
promissory note and security agreement covering substantially all assets of the
Company. The note bore interest at prime (7.75% at May 28, 1999) plus 1%. The
note matured on June 30, 1999. As of December 31, 1998 and May 28, 1999, loans
of $1,734,489 and $1,747,558 were outstanding on this line of credit,
respectively. This loan was repaid in full by Renaissance in June 1999.
(b) Installment Note Payable The Company also had an installment note
payable agreement with a bank pursuant to which they could borrow up to
$300,000. Monthly installments of principal and interest are based on the
amount drawn with a maximum monthly payment of $6,301. Final payment is due
June 30, 2000. The note is collateralized by substantially all assets of NMC
and bears interest at prime (8.75% at May 28, 1999) plus 1%. As of December 31,
1998 and May 28, 1999, a principal balance of $283,222 and $262,755 was
outstanding on this note. This note was repaid in full by Renaissance in June
1999.
(6) Commitments
The Company leases its office facility and equipment under noncancelable
operating leases that expire at various dates through December 31, 2002. Future
minimum lease payments are approximately $74,000 as of May 28, 1999, and extend
through 2002.
Rent expense included in the accompanying statements of operations was
approximately $89,000, $411,000 and $243,000 for the three months ended March
31, 1998, the nine months ended December 31, 1998 and the five months ended May
28, 1999, respectively.
F-37
<PAGE>
DIVISIONS OF RENAISSANCE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(7) Parent Company Equity (Deficit)
The financial statements of the Company have been derived from the
consolidated financial statements of Renaissance. Parent Company equity
represents the net assets (liabilities) of the Company.
(8) 401(k) Plan
Effective January 1997, NMC established a deferred compensation plan under
Section 401(k) of the Internal Revenue Code, covering substantially all
employees. Under the plan, employees may elect to defer up to 15% of their
salary, subject to the Internal Revenue Code limits. NMC may make a matching
contribution, as well as a discretionary contribution. As of July 1, 1998 all
contributions under the plan were ceased, in conjunction with the acquisition
of NMC by Renaissance. NMC did not elect to make any matching contributions or
discretionary contribution under the plan for fiscal 1998.
F-38
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Neogplyphics Media Corporation:
We have audited the accompanying statement of financial position of
Neoglyphics Media Corporation as of December 31, 1997, and the related
statements of income and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Neoglyphics Media
Corporation at December 31, 1997, and the results of its operation and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
As described in Note 2 to the financial statements, the Company changed its
method of recognizing revenue under fixed-fee contracts.
Katch, Tyson & Company
Northfield, Illinois
March 12, 1998
F-39
<PAGE>
NEOGLYPHICS MEDIA CORPORATION
STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
----
<S> <C>
ASSETS
Current Assets:
Cash (Note 1)...................................................... $ 101,694
Accounts Receivable (Notes 3 and 5)................................ 2,655,542
Less--Allowance for Doubtful Account (Note 1)...................... 56,881
----------
2,598,661
Costs and estimated earnings in excess of billings on uncompleted
contracts (Notes 1 and 6)......................................... 561,536
Due from affiliate (Note 4)........................................ 17,456
Due from officer................................................... 6,355
Prepaid expenses................................................... 79,142
----------
Total current assets.............................................. 3,364,844
Properties (Note 1):
Computer equipment................................................. 889,913
Office furniture and equipment..................................... 258,655
Vehicle............................................................ 28,701
----------
Total............................................................. 1,177,269
Less--Accumulated depreciation..................................... 182,186
----------
Undepreciated cost................................................ 995,083
Unamortized computer software...................................... 138,054
Unamortized leasehold improvements................................. 81,728
----------
Total Properties.................................................. 1,214,865
Other Assets:
Deposits........................................................... 43,854
Unamortized software development costs (Notes 1 and 7)............. 52,531
Intangible assets (Note 1)......................................... 43,076
----------
Total other assets................................................ 139,461
----------
Total assets (Note 8)............................................. $4,719,170
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable--Bank (Note 8)........................................ $ 700,000
Current maturities of long-term indebtedness (Notes 10 and 11)..... 13,386
Note payable--Officer (Note 9)..................................... 93,100
Accounts payable................................................... 221,609
Accrued payroll and expenses (Notes 9 and 11)...................... 433,505
Billing in excess of costs and estimated earnings on uncompleted
contracts (Notes 1 and 6)......................................... 10,434
Accrued income taxes (Note 1)...................................... 200,978
Deferred income taxes (Notes 1 and 12)............................. 1,038,869
----------
Total current liabilities......................................... 2,711,881
Long-Term Indebtedness:
Obligation under capital lease (Notes 10 and 11)................... 1,400
Deferred income taxes (Notes 1 and 12)............................. 50,832
----------
Total long-term indebtedness...................................... 52,232
----------
Total liabilities................................................. 2,764,113
Stockholders' Equity:
Common stock--
Authorized--18,000,000 shares
Issued and outstanding--16,888,500 shares, no par value (Notes 1
and 14)........................................................... 26,885
Additional paid in capital......................................... 34,874
Retained earnings:
Balance--Beginning of year (2)..................................... 598,610
Add--Net income for the year (exhibit b)........................... 1,294,688
Balance--End of year.............................................. 1,893,298
----------
Total stockholders' equity........................................ 1,955,057
----------
Total liabilities and stockholders' equity........................ $4,719,170
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
NEOGLYPHICS MEDIA CORPORATION
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Amount
----------
<S> <C>
Net Sales (Notes 1, 2 and 3)........................................ $9,539,217
Direct Costs........................................................ 4,461,044
----------
Gross profit.................................................... 5,078,173
Operating Expenses:
Selling........................................................... 592,900
General and administrative........................................ 1,831,050
----------
Total operating expenses........................................ 2,423,950
----------
Net income from operations...................................... 2,654,223
Other (Income) Expense:
Interest expense.................................................. 38,640
Miscellaneous income.............................................. (4,658)
----------
Total other (income) expense.................................... 33,982
----------
Net income before provision for income taxes.................... 2,620,241
Provision for Income Taxes (Note 1):
Current income taxes.............................................. 235,852
Deferred income taxes (Note 12)................................... 1,089,701
----------
Total provision for income taxes................................ 1,325,553
----------
Net income (Exhibit A).......................................... $1,294,688
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
NEOGLYPHICS MEDIA CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Cash flows from operating activities:
Net income....................................................... $ 1,294,688
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................... 196,636
Change in provision for bad debts............................... 21,737
Deferred income taxes........................................... 1,089,701
Tax provision on the exercise of stock options.................. 34,874
(Increase) decrease in assets:
Accounts receivable............................................ (1,336,168)
Due from affiliate............................................. 5,020
Due from officer............................................... (6,355)
Costs and estimated earnings in excess of billings on
uncompleted contracts......................................... (561,536)
Prepaid expenses............................................... (76,294)
Deposits....................................................... (26,366)
Increase (decrease) in liabilities:
Accounts payable............................................... 112,118
Accrued payroll and expenses................................... 51,652
Accrued income taxes........................................... 200,978
Billings in excess of costs and estimated earnings on
uncompleted contracts......................................... (94,322)
-----------
Total adjustments............................................. (388,325)
-----------
Net cash provided by operating activities..................... 906,363
Cash flows from investing activities:
Purchase of properties and computer software..................... (887,013)
Software development costs....................................... (55,621)
Trademarks costs................................................. (12,465)
-----------
Net cash (used in) operating activities....................... 955,099
Cash flow from financing activities:
Proceeds from issuance of long-term debt......................... 5,850
Net borrowing (payments) on line of credit....................... 268,000
Principal payments on long-term debt............................. (90,607)
Cash proceeds from exercise of stock options..................... 6,885
-----------
Net cash provided by financing activities..................... 190,128
-----------
Net increase in cash and cash equivalents..................... 141,392
Cash and Cash Equivalents--Beginning of period.................... (39,698)
-----------
Cash and Cash Equivalents--end of period.......................... $ 101,694
===========
Supplemental disclosures of cash flow information:
Cash paid during the year for--Interest.......................... $ 27,068
===========
</TABLE>
Disclosure of Accounting Policy:
For purposes of the statements of cash flows, the company considers all
highly liquid debt instruments with a maturity of three months or less to be
cash equivalents.
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
NEOGLYPHICS MEDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
(1) Summary of Significant Accounting Policies
(a) Nature of Operations The Company, which began operations in February,
1995, develops websites under contractual agreements with various clients
located primarily in the United States.
(b) 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 amount of revenue and
expenses during the reported period. Actual results could differ from those
estimates.
(c) Cash Equivalents The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
(d) Allowance for Doubtful Accounts The Company maintains reserves for
potential credit losses, and such losses have been within management's
expectations.
(e) Properties Properties, which are stated at cost, are being depreciated
or amortized over the estimated useful lives of the assets on the straight-line
method. Estimated useful lives of properties are as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Computer equipment................................................... 5
Office furniture and equipment....................................... 5-10
Vehicle.............................................................. 5
Computer software.................................................... 3
Leasehold improvements............................................... 5
</TABLE>
Due to inherent technological change in the computer industry, the period
over which computer equipment and software is being depreciated and amortized
may have to be accelerated. Depreciation and amortization of properties amounts
to $189,611 for the year ended December 31, 1997.
(f) Intangibles Intangible assets are being amortized over the estimated
useful lives of the assets on the straight-line method. Estimated useful lives
of intangibles range from five to ten years. Amortization of intangibles
amounts to $3,935 for the year ended December 31, 1997.
(g) Computer Software Development Costs In accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for Costs of Computer
Software to be Sold, Leased or Otherwise Marketed," the Company is required to
capitalize certain software development and production costs once technological
feasibility has been achieved. Costs prior to technological feasibility is
achieved, and subsequent to the product release, are charged to operations as
incurred. Capitalized computer software development costs are reported at the
lower of unamortized cost or net realizable value. Upon initial product
release, these costs are amortized based on the straight-line method over the
estimated useful life, not to exceed three years. Fully amortized computer
software costs are removed from the financial records.
(h) Revenue Recognition Revenue from fixed-fee contracts are recognized on
the percentage-of-completion method measured by the percentage of labor hours
incurred to date, to total labor hours for each contract, as estimated by
management. This method is used because management considers total labor hours
to be the best available measure of progress on contracts. Because of the
inherent uncertainties in estimating hours, it is possible that the Company's
estimates of costs and revenue may be revised prior to contract completion.
Changes in estimated profitability and job performance may result in revisions
to costs and income, which are recognized in the period in which the revisions
are determined. If estimated total costs for a contract indicate a loss, the
Company provides currently for the total anticipated loss on the contract.
F-43
<PAGE>
NEOGLYPHICS MEDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997
Contract costs include all direct labor and those indirect costs related to
contract performance. The asset, "Costs and Estimated Earnings in Excess of
Billings on Uncompleted Contracts," represents revenue recognized in excess of
amounts billed. The liability, "Billings in Excess of Costs and Estimated
Earnings on Uncompleted Contracts," represents billings in excess of revenue
recognized.
(i) Income Taxes Effective January 1, 1997, the Company terminated its
election to be taxed as a small business corporation. Accordingly, on that
date, the Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Deferred taxes have resulted from temporary
differences between reporting income for financial reporting purposes and for
income tax purposes.
The Company reports income on the cash basis for income tax purposes and,
accordingly, pays taxes based on when income is received and expenses are paid.
The Company depreciates its properties on the straight-line method, capitalizes
software developments cost, recognizes revenue using the percentage of
completion on fixed contracts, and provides for bad debts at the time of sale
for financial reporting purposes. Differences arise as the Company depreciates
its properties on accelerated methods, expenses all software development costs,
recognizes revenue when collected, and expenses bad debts as they occur, for
income tax purposes.
(j) Stock Options The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting
for Stock-Based Compensation," but applies Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for its plans.
(k) Research and Development Costs Research and development costs are
charged to operations when incurred and are included in operating expenses. The
amount charged in 1997 was $40,007.
(2) Change of Accounting Principle
During 1997, the Company adopted the percentage of completion method for
recognizing revenue under fixed-fee contracts. The Company believes this method
accurately reflects periodic results of operations. The effect of this change
is to increase net income for 1997 by $393,515. Retained earnings has been
decreased by $104,756 for the effect of retroactive application of the new
method.
(3) Concentration of Credit Risk
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. Sales are not concentrated
geographically, however, three customers accounted for 44% of total sales for
the year ended December 31, 1997, and four customers accounted for 71% of the
accounts receivable balance at December 31, 1997.
(4) Related Party Transactions
The Company is affiliated, through common ownership, with Financial
Coordinated Services Inc. The only material transactions with its affiliate
during the year ended December 31, 1997 were short-term advances of $90,375.
F-44
<PAGE>
NEOGLYPHICS MEDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997
(5) Accounts Receivable
Accounts receivable are summarized as follows:
<TABLE>
<S> <C>
Completed Contracts............................................. $ 360,018
Contracts in Progress........................................... 2,287,580
Server Fees..................................................... 7,944
----------
Total......................................................... $2,655,542
==========
</TABLE>
(6) Costs and Estimated Earnings on Uncompleted Contracts
Uncompleted contracts are summarized as follows:
<TABLE>
<S> <C>
Cost incurred..................................................... $380,501
Estimated Earnings................................................ 616,986
--------
Subtotal........................................................ 997,487
Less--Billings to date............................................ 446,385
--------
Total........................................................... $551,102
========
</TABLE>
This amount is included on the balance sheet under the following captions:
<TABLE>
<S> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts........................................ $561,536
Billings in excess of costs and estimated earnings on
uncompleted contracts........................................ (10,434)
--------
Total....................................................... $551,102
========
</TABLE>
(7) Computer Software Development Costs
Computer software development coats were as follows for the year ended
December 31, 1997.
<TABLE>
<S> <C>
Unamortized balance--Beginning of year............................ $ --
Current year additions............................................ 55,621
-------
Net capitalized costs........................................... 55,621
Less--Amortization................................................ 3,090
Adjustments to carrying value..................................... --
-------
Net capitalized computer software development costs............. $52,531
=======
</TABLE>
In management's opinion, the net realizable value of future sales exceeds
the carrying value of unamortized computer software development costs;
therefore, no adjustment to carrying value is required.
Due to inherent technological change in the computer software development
industry, the period over which such capitalized computer software development
costs is being amortized may have to be accelerated.
(8) Note Payable--Bank
The Company has a line-of-credit agreement with American National Bank and
Trust Company of Chicago for $1,500,000 dated December 12, 1997, which is
collateralized by a promissory note and security agreement covering
substantially all assets of the Company. The note bears interest at one point
above the bank's base rate, which was 8.5% at December 31, 1997. The note
matures on June 30, 1998.
F-45
<PAGE>
NEOGLYPHICS MEDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997
The Company also has an installment note agreement with American National
Bank and Trust Company of Chicago for an amount up to $300,000. Monthly
installments of principal and interest are based on the amount drawn with a
maximum monthly payment of $6,301. Final payment is due June 30, 2000. The note
is collateralized by substantially all assets of the Company and bears interest
at one point above the bank's base rate, which was at 8.5% at December 31,
1997. No indebtedness exists on the installment note of December 31, 1997.
(9) Note Payable--Officer
The note payable, unsecured, is due on demand. Interest is accrued at an
annual rate of 9% of the outstanding balance. Unpaid interest at December 31,
1997 amounts to $11,308 on this note.
(10) Long-Term Indebtedness
As of December 31, 1997, the long-term indebtedness consists of the
following:
<TABLE>
<S> <C>
A note payable, secured by a vehicle, payable in monthly
installments of $904, including interest at an annual rate of
8.5%. The note matures on December 31, 1998...................... $10,390
Obligation under capital lease (Note 11).......................... 4,396
-------
Total........................................................... 14,786
Less--Current Maturities of Long-Term Indebtedness................ 13,386
-------
Long-Term Indebtedness.......................................... $ 1,400
=======
</TABLE>
As of December 31, 1997, long-term indebtedness of $1,400 is to be
liquidated in the year ended December 31, 1999.
(11) Commitments and Contingencies
(a) Capitalized Lease Obligation The Company has financed the purchase of
certain equipment through a leasing arrangement. For financial reporting
purposes, the asset and liability under this lease is capitalized at the lower
of the present value of the minimum lease payments or the fair value of the
asset. The interest rate on the capitalized lease is 16.47% and is imputed
based on the lower of the Company's incremental borrowing rate at the inception
of the lease or the lessor's implicit rate of return. The lease, which is
noncancelable, expires in June, 1999.
The following is a schedule, by years, of future minimum lease payments
under this capital lease, together with the present value of the total minimum
lease payments, as of December 31, 1997:
<TABLE>
<S> <C>
1998............................................................... $3,500
1999............................................................... 1,458
------
Total minimum lease payments..................................... 4,958
Less--Amount representing interest................................. 562
------
Present value of total minimum lease payments.................... $4,396
======
Current portion.................................................... 2,996
Noncurrent portion................................................. 1,400
------
Total (Note 10).................................................. $4,396
======
</TABLE>
F-46
<PAGE>
NEOGLYPHICS MEDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997
(b) Operating Leases The Company leases its office facilities under
noncancelable operating leases which expire at various dates through the year
2002. The future minimum rental payments required under these leases which have
initial or remaining noncancelable lease terms in excess of one year as of
December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998.............................................................. $324,507
1999.............................................................. 68,696
2000.............................................................. 43,968
2001.............................................................. 45,720
2002.............................................................. 47,556
--------
Total........................................................... $530,447
========
</TABLE>
The Company sublets some of its office space to a related party (Note 4) on
a month-to-month basis.
The leases require the Company to pay for insurance and maintenance of
facilities during the terms of the leases.
Rent expense, on real properties, amounts to $271,668 for the year ended
December 31, 1997.
The Company leases equipment under noncancelable operating leases which
expire in the year 1999. The future minimum rental payments required under
these leases, which have an initial or remaining noncancelable lease terms in
excess of one year as of December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998............................................................... $51,466
1999............................................................... 42,567
-------
Total............................................................ $94,033
=======
</TABLE>
Rent expense, on equipment, including month-to-month rentals, amounts to
$115,636 for the year ended December 31, 1997.
(c) Self-insurance The Company self-insures for health insurance for its
employees. The Company limits its losses through the use of stop-loss policies
from reinsurers. Specific individual losses from claims are limited to $25,000
a year. The Company's aggregate annual loss limitation is determined by
formula. Management believes they have adequately provided for all claims
incurred in the accompanying financial statement.
(d) Product Warranties The Company generally develops websites for customers
under contract, which usually contain unconditional warranties and support for
periods ranging up to one year. At December 31, 1997 a provision of $9,598 is
included in accrued liabilities for estimated warranty claims based on the
Company's experience.
(12) Deferred Income Taxes
As discussed in Note I, the Company terminated its election to be taxed as a
small business corporation effective January 1, 1997. On this date, the
deferred tax liability was approximately $302,475, which has been recorded
through a charge to the deferred tax provision.
F-47
<PAGE>
NEOGLYPHICS MEDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997
(13) Deferred Compensation Plan
Effective January 1, 1997, the Company established a deferred compensation
plan under Section 401 (k) of the Internal Revenue Code, covering substantially
all employees. Under the plan, employees may elect to defer up to 15% of their
salary, subject to the Internal Revenue Code limits. The Company may make a
matching contribution, as well as a discretionary contribution. The Company did
not elect to make any matching contributions or discretionary contribution
under the plan for the year ended December 31, 1997.
(14) Stock Option Plan
Effective September 13, 1996, the Company adopted a stock option plan that
provides for incentive stock options (for key employees) and nonqualified stock
options (for key individuals, including nonemployees). The total number of
shares reserved for issuance pursuant to this plan is 1,800,000.
(a) Incentive Stock Options This part of the plan is intended to qualify
under Section 422 of the Internal Revenue Code. Options to purchase common
stock are granted at not less than the estimated fair market value at the date
of the grant, and are exercisable during a ten-year period. No options have
been granted as of December 31, 1997.
(b) Nonqualified Stock Options As stated in Note 1, the Company has adopted
the disclosure-only provisions of Statement of Financial Accounting Standards
No. 123 (SFAS No. 123). If the Company had elected to recognize compensation
cost for the options granted during 1997, consistent with the method prescribed
by SFAS No. 123, net income would have been decreased by $25,023 for the year
ended December 31, 1997.
The weighted-average fair value of the options granted during 1997 was
estimated, using the Black-Scholes option pricing model, using the following
assumptions:
<TABLE>
<S> <C>
Risk-Free interest Rate....................................... 6.00%
Expected Life................................................. 1 to 7 years
Expected Volatility........................................... .01%
Expected Dividend Yield....................................... None
</TABLE>
A summary of option transactions during the year ended December 31, 1997, is
as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Number of Exercise
Shares Price
--------- ---------
<S> <C> <C>
Outstanding at January 1, 1997
Granted............................................... 1,652,990 $0.06
Exercised............................................. 688,500 0.01
Canceled.............................................. 4,581 --
--------- -----
Outstanding at December 31, 1997....................... 959,909 $0.10
========= =====
</TABLE>
F-48
<PAGE>
NEOGLYPHICS MEDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997
A summary of options, outstanding as of December 31, 1997, is as follows:
<TABLE>
<CAPTION>
Weighted-
Average Weighted-
Number of Remaining Average
Exercise Shares Contractual Exercise
Price Outstanding Life Price
-------- ----------- ----------- ---------
<S> <C> <C> <C>
.10 959,909 9.41 $0.10
</TABLE>
(15) Subsequent Event
On January 2, 1998, the Company signed a "master lease" agreement with
American National Bank and Trust Company of Chicago for the lease of various
equipment as needed in the future. On January 20, 1998, the Company financed
$95,481 of equipment purchased in December, 1997, through this master lease
agreement. The lease, which is noncancelable, expires January 20, 2000, and
bears interest at one point above the bank's base rate, which was 8.5% on
January 20, 1998. For financial reporting purposes, the asset and liability
under this lease is capitalized at the lower of present value of the minimum
lease payments or the fair value of the asset.
The following is a schedule, by years, of future minimum lease payments
under this capital lease, together with the present value of the total minimum
lease payments, as of January 20, 1998:
<TABLE>
<S> <C>
1998............................................................. $ 47,823
1999............................................................. 52,171
2000............................................................. 5,348
--------
Total minimum lease payments................................... 104,342
Less--Amount representing interest............................... 8,861
--------
Present value of total minimum lease payments.................. $ 95,481
========
Current portion.................................................. 41,110
Noncurrent portion............................................... 54,371
--------
Total.......................................................... $ 95,481
========
</TABLE>
F-49
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Waite & Company, Inc.:
We have audited the accompanying balance sheet of Waite & Company, Inc. (a
Massachusetts corporation) as of December 31, 1998, and the related statements
of operations, stockholders' equity and cash flows for the years ended December
31, 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Waite & Company, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
years ended December 31, 1998 and 1997, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
October 15, 1999
F-50
<PAGE>
WAITE & COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 438,037 $ 406,537
Accounts receivable, net of allowance of $0 and
$16,000 at December 31, 1998 and June 30, 1999,
respectively....................................... 681,514 989,113
Unbilled accounts receivable........................ 42,500 151,300
Other current assets................................ 30,708 24,104
---------- ----------
Total current assets.............................. 1,192,759 1,571,054
Property and equipment, at cost:
Computer hardware and software...................... 80,385 115,458
Furniture and fixtures.............................. 50,478 174,179
Leasehold improvements.............................. 23,114 91,545
Office equipment.................................... 21,366 21,909
---------- ----------
175,343 403,091
Less--Accumulated depreciation and amortization..... 78,005 111,932
---------- ----------
97,338 291,159
Other assets.......................................... 23,020 19,908
---------- ----------
$1,313,117 $1,882,121
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................... $ 16,720 $ 75,274
Distributions payable............................... 100,000 400,000
Accrued vacation.................................... 57,883 60,024
Accrued bonus....................................... -- 16,457
Unearned revenue.................................... -- 255,407
Current portion of capital lease obligation......... -- 50,725
---------- ----------
Total current liabilities......................... 174,603 857,887
Long-term portion of capital lease obligation......... -- 141,942
---------- ----------
Total liabilities................................. 174,603 999,829
Commitments (Note 5)
Stockholders' equity:
Common stock, no par value--
Authorized--200,000 shares
Issued and outstanding--1,030 shares................ 16,804 16,804
Retained earnings................................... 1,121,710 865,488
---------- ----------
Total stockholders' equity........................ 1,138,514 882,292
---------- ----------
$1,313,117 $1,882,121
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
WAITE & COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended For the Six Months Ended
December 31, June 30,
--------------------- --------------------------
1997 1998 1998 1999
---------- ---------- ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues....................... $2,591,540 $3,250,500 $ 1,428,000 $ 2,096,241
Operating Expenses:
Cost of services............. 1,324,912 1,686,759 837,802 1,019,395
Hiring and training.......... 5,000 13,605 6,061 51,609
General and administrative... 320,913 417,291 254,314 345,137
Selling and marketing........ 65,053 128,155 72,630 59,681
Depreciation and
amortization................ 32,358 31,783 14,263 33,927
---------- ---------- ------------ ------------
Total operating expenses... 1,748,236 2,277,593 1,185,070 1,509,749
---------- ---------- ------------ ------------
Income from operations..... 843,304 972,907 242,930 586,492
Interest and Other Income...... 15,377 20,723 11,195 22,786
---------- ---------- ------------ ------------
Net income................. $ 858,681 $ 993,630 $ 254,125 $ 609,278
========== ========== ============ ============
</TABLE>
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------- Total
Number of Retained Stockholders'
Shares No Par Value Earnings Equity
--------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996
(unaudited)................. 1,000 $ 1,000 $ 293,880 $ 294,880
Distributions to
shareholders.............. -- -- (442,681) (442,681)
Issuance of common stock... 30 15,804 -- 15,804
Net income................. -- -- 858,681 858,681
----- ------- ---------- ----------
Balance, December 31, 1997... 1,030 16,804 709,880 726,684
Distributions to
shareholders.............. -- -- (581,800) (581,800)
Net income................. -- -- 993,630 993,630
----- ------- ---------- ----------
Balance, December 31, 1998... 1,030 16,804 1,121,710 1,138,514
Distributions to
shareholders.............. -- -- (865,500) (865,500)
Net income................. -- -- 609,278 609,278
----- ------- ---------- ----------
Balance, June 30, 1999
(unaudited)................. 1,030 $16,804 $ 865,488 $ 882,292
===== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE>
WAITE & COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six
For the Years Ended Months Ended
December 31, June 30,
-------------------- -----------------------
1997 1998 1998 1999
--------- --------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net income..................... $ 858,681 $ 993,630 $254,125 $609,278
Adjustments to reconcile net
income to net cash provided by
operating activities--
Depreciation and
amortization................ 32,358 31,783 14,263 33,927
Provision for uncollectable
accounts receivable......... -- -- -- 16,000
Compensation expense in
connection with the issuance
of common stock............. 15,804 -- -- --
Changes in current assets and
liabilities--
Accounts receivable........ (59,146) (320,753) (9,927) (323,599)
Unbilled accounts
receivable................ -- (42,500) (107,500) (108,800)
Other current assets....... (7,617) (18,330) 796 6,604
Accounts payable........... 4,350 8,579 30,351 59,677
Distributions payable...... 105,866 (39,866) (139,866) 300,000
Accrued expenses........... (4,705) 34,488 84,685 15,654
Unearned revenue........... (51,740) -- -- 255,407
--------- --------- -------- --------
Net cash provided by
operating activities.... 893,851 647,031 126,927 864,148
--------- --------- -------- --------
Cash Flows from Investing
Activities:
Purchases of property and
equipment..................... (40,096) (54,152) (30,514) (24,650)
Increase in other assets....... -- (19,687) -- 3,112
--------- --------- -------- --------
Net cash used in investing
activities................ (40,096) (73,839) (30,514) (21,538)
--------- --------- -------- --------
Cash Flows from Financing
Activities:
Distributions to shareholders.. (442,681) (581,800) (193,800) (865,500)
Principal payments on capital
lease obligation.............. -- -- -- (8,610)
--------- --------- -------- --------
Net cash used in financing
activities................ (442,681) (581,800) (193,800) (874,110)
--------- --------- -------- --------
Increase (Decrease) in Cash...... 411,074 (8,608) (97,387) (31,500)
Cash, Beginning of Period........ 35,571 446,645 446,645 438,037
--------- --------- -------- --------
Cash, End of Period.............. $ 446,645 $ 438,037 $349,258 $406,537
========= ========= ======== ========
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the period for
interest...................... $ -- $ -- $ -- $ 8,905
========= ========= ======== ========
Other transactions--
Assets purchased under
capital lease obligation.... $ -- $ -- $ -- $203,098
========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE>
WAITE & COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(Including Data Appropriate to Unaudited Period)
(1) Organization and Sale of the Company
Waite & Company, Inc. (the Company), a Massachusetts corporation, was
incorporated in September 1995. The Company is a management consulting firm
that works with chief executives and leadership teams in rapidly evolving
industries to assist in redefining value in their markets. The Company
specializes in the financial service, technology, health care, professional
service, entertainment and communication industries.
The Company is subject to risks common to rapidly growing, technology-based
companies, including limited operating history, dependence on key personnel,
rapid technological change, competition from substitute services and larger
companies, and the need for continued market acceptance of the Company's
services.
On September 13, 1999, ZEFER Corp., (ZEFER) purchased all of the
outstanding common stock of the Company from the owners for approximately
$8,148,000 (the Acquisition) plus acquisition costs of approximately $75,000.
The Acquisition was accounted for using the purchase method of accounting in
accordance with the requirement of Accounting Principles Board (APB) Opinion
No. 16, Business Combinations, and, accordingly, the Company's results of
operations are included in those of ZEFER Corporation beginning on the date of
acquisition. The transaction was financed with $8,034,052 of ZEFER cash,
approximately $75,000 of acquisition costs, and through the issuance of
400,000 shares at $.38 per share or approximately $114,000 of ZEFER Corp.
common stock issued to the owners of the Company.
(2) Summary of Significant Accounting Policies
The accompanying financial statements reflect the application of the
accounting policies described below.
(a) Interim Financial Statements The accompanying balance sheet as of June
30, 1999 and the statements of operations, cash flows, and stockholders'
equity for the six months ended June 30, 1999 and 1998, are unaudited, but, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of results for these
interim periods. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted, although the Company
believes that the disclosures included are adequate to make the information
presented not misleading. The results of operations for the six months ended
June 30, 1999 and 1998 are not necessarily indicative of the results to be
expected for the entire fiscal year or any other interim period.
(b) Management 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.
(c) Revenue Recognition The Company enters into fixed-priced consulting
agreements with its customers. The Company recognizes revenue primarily on the
percentage-of-completion method. Contracts generally extend over a two-to-four
month period. The cumulative impact of any revision in estimates of the
percent complete is reflected in the period in which the changes become known.
When the revised estimates indicate a loss, such loss is currently provided
for in its entirety. Revenues exclude reimbursed expenses charged to and
collected from clients. Unearned revenue relates to advanced service billings.
Unbilled accounts receivable relates to revenues recognized in advance of
service billings.
(d) Long-Lived Assets The Company reviews its long-lived assets for
impairment as events and circumstances indicate the carrying amount of an
asset may not be recoverable. The Company evaluates the
F-54
<PAGE>
WAITE & COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Data Appropriate to Unaudited Period)
realizability of its long-lived assets based on profitability and cash flow
expectations for the related asset. Management believes that, as of December
31, 1998 and June 30, 1999, none of the Company's long-lived assets was
impaired.
(e) Depreciation and Amortization The Company provides for depreciation and
amortization by charges to operations on a straight-line basis in amounts
estimated to allocate the cost of the assets over their estimated useful lives
of 3-5 years for computer hardware and software, 7 years for furniture and
fixtures, the life of the lease for leasehold improvements and 7 years for
office equipment.
(f) Concentration of Credit Risk Financial instruments that subject the
Company to credit risk consist primarily of accounts receivable. For the years
ended December 31, 1997 and 1998 and the six months ended June 30, 1998 and
1999 the Company had three, two, two and three significant customers
representing 94%, 65%, 75% and 60% of revenues, respectively. As of December
31, 1997 and 1998 and June 30, 1999, the Company had two, three and three
customers representing 100%, 93% and 82% of the accounts receivable balance,
respectively.
(g) Fair Value of Financial Instruments The Company's financial instruments
consist of accounts receivable and accounts payable. The estimated fair value
of these financial instruments approximates their carrying value at December
31, 1998 and June 30, 1999, because of the short-term nature of these
instruments.
(h) Comprehensive Income The Company adopted SFAS No. 130, Reporting
Comprehensive Income, effective January 1, 1998. SFAS No. 130 establishes
standards for the display of comprehensive income and its components in a full
set of financial statements. Comprehensive income represents net income plus
the change in equity of a business enterprise resulting from transactions and
events and circumstances from nonowner sources. The only component of
comprehensive income for the year ended December 31, 1997 and 1998 and the six
months ended June 30, 1998 and 1999 is net income.
(i) New Accounting Standard In June 1998, the Financial Accounting Standards
Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133, as amended by SFAS No. 137, is effective for
all fiscal quarters beginning with the quarter ending September 30, 2000. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The Company will adopt SFAS No. 133 in
its quarter ending September, 30, 2000 and does not expect such adoption to
have an impact on the Company's results of operating financial position or cash
flows.
(3) Income Taxes
The Company has elected to be treated as a Subchapter S corporation for
federal and state income tax purposes. Under this election, for federal income
taxes and certain state income taxes, the taxable income of the Company is
reported by the stockholders of the Company on their personal income tax
returns. Accordingly, no provision for income taxes has been made in the
accompanying statement of operations. The Company has accrued for tax
distributions made to shareholders of approximately $40,000 for the period
ending December 31, 1997. All tax distributions made for the period ended
December 31, 1997 and 1998, and for the six months ended June 30, 1998 and
1999, were distributed to shareholders prior to the end of the respective
periods.
The pro forma income tax adjustment represents the adjustment necessary to
provide for federal, additional state and foreign corporate income taxes as if
the election to be treated as an S corporation were not made, and the Company
was subject to federal and state corporate income taxes.
F-55
<PAGE>
WAITE & COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Data Appropriate to Unaudited Period)
(4) Stockholders' Equity
The Company has authorized a total of 200,000 shares of common stock with
no par value. As of December 31, 1997 and 1998 and June 30, 1999, the Company
has issued and outstanding 1,030 shares of common stock. During fiscal 1997,
the Company issued 30 shares of common stock to a board member for no cash
consideration. The effect of this transaction is reflected in the statement of
operations for the year ended December 31, 1997.
(5) Commitments
(a) Operating Leases The Company leases its facility under operating leases
that expire through August 2000.
Approximate minimum payments required under operating leases as of December
31, 1998 are as follows:
<TABLE>
<CAPTION>
Years ending December 31,
-------------------------
<S> <C>
1999............................................................... $191,000
2000............................................................... 117,000
--------
$308,000
========
</TABLE>
Rent expense for the years ended December 31, 1997 and 1998, and for the
six months ended June 30, 1998 and 1999, was approximately $62,000, $94,000,
$41,000 and $96,000, respectively.
(b) Capital Leases The Company leases certain equipment under capital
leases. Future minimum lease payments under these leases as of June 30 are as
follows:
<TABLE>
<CAPTION>
Years Ending June 30, Amount
--------------------- --------
<S> <C>
2000................................................................ $ 52,545
2001................................................................ 52,545
2002................................................................ 52,545
2003................................................................ 52,545
2004................................................................ 35,030
--------
Total minimum lease payments...................................... 245,210
Less--Amount representing interest capital........................ 52,543
--------
Capital lease obligation.......................................... 192,667
Less--Current portion of capital lease obligation................. 50,725
--------
Total........................................................... $141,942
========
</TABLE>
(6) Employee Benefit Plan
In February 1997, the Company adopted a 401(k) savings plan (the Plan) for
eligible employees. Each participant may elect to contribute up to 15% of his
or her compensation for the plan year, subject to certain Internal Revenue
Service limitations. The Company matches 50% of the first 3% of employee
contributions. For the years ended December 31, 1997 and 1998 and the six
months ended June 30, 1998 and 1999, the Company contributed approximately
$14,000, $16,000, $9,000 and $13,000 to the Plan, respectively. Subsequent to
the acquisition of the Company by Zefer Corp. (see Note 7) the Plan was
terminated.
F-56
<PAGE>
REVIEW REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ZEFER Corp.:
We have reviewed the pro forma adjustments reflecting the transactions
described in the pro forma combined condensed financial statements and the
application of those adjustments to the historical amounts in the accompanying
pro forma combined condensed statement of operations for the year ended
December 31, 1999. The historical condensed financial statements for the year
ended December 31, 1999 have been derived from the historical financial
statements of ZEFER Corp. (the Company) for the period from inception (March
18, 1999) through December 31, 1999, Original ZEFER for the four months ended
April 30, 1999 and the Divisions of Renaissance for the five months ended May
28, 1999. All of such financial statements were audited by us and appear
elsewhere in this registration. The historical condensed financial statements
are derived from the historical unaudited financial statements of Spyplane, LLC
for the period from January 1, 1999 through May 14, 1999 and Waite & Co. for
the eight months ended August 31, 1999, which appear elsewhere in this
registration statement. Such pro forma adjustments are based on management's
assumptions as described in the notes to pro forma combined condensed financial
statements. Our review was conducted in accordance with standards established
by the American Institute of Certified Public Accountants and, accordingly,
included such procedures as we considered necessary in the circumstances.
The objective of this pro forma financial information is to show what the
significant effects on the combined condensed historical financial information
might have been had the transactions occurred at an earlier date. However, the
pro forma combined condensed financial statements are not necessarily
indicative of the results of operations or related effects on financial
position that would have been attained had the above-mentioned transactions
actually occurred earlier.
A review is substantially less in scope than an examination, the objective
of which is the expression of an opinion on management's assumptions, the pro
forma adjustments and the application of those adjustments to historical
financial information. Accordingly, we do not express such an opinion on the
pro forma adjustments or the application of such adjustments to the pro forma
combined condensed statements of operations for the year ended December 31,
1999. Based on our review, however, nothing came to our attention that caused
us to believe that management's assumptions do not provide a reasonable basis
for presenting the significant effects directly attributable to the above
mentioned transactions described in the pro forma combined condensed financial
statement, that the related pro forma adjustments do not give appropriate
effect to those assumptions, or that the pro forma column does not reflect the
proper application of those adjustments to the historical financial statement
amounts in the pro forma combined condensed statement of operations for the
year ended December 31, 1999.
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 31, 2000
F-57
<PAGE>
ZEFER CORP.
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
OVERVIEW
ZEFER Corp., (the Company), was incorporated in Delaware on March 18, 1999
and is an Internet consulting and implementation firm. In March 1999, the
Company was funded with $500,000 in cash through the sale of common stock to
GTCR Golder Rauner, L.L.C. (GTCR), which also committed to fund an additional
$97.0 million to fund the Company's acquisitions and operations.
On April 30, 1999, the Company acquired all the stock of Original ZEFER, an
Internet professional services firm. The acquisition was accounted for using
the purchase method of accounting. The Company acquired all the stock of
Original ZEFER for the net purchase price of $7,657,000, including acquisition
costs of approximately $125,000. The total purchase price was allocated as
follows: $1,136,000 of tangible assets, $4,725,000 of assumed liabilities and
$11,246,000 of intangible assets. The purchase price consisted of approximately
$7,100,000 in cash and 3,456,000 shares of the Company's common stock valued at
$.13 per share.
On May 14, 1999, the Company acquired all of the LLC units of Spyplane, LLC
(Spyplane), an integrated provider of internet services, including brand
creation and web site development, formed in California as a limited liability
company in May 1998. The acquisition was accounted for using the purchase
method of accounting. The Company acquired all of the LLC units of Spyplane for
a net purchase price of $2,105,000, including acquisition costs of
approximately $100,000. The total purchase price was allocated as follows:
$425,000 of tangible assets, $604,000 of assumed liabilities and $2,284,000 of
intangible assets. The purchase price consisted of approximately $1,000,000 in
cash, 200,000 shares of the Company's common stock valued at $.13 per share and
a $980,000 subordinated note to the Spyplane founders. The note is due on May
14, 2001 and accrues interest at 8% per year.
On May 28, 1999, the Company acquired the assets of two divisions of
Renaissance Worldwide, Inc. (Renaissance): Customer Management Solutions (CMS)
and Neoglyphics Media Corporation (NEO), which are collectively referred to as
the Divisions of Renaissance. CMS began operations during May 1998 as an
operating division of Renaissance, and is an Internet development and
applications company that develops web-based front-office systems. NEO was
organized in 1995 as an internet development and applications company which
develops web sites under contract with various customers. NEO existed as a
division of Renaissance for the ten months ended December 31, 1998 and for the
period from January 1, 1999 to May 28, 1999. The acquisition was accounted for
using the purchase method of accounting. The net purchase price of $12,210,000,
including acquisition costs of approximately $160,000, was allocated as
follows: $5,961,000 of tangible assets, $1,895,000 of assumed liabilities and
$8,144,000 of intangible assets. The purchase price consisted of $10,000,000 in
cash, 400,000 shares of the Company's common stock valued at $.13 per share and
a $2,000,000 subordinated note to Renaissance. The note bears interest at the
30-day LIBOR rate plus 2% and is payable in quarterly installments of $250,000
beginning in May 2000 and is convertible at the option of the holder into the
Company's common stock at a conversion price equal to 80% of the per share
price to the public of the Company's common stock in an initial public offering
(IPO).
F-58
<PAGE>
ZEFER CORP.
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
On September 13, 1999, the Company acquired the stock of Waite & Company,
Inc. (Waite), a management consulting firm that works with chief executives and
leadership teams in redefining value in their markets. The acquisition was
accounted for using the purchase method of accounting. ZEFER acquired all of
the stock of Waite for a net purchase price of approximately $8,223,000,
including acquisition costs of approximately $75,000. The total purchase price
was allocated as follows: $1,852,000 of tangible assets, $4,727,000 of assumed
liabilities and $11,098,000 of intangible assets. The purchase price consisted
of approximately $8,034,000 in cash and 400,000 shares of the Company's common
stock valued at $.29 per share. Waite was incorporated in 1995. In connection
with the acquisition, several employees of Waite signed employment agreements
with the Company. Those agreements provide for certain non-compete arrangements
with the employees for 12 months whereby the founders can not compete with the
Company's customers. Also, there is an extended 18-month period whereby the
founders are limited to the extent that they can compete in the market place.
The following unaudited pro forma combined condensed financial statements
have been prepared in accordance with generally accepted accounting principles
and give effect to the transactions described above. The unaudited pro forma
combined condensed statement of operations for the year ended December 31, 1999
combines the historical statements of operations of (i) the Company for the
period from inception (March 18, 1999) through December 31, 1999, (ii) Original
ZEFER for the period from January 1, 1999 through its date of acquisition
(April 30, 1999), (iii) Spyplane for the period from January 1, 1999 through
its date of acquisition (May 14, 1999), (iv) the Divisions of Renaissance for
the period from January 1, 1999 through its date of acquisition (May 28, 1999)
and (v) Waite for the period from January 1, 1999 through its date of
acquisition (September 13, 1999). The results of operations of Original ZEFER,
Spyplane, the Divisions of Renaissance and Waite for the periods subsequent to
their respective dates of acquisition have been included in the results of
operations of the Company. The unaudited pro forma combined condensed
statements of operations assume that the acquisitions were consummated on
January 1, 1999 and include pro forma adjustments to reflect annual amounts of
amortization, compensation and interest expense, as described in the notes to
pro forma combined condensed statements of operations. The unaudited pro forma
combined condensed statements of operations do not purport to be indicative of
the results which would have been reported had the acquisitions been
consummated at this date, nor do they purport to be indicative of the results
of operations which may be expected in the future. These unaudited pro forma
combined condensed financial statements should be read in conjunction with the
audited financial statements and notes thereto of the Company, Original ZEFER,
the Divisions of Renaissance, Spyplane and Waite.
F-59
<PAGE>
ZEFER CORP.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Original Divisions of Pro Forma Combined
The Company ZEFER Renaissance Spyplane Waite Adjustments Company
------------ ----------- ------------ -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES................ $ 25,276,935 $ 491,141 $ 3,886,424 $523,653 $2,905,889 $ -- $ 33,084,042
OPERATING EXPENSES:
Cost of services....... 15,736,322 589,140 4,781,116 420,089 1,540,315 84,937 (/5/) 23,151,919
Hiring and training.... 5,542,624 9,958 160,165 -- 53,578 -- 5,766,325
Research and
innovation............ 1,832,039 -- -- -- -- -- 1,832,039
Sales and marketing.... 7,055,712 124,540 1,012,552 29,502 84,680 -- 8,306,986
General and
administrative........ 18,420,098 1,973,489 2,461,115 118,502 584,600 60,123 (/5/) 23,617,927
Depreciation and
amortization.......... 10,649,558 55,839 189,665 11,728 43,163 6,925,927 (/1/) 17,875,880
Compensation expense... 120,771 -- -- -- -- -- 120,771
------------ ----------- ----------- -------- ---------- ----------- ------------
Total operating
expenses............. 59,357,124 2,752,966 8,604,613 579,821 2,306,336 7,070,987 80,671,847
------------ ----------- ----------- -------- ---------- ----------- ------------
Income (loss) from
operations........... (34,080,189) (2,261,825) (4,718,189) (56,168) 599,553 (7,070,987) (47,587,805)
INTEREST AND OTHER
INCOME (EXPENSE), NET.. (2,253,049) (18,652) (324,528) (431) 18,082 (1,034,913)A (3,613,491)
------------ ----------- ----------- -------- ---------- ----------- ------------
Income (loss) before
taxes................ (36,333,238) (2,280,477) (5,042,717) (56,599) 617,635 (8,105,900) (51,201,296)
BENEFIT FROM INCOME
TAXES.................. 5,760,400 -- -- -- -- -- 5,760,400
------------ ----------- ----------- -------- ---------- ----------- ------------
Net income (loss)..... $(30,572,838) $(2,280,477) $(5,042,717) $(56,599) $ 617,635 $(8,105,900) $(45,440,896)
============ =========== =========== ======== ========== =========== ============
PRO FORMA NET LOSS PER
SHARE:
Net loss per common and
common equivalent
share................. $ (1.14) $ (1.50)
============ ============
Shares used to compute
pro forma net loss per
share (Note 4)........ 26,793,270 30,211,932
============ ============
</TABLE>
A Includes the following:--
<TABLE>
<S> <C>
Interest expense on assumed borrowings(2)......................... $521,640
Interest expense on assumed issuance of class A preferred
stock(3)......................................................... 513,273
----------
$1,034,913
==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-60
<PAGE>
ZEFER CORP.
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(Unaudited)
The accompanying unaudited pro forma combined condensed statement of
operations has been prepared by combining the historical results of the
Company, Original ZEFER, Spyplane, the Divisions of Renaissance, and Waite for
the year ended December 31, 1999 and reflects the following pro forma
adjustments:
(1) Record twelve months of amortization of goodwill and other identified
intangible assets of $1,773,683 related to the acquisition of Original ZEFER,
$410,401 related to the acquisition of Spyplane, $1,248,543 related to the
acquisition of the Divisions of Renaissance and $3,493,301 related to the
acquisition of Waite.
(2) Record interest expense of $28,997 related to assumed additional
borrowings of $980,000 in the form of a subordinated note to finance the
acquisition of Spyplane at an interest rate of 8% per year, interest expense of
$60,011 related to assumed additional borrowings of $2,000,000 in the form of a
subordinated note to finance the acquisition of the Divisions of Renaissance at
an assumed interest rate of 7.4% per year and interest expense of $432,632
related to the line of credit borrowings of $8,034,000 with an interest rate of
8% to supply the cash to fund the purchase of Waite.
(3) Record the interest expense of $116,533 for the accretion of 4,370
shares of Class A Preferred Stock issued to GTCR at an 8% dividend rate to fund
the purchase of Original ZEFER, interest expense of $31,808 for the accretion
of 1,075 shares of Class A Preferred Stock issued to GTCR at an 8% dividend
rate to fund the purchase of Spyplane and interest expense of $364,932 for the
accretion of 11,250 shares of Class A Preferred Stock issued to GTCR at an 8%
dividend rate to fund the purchase of the Divisions of Renaissance.
(4) Pro forma weighted average common shares outstanding for the year ended
December 31, 1999 reflects the incremental effect of shares we issued in
connection with the acquisitions we made in 1999 and shares of common stock we
issued to GTCR in order to fund such acquisitions as if these shares had been
issued as of January 1, 1999, as follows:
<TABLE>
<S> <C>
Historical weighted average shares outstanding.................... 26,793,270
Incremental weighted average shares outstanding:
Funding provided by GTCR......................................... 2,960,000
Original ZEFER................................................... 350,620
Spyplane......................................................... --
Divisions of Renaissance......................................... 93,286
Waite............................................................ 14,756
----------
Pro forma weighted average shares outstanding..................... 30,211,932
==========
</TABLE>
The calculation of pro forma basic and diluted weighted average shares
outstanding excludes 9,314,467 shares of unvested restricted common stock
issued in connection with the acquisitions made in 1999. The calculation of pro
forma diluted weighted average shares outstanding also excludes 4,627,111
shares of potential common stock issuable upon the exercise of outstanding
stock options.
F-61
<PAGE>
ZEFER CORP.
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999--(Continued)
(Unaudited)
(5) Record pro forma effect of salaries to be received under senior
management agreements in connection with acquisitions we made in 1999 as if the
senior management agreements had been entered into as of January 1, 1999, as
follows:
<TABLE>
<CAPTION>
Cost of General and
Services Administrative Total
-------- -------------- --------
<S> <C> <C> <C>
Total due under management agreements..... $395,000 $256,668 $651,668
Less--Salaries included in historical
statements............................... 310,063 196,545 506,608
-------- -------- --------
Pro forma salaries adjustment............. $ 84,937 $ 60,123 $145,060
======== ======== ========
</TABLE>
F-62
<PAGE>
Innovation Advisory Board
Pamela Alexander
President and Chief Executive Officer,
Alexander Oglivy Public Relations Worldwide.
Ian Angell
Professor of Information Systems,
London School of Economics.
Peter Block
Author,
Flawless Consulting; The Empowered Manager:
Positive Political Skills at Work;
Stewardship: Choosing Service Over Self-Interest.
Miles Braffett
Vice President and Chief Information Officer,
BMG Entertainment.
Jay Chiat
Co-Founder,
Chiat/Day.
Clayton Christensen
Professor of Business Administration
Harvard Business School.
[ZEFER LOGO APPEARS HERE]
Eric Clemons
Professor of Operations, Information Management
and Management,
The Wharton School.
Jeffrey Dunn
Chief Operating Officer,
Nickelodeon.
Chris Gopal
Former Partner and Head of Global Supply Chain Services,
Ernst & Young.
Clive Holtham
Head of Department of Management Systems and Information,
City University of London.
Rolf Jensen
Director,
Copenhagen Institute for the Future.
Robert Johansen
President,
Institute for the Future.
Jason Pontin
Editor,
Red Herring.
Moshe Rubinstein
Professor,
School of Engineering
and Applied Sciences, UCLA.
Bo Saxberg
Vice President, Advanced Communications,
Johnson & Johnson.
Donald Schultz
Professor of Integrated Marketing Communications
Northwestern University.
Michael Shamos
Co-Director,
Carnegie-Mellon Institute for eCommerce.
Robert Tien, M.D.
Chairman,
Electronic Business International.
Hal Varian
Dean, School of Information
Management and Systems,
University of California at Berkeley.
Arnold Wasserman
Former Dean,
Pratt Institute's School of Design.
<PAGE>
[ZEFER LOGO APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses, all of which will be
borne by us, in connection with the sale and distribution of the securities
being registered, other than the underwriting discounts and commissions. All
amounts shown are estimates except for the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 18,216
NASD filing fee............................................... 7,400
Nasdaq National Market listing fee............................ 95,000
Blue Sky and similar fees and expenses........................ 5,000
Transfer Agent and Registrar fees............................. 10,000
Accounting fees and expenses.................................. 750,000
Legal fees and expenses....................................... 350,000
Director and officer liability insurance...................... 400,000
Printing and mailing expenses................................. 150,000
Miscellaneous................................................. 14,384
----------
Total..................................................... $1,800,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Article SEVENTH of our Certificate of Incorporation provides that none of
our directors shall be personally liable for any monetary damages for any
breach of fiduciary duty as a director, except to the extent that the Delaware
General Corporation Law prohibits the elimination or limitation of liability of
directors for breach of fiduciary duty.
Article EIGHTH of our Certificate of Incorporation provides that each
director and officer:
(a) shall be indemnified by us against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement incurred
in connection with any litigation or other legal proceeding (other than an
action by or in our right brought against him by virtue of his position as
our director or officer if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, our best interests and,
with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful and
(b) shall be indemnified by us against all expenses (including
attorneys' fees) and amounts paid in settlement incurred in connection with
any action by or in our right brought against him by virtue of his position
as our director or officer if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, our best interests, except
that no indemnification shall be made with respect to any matter as to
which such person shall have been adjudged to be liable to us, unless a
court determines that, despite such adjudication but in view of all of the
circumstances, he is entitled to indemnification of such expenses.
Notwithstanding the foregoing, to the extent that a director or officer has
been successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, he is required to be indemnified by
us against all expenses (including attorneys' fees) incurred in connection
therewith. Expenses shall be advanced to a director or officer at his request,
provided that he undertakes to repay the amount advanced if it is ultimately
determined that he is not entitled to indemnification for such expenses.
II-1
<PAGE>
Indemnification is required to be made unless we determine that the
applicable standard of conduct required for indemnification has not been met.
In the event of a determination by us that the director or officer did not meet
the applicable standard of conduct required for indemnification, or if we fail
to make an indemnification payment within 60 days after such payment is claimed
by such person, such person is permitted to petition the court to make an
independent determination as to whether such person is entitled to
indemnification. As a condition precedent to the right of indemnification, the
director or officer must give us notice of the action for which indemnity is
sought and we have the right to participate in such action or assume the
defense thereof.
Article EIGHTH of our Certificate of Incorporation further provides that the
indemnification provided therein is not exclusive and provides that in the
event that the Delaware General Corporation Law is amended to expand the
indemnification permitted to directors or officers we must indemnify those
persons to the fullest extent permitted by such law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and, in any criminal proceeding, if such
person had no reasonable cause to believe his conduct was unlawful; provided
that, in the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such
person shall have been adjudged to be liable to the corporation unless and only
to the extent that the adjudicating court determines that such indemnification
is proper under the circumstances.
Under Section 7 of the Underwriting Agreement, the underwriters are
obligated, under certain circumstances, to indemnify our directors and officers
against certain liabilities, including liabilities under the Securities Act of
1933. Reference is made to the form of Underwriting Agreement filed as Exhibit
1 hereto.
Item 15. Recent Sales of Unregistered Securities
Certain Sales of Securities. Since our formation we have issued the
following securities that were not registered under the Securities Act of 1933,
as summarized below.
(a) Issuances of capital stock.
1. From March 1999 through February 2000, we issued an aggregate of
26,640,000 shares of our common stock at a price of $0.125 per share
for an aggregate purchase price of $3,330,000 and an aggregate of
39,074.6610 shares of our class A preferred stock at a price of $1,000
per share for an aggregate purchase price of $39,074,661 to GTCR
pursuant to a Purchase Agreement.
2. From March through May 1999, we issued an aggregate of 81,124
shares of our common stock, which is subject to vesting provisions and
a repurchase right, at a price of $0.125 per share to Heidrich &
Struggles in consideration for recruitment services rendered to us.
3. In March 1999, we issued an aggregate of 3,040,000 shares of
common stock, which is subject to vesting provisions and a repurchase
right, at a price of $0.125 per share to William A. Seibel for an
aggregate purchase price of $380,000.
4. In April 1999, we issued an aggregate of 3,437,790 shares of
common stock, which is subject to vesting provisions and a repurchase
right, at a price of $0.125 per share to the former stockholders of
Original ZEFER in connection with the reorganization pursuant to
Section 351(g) of the Internal Revenue Code pursuant to a Share
Exchange Agreement.
II-2
<PAGE>
5. In May 1999, we issued an aggregate of 200,000 shares of common
stock, which is subject to vesting provisions and a repurchase right,
at a price of $0.125 per share to the former members of Spyplane LLC in
connection with the acquisition of all of its outstanding membership
interests pursuant to a Membership Share Purchase Agreement.
6. From May 1999 through February 2000, we issued an aggregate of
1,002 shares of our class A preferred stock at a price per share of
$1,000 for an aggregate purchase price of $1,002,000 to members of our
management team.
7. In May 1999, we issued an aggregate of 3,526,000 shares of common
stock, which is subject to vesting provisions and a repurchase right,
at a price of $0.125 per share to members of our management team for an
aggregate purchase price of $440,750.
8. In May 1999, we issued an aggregate of 537,459 shares of common
stock at a price of $0.125 per share for an aggregate purchase price of
$61,782.
9. In May 1999, we issued an aggregate of 400,000 shares of common
stock at a price of $0.125 per share to Renaissance in connection with
our acquisition of certain of its divisions pursuant to an Asset
Purchase Agreement.
10. In August 1999, we issued an aggregate of 866,666 shares of
common stock, which is subject to vesting provisions and a repurchase
right, at a price of $0.128 per share for an aggregate purchase price
of $110,933.25 to members of our management team.
11. In August and September 1999, we issued an aggregate of 52,000
shares of common stock, which is subject to vesting provisions and a
repurchase right, at a price of $0.285 per share for an aggregate
purchase price of $14,820 to members of our management team.
12. In September 1999, we issued an aggregate of 400,000 shares of
common stock, which is subject to vesting provisions and a repurchase
right, at a price of $0.255 per share for an aggregate purchase price
of $102,000 to members of our management team.
13. In September 1999, we issued an aggregate of 164,229 shares of
common stock at a price of $0.285 per share for an aggregate purchase
price of $46,805.27 to members of our management team.
14. In September 1999, we issued an aggregate of 400,000 shares of
common stock, which is subject to vesting provisions and a repurchase
right, to the former stockholders of Waite & Company in connection with
the acquisition of all of its outstanding stock pursuant to a Stock
Purchase Agreement.
15. In November 1999, we issued an aggregate of 1,650,405 shares of
our common stock at a price of $0.01 per share for an aggregate price
of $16,504.05 and an aggregate of 1,499 shares of our class A preferred
stock at a price of $0.01 per share for an aggregate purchase price of
$14.99 to GTCR Capital Partners, L.P. in connection with a Loan
Agreement.
16. In December 1999, we issued an aggregate of 9,000 shares of
common stock, which is subject to vesting provisions and a repurchase
right, to members of our management team for an aggregate purchase
price of $33,750.
17. In December 1999, we issued an aggregate of 100,000 shares of
common stock to Mr. Masood Jabbar for an aggregate purchase price of
$1,000,000.
18. From January 2000 through February 2000, we issued an aggregate
of 1,792.5376 shares of our class A preferred stock at a price of $0.01
per share for an aggregate purchase price of $17.93 to GTCR Capital
Partners, L.P. in connection with a Loan Agreement.
(b) Stock option grants to employees.
From inception (March 18, 1999) through December 31, 1999, we issued
options under our 1999 stock option plan and 1999 incentive plan to
purchase an aggregate of 5,089,226 shares of common stock at a weighted
average exercise price of $1.32 per share. None of these options have
been exercised.
II-3
<PAGE>
No underwriters were involved in any of the foregoing sales of securities.
Such sales were made in reliance upon an exemption from the registration
provisions of the Securities Act set forth in Section 4(2) thereof relative to
sales by an issuer not involving any public offering or the rules and
regulations thereunder, or, in the case of the options to purchase common stock
described in paragraph (b) above, Rule 701 of the Securities Act. All of the
foregoing securities are deemed restricted securities for the purposes of the
Securities Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
Exhibit
No. Description
------- -----------
1 Form of Underwriting Agreement.
2.1+ Purchase Agreement by and among the Registrant, GTCR Fund VI, L.P.,
GTCR VI Executive Fund, L.P. and GTCR Associates VI dated as of March
23, 1999.
2.2+ First Amendment and Supplement No. 1 dated April 30, 1999 to that
Purchase Agreement dated as of March 23, 1999 by and among the
Registrant, GTCR Fund VI, L.P., GTCR VI Executive Fund, L.P. and GTCR
Associates VI.
2.3+ Second Amendment dated November 24, 1999 to that Purchase Agreement
dated as of March 23, 1999, and Repurchase and Sale Agreement, by and
among the Registrant, GTCR Fund VI, L.P., GTCR VI Executive Fund, L.P.
and GTCR Associates VI.
2.4+ Share Exchange Agreement by and among the Registrant, Original ZEFER
and certain Stockholders of Original ZEFER (as defined therein) dated
as of April 30, 1999.
2.5+ Membership Share Purchase Agreement by and among the Registrant, ZEFER
Corp. Northeast, Spyplane LLC and certain Equityholders of Spyplane
LLC (as defined therein) dated as of May 14, 1999.
2.6+ Asset Purchase Agreement by and among the Registrant, Renaissance
Worldwide, Inc. and Neoglyphics Media Corporation dated as of May 19,
1999.
2.7+ Stock Purchase Agreement by and among the Registrant, Waite & Company
and its Shareholders (as defined therein) dated September 13, 1999.
3.1+ Certificate of Incorporation, as amended.
3.2** Bylaws, as amended.
3.3+ Amended and Restated Certificate of Incorporation, to be effective
upon the closing of this offering.
3.4+ Amended and Restated Bylaws, to be effective upon the closing of this
offering.
4 Specimen certificate for shares of Common Stock, $0.01 par value per
share.
5** Opinion of Hale and Dorr LLP.
10.1 1999 Incentive Plan.
10.2 1999 Stock Option Plan.
10.3 2000 Employee Stock Purchase Plan.
10.4+ Senior Management Agreement dated March 23, 1999 entered between the
Registrant and William Seibel.
10.5+ Senior Management Agreement dated August 17, 1999 entered between the
Registrant and Gerard Dube.
10.6+ Senior Management Agreement dated May 21, 1999 entered between the
Registrant and Sean Mullaney.
10.7+ Senior Management Agreement dated August 25, 1999 entered between the
Registrant and James Slamp.
10.8+ Senior Management Agreement dated May 21, 1999 entered between the
Registrant and Martha Stephens.
10.9+ Employment Agreement dated April 30, 1999 entered between the
Registrant and Anthony Tjan.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
Exhibit
No. Description
------- -----------
10.10+ Senior Management Agreement dated May 21, 1999 entered between the
Registrant and Frank Torbey.
10.11+ Senior Management Agreement dated September 13, 1999 entered between
the Registrant and Thomas Waite.
10.12+ Promissory Note made by William Seibel in favor of the Registrant on
March 23, 1999 in the principal amount of $378,100.
10.13+ Promissory Note made by Gerard Dube in favor of the Registrant on
August 17, 1999 in the principal amount of $80,554.50.
10.14+ Promissory Note made by Sean Mullaney in favor of the Registrant on
May 21, 1999 in the principal amount of $47,893.13.
10.15+ Promissory Note made by James Slamp in favor of the Registrant on
August 25, 1999 in the principal amount of $74,804.52.
10.16+ Promissory Note made by Martha Stephens in favor of the Registrant on
May 21, 1999 in the principal amount of $47,893.13.
10.17+ Promissory Note made by Frank Torbey in favor of the Registrant on May
21, 1999 in the principal amount of $50,600.00.
10.18+ Loan Agreement dated November 24, 1999 by and between the Registrant
and GTCR Capital Partners, L.P.
10.19+ Promissory Note made by the Registrant in favor of GTCR Capital
Partners, L.P. on November 24, 1999 in the principal amount of
$32,196,296.
10.20+ Security Agreement dated November 24, 1999 made by the Grantors (as
defined therein) in favor of GTCR Capital Partners, L.P.
10.21+ Pledge Agreement dated November 24, 1999 made the Pledgors (as defined
therein) in favor of GTCR Capital Partners, L.P.
10.22+ Convertible Subordinated Promissory Note made by the Registrant in
favor of Renaissance Worldwide, Inc. on May 28, 1999 in the principal
amount of $2,000,000.
10.23+ Nonnegotiable Subordinated Promissory Note made by the Registrant in
favor of Jason Zada on May 14, 1999 in the principal amount of
$490,000.
10.24+ Nonnegotiable Subordinated Promissory Note made by the Registrant in
favor of Greg Hipwell on May 14, 1999 in the principal amount of
$490,000.
10.25+ Floating Rate Loan--Procedures Letter Agreement between Harris Trust
and Savings Bank and the Registrant dated July 16, 1999.
10.26+ Unsecured Note made by the Registrant in favor of Harris Trust and
Savings Bank on July 16, 1999 in the principal amount of $20,000,000.
10.27+ Loan and Security Agreement between Silicon Valley Bank and the
Registrant dated December 16, 1998.
10.28+ Warrant Agreement dated November 24, 1999 between GTCR Capital
Partners, L.P. and the Registrant.
10.29+ Class A Preferred Stock Purchase Warrant issued by the Registrant on
November 24, 1999 to GTCR Capital Partners, L.P.
10.30+ Common Stock Purchase Warrant issued by the Registrant on November 24,
1999 to GTCR Capital Partners, L.P.
10.31+ Stockholders Agreement by and among the Registrant, GTCR Fund VI,
L.P., GTCR VI Executive Fund, L.P., GTCR Associates VI and William A.
Seibel dated as of March 23, 1999.
10.32+ Joinder and First Amendment dated November 24, 1999 to Stockholders
Agreement dated as of March 23, 1999 by and among the Registrant, GTCR
Fund VI, L.P. and GTCR Capital Partners, L.P.
10.33+ Registration Agreement by and among the Registrant, GTCR Fund VI,
L.P., GTCR VI Executive Fund, L.P., GTCR Associates VI and William A.
Seibel dated as of March 23, 1999.
10.34+ Joinder and First Amendment dated November 24, 1999 to Registration
Agreement dated as of March 23, 1999 by and among the Registrant, GTCR
Fund VI, L.P. and GTCR Capital Partners, L.P.
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
Exhibit
No. Description
------- -----------
10.35+ Professional Services Agreement between the Registrant and GTCR Golder
Rauner, L.L.C. dated as of March 23, 1999.
10.36+ Form of Investment Letter from the Registrant to certain executives of
the Registrant, dated September 10, 1999.
10.37+ Form of Amendment to the Investment Letter dated November 30, 1999
from the Registrant to certain executives of the Registrant.
10.38+ Lease between East Street Associates and the Registrant dated June 17,
1999.
10.39+ Amendment of Lease between East Street Associates and the Registrant
dated July 16, 1999.
10.40+ Amendment of Lease between East Street Associates and the Registrant
dated September 1999.
10.41+ Stock Restriction Agreement between the Registrant and David Lubin
dated May 21, 1999.
10.42+ Promissory Note made by David Lubin in favor of the Registrant on May
21, 1999 in the principal amount of $45,612.50.
10.43 Form of Nonqualified Stock Option Agreement under the 1999 Incentive
Plan and 1999 Stock Option Plan.
10.44 Nonqualified Stock Option Agreement between the Registrant and Richard
Nolan dated
June 1999.
10.45 Nonqualified Stock Option Agreement between the Registrant and Masood
Jabbar dated
December 1999.
10.46 Class A Preferred Stock Purchase Warrant issued by the Registrant on
January 12, 2000 to GTCR Capital Partners, L.P.
10.47 Class A Preferred Stock Purchase Warrant issued by the Registrant on
January 25, 2000 to GTCR Capital Partners, L.P.
10.48* Form of Recapitalization Agreement to be entered into by the
Registrant, GTCR Capital Partners, L.P. and certain stockholders named
therein.
10.49 Nonqualified Stock Option Agreement between the Registrant and
Catherine Viscardi Johnston dated February 2000.
10.50 Class A Preferred Stock Purchase Warrant issued by the Registrant on
February 25, 2000 to GTCR Capital Partners, L.P.
10.51 Form of Agreement to be Bound by Stockholders Agreement entered into
by the Registrant and certain stockholders of the Registrant.
10.52 Form of Agreement to be Bound by Registration Agreement entered into
by the Registrant and certain stockholders of the Registrant.
10.53 Form of Amendment to Restricted Stock Vesting Schedule entered into by
the Registrant and certain executives of the Registrant.
10.54 First Amendment to Senior Management Agreement between the Registrant
and William A Seibel dated January 10, 2000.
10.55* Second Amendment to Stockholders Agreement entered into by the
Registrant and certain stockholders of the Registrant dated February
9, 2000.
21 Subsidiaries.
23.1 Consent of Hale and Dorr LLP (included in Exhibit 5).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Katch, Tyson & Company.
24+ Power of Attorney (included on page II-7).
24.1+ Power of Attorney for Ms. Johnston and Mr. Rauner (included on page
II-10).
27** Financial Data Schedule.
</TABLE>
- ---------------------
+Previously filed.
* To be filed by amendment.
** Superseding exhibit.
II-6
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted because they are not required or because the
required information is given in the Registrant's consolidated financial
statements or notes to those statements.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the provisions contained in our Certificate of Incorporation and the laws of
the State of Delaware, or otherwise, we have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by a
director, officer or controlling person of us 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, we will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
We hereby undertake to provide to the underwriters at the closing specified
in the underwriting agreement certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to each
purchaser.
We hereby undertake that:
(1) 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 us pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act 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 this offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, we have duly
caused this Amendment No. 2 to the Registration Statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in Boston, Massachusetts,
on this 14th day of March, 2000.
ZEFER CORP.
/s/ William A. Seibel
By: _________________________________
William A. Seibel
Chairman of the Board, President
and Chief Executive Officer
II-8
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William A. Seibel Chairman of the Board, March 14, 2000
______________________________________ President, Chief
William A. Seibel Executive Officer and
Director
* Executive Vice President, March 14, 2000
______________________________________ Chief Financial Officer
James H. Slamp and Treasurer (Principal
Financial and Accounting
Officer)
* Director March 14, 2000
______________________________________
Philip A. Canfield
* Director March 14, 2000
______________________________________
Masood Jabbar
* Director March 14, 2000
______________________________________
David A. Lubin
* Director March 14, 2000
______________________________________
Timothy P. McAdam
* Director March 14, 2000
______________________________________
Richard L. Nolan
* Director March 14, 2000
______________________________________
Anthony K. Tjan
* Director March 14, 2000
______________________________________
Catherine Viscardi Johnston
* Director March 14, 2000
______________________________________
Bruce V. Rauner
*By: /s/ William A. Seibel
______________________________________
Attorney-in-Fact
</TABLE>
II-9
<PAGE>
Exhibit Index
<TABLE>
<C> <S>
Exhibit
No. Description
------- -----------
1 Form of Underwriting Agreement.
2.1+ Purchase Agreement by and among the Registrant, GTCR Fund VI, L.P.,
GTCR VI Executive Fund, L.P. and GTCR Associates VI dated as of March
23, 1999.
2.2+ First Amendment and Supplement No. 1 dated April 30, 1999 to that
Purchase Agreement dated as of March 23, 1999 by and among the
Registrant, GTCR Fund VI, L.P., GTCR VI Executive Fund, L.P. and GTCR
Associates VI.
2.3+ Second Amendment dated November 24, 1999 to that Purchase Agreement
dated as of March 23, 1999, and Repurchase and Sale Agreement, by and
among the Registrant, GTCR Fund VI, L.P., GTCR VI Executive Fund, L.P.
and GTCR Associates VI.
2.4+ Share Exchange Agreement by and among the Registrant, Original ZEFER
and certain Stockholders of Original ZEFER (as defined therein) dated
as of April 30, 1999.
2.5+ Membership Share Purchase Agreement by and among the Registrant, ZEFER
Corp. Northeast, Spyplane LLC and certain Equityholders of Spyplane
LLC (as defined therein) dated as of May 14, 1999.
2.6+ Asset Purchase Agreement by and among the Registrant, Renaissance
Worldwide, Inc. and Neoglyphics Media Corporation dated as of May 19,
1999.
2.7+ Stock Purchase Agreement by and among the Registrant, Waite & Company
and its Shareholders (as defined therein) dated September 13, 1999.
3.1+ Certificate of Incorporation, as amended.
3.2** Bylaws, as amended.
3.3+ Amended and Restated Certificate of Incorporation, to be effective
upon the closing of this offering.
3.4+ Amended and Restated Bylaws, to be effective upon the closing of this
offering.
4 Specimen certificate for shares of Common Stock, $0.01 par value per
share.
5** Opinion of Hale and Dorr LLP.
10.1 1999 Incentive Plan.
10.2 1999 Stock Option Plan.
10.3 2000 Employee Stock Purchase Plan.
10.4+ Senior Management Agreement dated March 23, 1999 entered between the
Registrant and William Seibel.
10.5+ Senior Management Agreement dated August 17, 1999 entered between the
Registrant and Gerard Dube.
10.6+ Senior Management Agreement dated May 21, 1999 entered between the
Registrant and Sean Mullaney.
10.7+ Senior Management Agreement dated August 25, 1999 entered between the
Registrant and James Slamp.
10.8+ Senior Management Agreement dated May 21, 1999 entered between the
Registrant and Martha Stephens.
10.9+ Employment Agreement dated April 30, 1999 entered between the
Registrant and Anthony Tjan.
10.10+ Senior Management Agreement dated May 21, 1999 entered between the
Registrant and Frank Torbey.
10.11+ Senior Management Agreement dated September 13, 1999 entered between
the Registrant and Thomas Waite.
10.12+ Promissory Note made by William Seibel in favor of the Registrant on
March 23, 1999 in the principal amount of $378,100.
10.13+ Promissory Note made by Gerard Dube in favor of the Registrant on
August 17, 1999 in the principal amount of $80,554.50.
10.14+ Promissory Note made by Sean Mullaney in favor of the Registrant on
May 21, 1999 in the principal amount of $47,893.13.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
Exhibit
No. Description
------- -----------
10.15+ Promissory Note made by James Slamp in favor of the Registrant on
August 25, 1999 in the principal amount of $74,804.52.
10.16+ Promissory Note made by Martha Stephens in favor of the Registrant on
May 21, 1999 in the principal amount of $47,893.13.
10.17+ Promissory Note made by Frank Torbey in favor of the Registrant on May
21, 1999 in the principal amount of $50,600.00.
10.18+ Loan Agreement dated November 24, 1999 by and between the Registrant
and GTCR Capital Partners, L.P.
10.19+ Promissory Note made by the Registrant in favor of GTCR Capital
Partners, L.P. on November 24, 1999 in the principal amount of
$32,196,296.
10.20+ Security Agreement dated November 24, 1999 made by the Grantors (as
defined therein) in favor of GTCR Capital Partners, L.P.
10.21+ Pledge Agreement dated November 24, 1999 made the Pledgors (as defined
therein) in favor of GTCR Capital Partners, L.P.
10.22+ Convertible Subordinated Promissory Note made by the Registrant in
favor of Renaissance Worldwide, Inc. on May 28, 1999 in the principal
amount of $2,000,000.
10.23+ Nonnegotiable Subordinated Promissory Note made by the Registrant in
favor of Jason Zada on May 14, 1999 in the principal amount of
$490,000.
10.24+ Nonnegotiable Subordinated Promissory Note made by the Registrant in
favor of Greg Hipwell on May 14, 1999 in the principal amount of
$490,000.
10.25+ Floating Rate Loan--Procedures Letter Agreement between Harris Trust
and Savings Bank and the Registrant dated July 16, 1999.
10.26+ Unsecured Note made by the Registrant in favor of Harris Trust and
Savings Bank on July 16, 1999 in the principal amount of $20,000,000.
10.27+ Loan and Security Agreement between Silicon Valley Bank and the
Registrant dated December 16, 1998.
10.28+ Warrant Agreement dated November 24, 1999 between GTCR Capital
Partners, L.P. and the Registrant.
10.29+ Class A Preferred Stock Purchase Warrant issued by the Registrant on
November 24, 1999 to GTCR Capital Partners, L.P.
10.30+ Common Stock Purchase Warrant issued by the Registrant on November 24,
1999 to GTCR Capital Partners, L.P.
10.31+ Stockholders Agreement by and among the Registrant, GTCR Fund VI,
L.P., GTCR VI Executive Fund, L.P., GTCR Associates VI and William A.
Seibel dated as of March 23, 1999.
10.32+ Joinder and First Amendment dated November 24, 1999 to Stockholders
Agreement dated as of March 23, 1999 by and among the Registrant, GTCR
Fund VI, L.P. and GTCR Capital Partners, L.P.
10.33+ Registration Agreement by and among the Registrant, GTCR Fund VI,
L.P., GTCR VI Executive Fund, L.P., GTCR Associates VI and William A.
Seibel dated as of March 23, 1999.
10.34+ Joinder and First Amendment dated November 24, 1999 to Registration
Agreement dated as of March 23, 1999 by and among the Registrant, GTCR
Fund VI, L.P. and GTCR Capital Partners, L.P.
10.35+ Professional Services Agreement between the Registrant and GTCR Golder
Rauner, L.L.C. dated as of March 23, 1999.
10.36+ Form of Investment Letter from the Registrant to certain executives of
the Registrant, dated September 10, 1999.
10.37+ Form of Amendment to the Investment Letter dated November 30, 1999
from the Registrant to certain executives of the Registrant.
10.38+ Lease between East Street Associates and the Registrant dated June 17,
1999.
10.39+ Amendment of Lease between East Street Associates and the Registrant
dated July 16, 1999.
10.40+ Amendment of Lease between East Street Associates and the Registrant
dated September 1999.
10.41+ Stock Restriction Agreement between the Registrant and David Lubin
dated May 21, 1999.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
Exhibit
No. Description
------- -----------
10.42+ Promissory Note made by David Lubin in favor of the Registrant on May
21, 1999 in the principal amount of $45,612.50.
10.43 Form of Nonqualified Stock Option Agreement under the 1999 Incentive
Plan and 1999 Stock Option Plan.
10.44 Nonqualified Stock Option Agreement between the Registrant and Richard
Nolan dated
June 1999.
10.45 Nonqualified Stock Option Agreement between the Registrant and Masood
Jabbar dated
December 1999.
10.46 Class A Preferred Stock Purchase Warrant issued by the Registrant on
January 12, 2000 to GTCR Capital Partners, L.P.
10.47 Class A Preferred Stock Purchase Warrant issued by the Registrant on
January 25, 2000 to GTCR Capital Partners, L.P.
10.48* Form of Recapitalization Agreement to be entered into by the
Registrant, GTCR Capital Partners, L.P. and certain stockholders named
therein.
10.49 Nonqualified Stock Option Agreement between the Registrant and
Catherine Viscardi Johnston dated February 2000.
10.50 Class A Preferred Stock Purchase Warrant issued by the Registrant on
February 25, 2000 to GTCR Capital Partners, L.P.
10.51 Form of Agreement to be Bound by Stockholders Agreement entered into
by the Registrant and certain stockholders of the Registrant.
10.52 Form of Agreement to be Bound by Registration Agreement entered into
by the Registrant and certain stockholders of the Registrant.
10.53 Form of Amendment to Restricted Stock Vesting Schedule entered into by
the Registrant and certain executives of the Registrant.
10.54 First Amendment to Senior Management Agreement between the Registrant
and William A Seibel dated January 10, 2000.
10.55* Second Amendment to Stockholders Agreement entered into by the
Registrant and certain stockholders of the Registrant dated February
9, 2000.
21 Subsidiaries.
23.1 Consent of Hale and Dorr LLP (included in Exhibit 5).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Katch, Tyson & Company.
24+ Power of Attorney (included on page II-7).
24.1+ Power of Attorney for Ms. Johnston and Mr. Rauner (included on page
II-10).
27** Financial Data Schedule.
</TABLE>
- ---------------------
+Previously filed.
* To be filed by amendment.
** Superseding exhibit.
<PAGE>
EXHIBIT 1
4,000,000 SHARES
ZEFER CORP.
COMMON STOCK
FORM OF UNDERWRITING AGREEMENT
------------------------------
, 2000
Credit Suisse First Boston Corporation
First Union Securities, Inc.
FleetBoston Robertson Stephens Inc.,
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Ladies and Gentlemen:
1. Introductory. ZEFER Corp., a Delaware corporation ("COMPANY"),
proposes to issue and sell 4,000,000 shares ("FIRM SECURITIES") of its Common
Stock ("SECURITIES") and also proposes to issue and sell to the Underwriters, at
the option of the Underwriters, an aggregate of not more than 600,000 additional
shares ("OPTIONAL SECURITIES") of its Securities as set forth below. The Firm
Securities and the Optional Securities are herein collectively called the
"OFFERED SECURITIES". As part of the offering contemplated by this Agreement,
Deutsche Bank Securities Inc. (the "DESIGNATED UNDERWRITER") has agreed to
reserve out of the Firm Securities purchased by it under this Agreement, up to
shares, for sale to the Company's directors, officers, employees and other
parties associated with the Company (collectively, "PARTICIPANTS"), as set forth
in the Prospectus (as defined herein) under the heading "Underwriting" (the
"DIRECTED SHARE PROGRAM"). The Firm Securities to be sold by the Designated
Underwriter pursuant to the Directed Share Program (the "DIRECTED SHARES") will
be sold by the Designated Underwriter pursuant to this Agreement at the public
offering price. Any Directed Shares not subscribed for by the end of the
business day on which this Agreement is executed will be offered to the public
by the Underwriters as set forth in the Prospectus. The Company hereby agrees
with the several Underwriters named in Schedule A hereto ("UNDERWRITERS") as
follows:
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333-94283) relating to the Offered
Securities, including a form of prospectus, has been filed with the Securities
and Exchange Commission ("COMMISSION") and either (i) has been declared
effective under the Securities Act of 1933, as amended ("ACT"), and is not
proposed to be amended or (ii) is proposed to be amended by amendment or post-
effective amendment. If such registration statement ("INITIAL REGISTRATION
STATEMENT") has been declared effective, either (i) an additional registration
statement ("ADDITIONAL REGISTRATION STATEMENT") relating to the Offered
Securities may have been filed with the Commission pursuant to Rule 462(b)
("RULE 462(b)") under the Act and, if so filed, has become effective upon filing
pursuant to such Rule and the Offered Securities all have been duly registered
under the Act pursuant to the initial registration statement and, if applicable,
the additional registration statement or (ii) such an additional registration
statement is proposed to be filed with the Commission pursuant to Rule 462(b)
and will
<PAGE>
become effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration statement
has been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("RULE 462(c)") under the Act
or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "EFFECTIVE TIME" with respect to the initial
registration statement or, if filed prior to the execution and delivery of
this Agreement, the additional registration statement means (i) if the
Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment thereto
(if any) filed prior to the execution and delivery of this Agreement, was
declared effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (ii) if the Company has advised the
Representatives that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the Commission. If
an additional registration statement has not been filed prior to the
execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "EFFECTIVE TIME" with respect
to such additional registration statement means the date and time as of
which such registration statement is filed and becomes effective pursuant
to Rule 462(b). "EFFECTIVE DATE" with respect to the initial registration
statement or the additional registration statement (if any) means the date
of the Effective Time thereof. The initial registration statement, as
amended at its Effective Time, including all information contained in the
additional registration statement (if any) and deemed to be a part of the
initial registration statement as of the Effective Time of the additional
registration statement pursuant to the General Instructions of the Form on
which it is filed and including all information (if any) deemed to be a
part of the initial registration statement as of its Effective Time
pursuant to Rule 430A(b) ("RULE 430A(b)") under the Act, is hereinafter
referred to as the "INITIAL REGISTRATION STATEMENT". The additional
registration statement, as amended at its Effective Time, including the
contents of the initial registration statement incorporated by reference
therein and including all information (if any) deemed to be a part of the
additional registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "ADDITIONAL REGISTRATION
STATEMENT". The Initial Registration Statement and the Additional
Registration Statement are herein referred to collectively as the
"REGISTRATION STATEMENTS" and individually as a "REGISTRATION STATEMENT".
The form of prospectus relating to the Offered Securities, as first filed
with the Commission pursuant to and in accordance with Rule 424(b) ("RULE
424(b)") under the Act or (if no such filing is required) as included in a
Registration Statement, is hereinafter referred to as the "PROSPECTUS". No
document has been or will be prepared or distributed in reliance on Rule
434 under the Act.
(b) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (i) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all material respects to the requirements of the Act
and the rules and regulations of the Commission ("RULES AND REGULATIONS")
and did not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) on the Effective Date of the
Additional Registration Statement (if any), each Registration Statement
conformed, or will conform, in all material respects to the requirements of
the Act and the Rules and Regulations and did not include, or will not
include, any untrue statement of a material fact and did not omit, or will
not omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) on the
date of this Agreement, the Initial Registration Statement and, if the
Effective Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of the Prospectus
pursuant
<PAGE>
to Rule 424(b) or (if no such filing is required) at the Effective Date of
the Additional Registration Statement in which the Prospectus is included,
each Registration Statement and the Prospectus will conform, in all
material respects to the requirements of the Act and the Rules and
Regulations, and neither of such documents includes, or will include, any
untrue statement of a material fact or omits, or will omit, to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made
(in the case of the Prospectus only), not misleading. If the Effective Time
of the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement: on the Effective Date of the Initial
Registration Statement, the Initial Registration Statement and the
Prospectus will conform in all material respects to the requirements of the
Act and the Rules and Regulations, neither of such documents will include
any untrue statement of a material fact or will omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made (in the case
of the Prospects only), not misleading, and no Additional Registration
Statement has been or will be filed. The two preceding sentences do not
apply to statements in or omissions from a Registration Statement or the
Prospectus based upon written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein, it
being understood and agreed that the only such information is that
described as such in Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
business, condition (financial or otherwise), properties or results of
operations of the Company and its subsidiaries taken as a whole (a
"MATERIAL ADVERSE EFFECT").
(d) Each subsidiary of the Company has been duly incorporated and is
an existing corporation in good standing under the laws of the jurisdiction
of its incorporation, with power and authority (corporate and other) to own
its properties and conduct its business as described in the Prospectus; and
each subsidiary of the Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business requires
such qualification, except where the failure to be so qualified would not
have a Material Adverse Effect; all of the issued and outstanding capital
stock of each subsidiary of the Company has been duly authorized and
validly issued and is fully paid and nonassessable; and the capital stock
of each subsidiary owned by the Company, directly or through subsidiaries,
is owned free from liens, encumbrances and defects.
(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding
shares of capital stock of the Company are, and, when the Offered
Securities have been delivered and paid for in accordance with this
Agreement on each Closing Date (as defined below), such Offered Securities
will have been, validly issued, fully paid and nonassessable and will
conform to the description thereof contained in the Prospectus; and the
stockholders of the Company have no preemptive rights with respect to the
Securities.
(f) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that would
give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection with
this offering.
(g) Except as described in the Prospectus, and except for rights with
respect to this offering which have been validly waived, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company owned or to be owned by such
<PAGE>
person or to require the Company to include such securities in the
securities registered pursuant to a Registration Statement or in any
securities being registered pursuant to any other registration statement
filed by the Company under the Act.
(h) The Offered Securities have been approved for listing on the
Nasdaq Stock Market's National Market, subject to notice of issuance.
(i) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and such
as may be required under state securities laws.
(j) The execution, delivery and performance of this Agreement, and the
issuance and sale of the Offered Securities will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, any rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction over
the Company or any subsidiary of the Company or any of their properties, or
any agreement or instrument to which the Company or any such subsidiary is
a party or by which the Company or any such subsidiary is bound or to which
any of the properties of the Company or any such subsidiary is subject, or
the charter or by-laws of the Company or any such subsidiary, and the
Company has full power and authority to authorize, issue and sell the
Offered Securities as contemplated by this Agreement.
(k) This Agreement has been duly authorized, executed and delivered by
the Company.
(l) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and valid title to all real properties and all other
properties and assets owned by them, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or to be made thereof by them; and
except as disclosed in the Prospectus, the Company and its subsidiaries
hold any leased real or personal property under valid and enforceable
leases with no exceptions that would materially interfere with the use made
or to be made thereof by them.
(m) The Company and its subsidiaries possess adequate certificates,
authorities or permits issued by appropriate governmental agencies or
bodies necessary to conduct the business now operated by them and have not
received any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect.
(n) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that is
reasonably likely to have a Material Adverse Effect.
(o) The Company and its subsidiaries own, possess licenses to or other
rights to use or can acquire on reasonable terms, adequate trademarks,
trade names and other rights to inventions, know-how, patents, copyrights,
confidential information and other intellectual property (collectively,
"INTELLECTUAL PROPERTY RIGHTS") necessary to conduct the business now
operated by them, or presently employed by them, and have not received any
notice of infringement of or conflict with asserted rights of others with
respect to any intellectual property rights that, if determined adversely
to the Company or any of its subsidiaries, would individually or in the
aggregate have a Material Adverse Effect.
(p) Except as disclosed in the Prospectus, neither the Company nor any
of its subsidiaries is in violation of any statute, any rule, regulation,
decision or order of any governmental agency or body or any court, domestic
or foreign, relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the environment
or human exposure to hazardous or toxic
<PAGE>
substances (collectively, "ENVIRONMENTAL LAWS"), owns or operates any real
property contaminated with any substance that is subject to any
environmental laws, is liable for any off-site disposal or contamination
pursuant to any environmental laws, or is subject to any claim relating to
any environmental laws, which violation, contamination, liability or claim
would individually or in the aggregate have a Material Adverse Effect; and
the Company is not aware of any pending investigation which might lead to
such a claim.
(q) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company, any of its
subsidiaries or any of their respective properties that, if determined
adversely to the Company or any of its subsidiaries, would individually or
in the aggregate have a Material Adverse Effect, or would materially and
adversely affect the ability of the Company to perform its obligations
under this Agreement, or which are otherwise material in the context of the
sale of the Offered Securities; and no such actions, suits or proceedings
are, to the Company's knowledge, threatened or contemplated.
(r) The financial statements included in each Registration Statement
and the Prospectus present fairly, in all material respects, the financial
position of the Company and its consolidated subsidiaries as of the dates
shown and their results of operations and cash flows for the periods shown,
and such financial statements have been prepared in conformity with the
generally accepted accounting principles in the United States applied on a
consistent basis; and the assumptions used in preparing the pro forma
financial statements included in each Registration Statement and the
Prospectus provide a reasonable basis for presenting the significant
effects directly attributable to the transactions or events described
therein, the related pro forma adjustments give appropriate effect to those
assumptions, and the pro forma columns therein reflect the proper
application of those adjustments to the corresponding historical financial
statement amounts.
(s) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus, there has
been no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as a whole, and, except as disclosed in or contemplated
by the Prospectus, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(t) The Company is not and, after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds thereof
as described in the Prospectus, will not be an "investment company" as
defined in the Investment Company Act of 1940, as amended.
(u) The jurisdictions listed on Schedule B to this Agreement
constitute all of the jurisdictions in which the Company's business or the
Company's ownership of property warrants qualification to do business as a
foreign corporation in good standing except where the failure to be so
qualified would not have a Material Adverse Effect.
(v) Furthermore, the Company represents and warrants to the
Underwriters that (i) the Registration Statement, the Prospectus and any
preliminary prospectus comply, and any further amendments or supplements
thereto will comply, with any applicable laws or regulations of foreign
jurisdictions in which the Prospectus or any preliminary prospectus, as
amended or supplemented, if applicable, are distributed in connection with
the Directed Share Program, and that (ii) no authorization, approval,
consent, license, order, registration or qualification of or with any
government, governmental instrumentality or court, other than such as have
been obtained, is necessary under the securities law and regulations of
foreign jurisdictions in which the Directed Shares are offered outside the
United States.
<PAGE>
(w) The Company has not offered, or caused the Underwriters to offer,
any offered Securities to any person pursuant to the Directed Share Program
with the specific intent to unlawfully influence (i) a customer or supplier
of the Company to alter the customer's or supplier's level or type of
business with the Company or (ii) a trade journalist or publication to
write or publish favorable information about the Company or its products.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $ per share, the respective
numbers of shares of Firm Securities set forth opposite the names of the
Underwriters in Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives for the
accounts of the Underwriters, against payment of the purchase price in (same
day) funds by official bank check or checks or wire transfer to an account at a
bank acceptable to Credit Suisse First Boston Corporation ("CSFBC") CSFBC drawn
to the order of ZEFER Corp. at the office of Cravath, Swaine & Moore, at 10:00
A.M., New York time, on , 2000, or at such other time not later
than seven full business days thereafter as CSFBC and the Company determine,
such time being herein referred to as the "FIRST CLOSING DATE". For purposes of
Rule 15c6-1 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the First Closing Date (if later than the otherwise applicable
settlement date) shall be the settlement date for payment of funds and delivery
of securities for all the Offered Securities sold pursuant to the offering. The
certificates for the Firm Securities so to be delivered will be in definitive
form, in such denominations and registered in such names as CSFBC requests and
will be made available for checking and packaging at the above office of
Cravath, Swaine & Moore at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from time
to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's name
bears to the total number of shares of Firm Securities (subject to adjustment by
CSFBC to eliminate fractions) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
Firm Securities. No Optional Securities shall be sold or delivered unless the
Firm Securities previously have been, or simultaneously are, sold and delivered.
The right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and, to the extent not previously exercised, may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "OPTIONAL CLOSING DATE", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "CLOSING DATE"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several Underwriters, against payment of
the purchase price therefor in Federal (same day) funds by official bank check
or checks or wire transfer to an account at a bank acceptable to CSFBC drawn to
the order of ZEFER Corp., at the above office of Cravath, Swaine & Moore. The
certificates for the Optional Securities being purchased on each Optional
Closing Date will be in definitive form, in such denominations and registered in
such names as CSFBC requests upon reasonable notice prior to such Optional
Closing Date and will be made available for checking and packaging at the above
office of Cravath, Swaine & Moore at a reasonable time in advance of such
Optional Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
<PAGE>
5. Certain Agreements of the Company. The Company agrees with the several
Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CSFBC,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifteenth business day after the Effective Date of the Initial
Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as
of such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective amendment
thereto with the Commission pursuant to and in accordance with Rule 462(b)
on or prior to 10:00 P.M., New York time, on the date of this Agreement or,
if earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later date
as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend
or supplement the initial or any additional registration statement as filed
or the related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus and will not
effect such amendment or supplementation without CSFBC's consent; and the
Company will also advise CSFBC promptly of the effectiveness of each
Registration Statement (if its Effective Time is subsequent to the
execution and delivery of this Agreement) and of any amendment or
supplementation of a Registration Statement or the Prospectus and of the
institution by the Commission of any stop order proceedings in respect of a
Registration Statement and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its
lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the Company will promptly
notify CSFBC of such event and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance. Neither CSFBC's consent to, nor the Underwriters' delivery of,
any such amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act.
For the purpose of the preceding sentence, "AVAILABILITY DATE" means the
45th day after the end of the fourth fiscal quarter following the fiscal
quarter that includes such Effective Date, except that, if such fourth
fiscal quarter is the last quarter of the Company's fiscal year,
"AVAILABILITY DATE" means the 90th day after the end of such fourth fiscal
quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (four of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Offered Securities is required to be delivered
under the Act in
<PAGE>
connection with sales by any Underwriter or dealer, the Prospectus and all
amendments and supplements to such documents, in each case in such
quantities as CSFBC requests. The Prospectus shall be so furnished on or
prior to 3:00 P.M., New York time, on the business day following the later
of the execution and delivery of this Agreement or the Effective Time of
the Initial Registration Statement. All other documents shall be so
furnished as soon as available. The Company will pay the expenses of
printing and distributing to the Underwriters all such documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as
required for the distribution; provided, however, that the Company shall
not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as available after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the Company
will furnish to the Representatives (i) as soon as available, a copy of
each report and any definitive proxy statement of the Company filed with
the Commission under the Securities Exchange Act of 1934 or mailed to
stockholders, and (ii) from time to time, such other information concerning
the Company as CSFBC may reasonably request, which such other information
shall be kept confidential by the Underwriters.
(h) The Company will pay all expenses incident to the performance of
its obligations under this Agreement, for any filing fees and other
expenses (including fees and disbursements of counsel) incurred in
connection with qualification of the Offered Securities for sale under the
laws of such jurisdictions as CSFBC designates and the printing of
memoranda relating thereto, for the filing fee incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the National Association of Securities
Dealers, Inc. of the Offered Securities, for any travel expenses of the
Company's officers and employees and any other expenses of the Company in
connection with attending or hosting meetings with prospective purchasers
of the Offered Securities and for expenses incurred in distributing
preliminary prospectuses and the Prospectus (including any amendments and
supplements thereto) to the Underwriters.
(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company 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 Act relating
to, any additional shares of its Securities or securities convertible into
or exchangeable or exercisable for any shares of its Securities, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of CSFBC, except
(i) issuances of Securities pursuant to the conversion, exchange or
redemption of securities; (ii) issuances of Securities upon the exercise of
options and warrants outstanding on the date of this Agreement; (iii)
issuances of Securities in consideration for the acquisition by the Company
of the assets or capital stock of another person or entity; provided that
the recipients of such Securities agree to be bound by restrictions
substantially identical to those discussed in Exhibit A for the remaining
portion of the 180-day period; (iv) grants of options and offers to sell
Securities to the Company's employees, directors, consultants and advisors,
and issuances of Securities upon the exercise of any such options, pursuant
to the Company's 1999 Incentive Plan, 1999 Stock Option Plan and 2000
Employee Stock Purchase Plan; (v) issuances of Securities pursuant to a
dividend reinvestment plan or (vi) the filing of registration statements on
Form S-8 with the Commission registering Securities issuable under the
plans referred to in clause (iv) above.
(j) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent required
by the National Association of Securities Dealers, Inc. (the "NASD") or the
NASD rules from sale, transfer, assignment, pledge or
<PAGE>
hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement. The Designated Underwriter
will notify the Company as to which Participants will need to be so
restricted. The Company will direct the transfer agent to place stop
transfer restrictions upon such securities for such period of time.
(k) The Company will pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Shares Program
and stamp duties, similar taxes or duties or other taxes, if any, incurred
by the underwriters in connection with the Directed Share Program.
Furthermore, the company covenants with the Underwriters that the
company will comply with all applicable securities and other applicable
laws, rules and regulations in each foreign jurisdiction in which the
Directed Shares are offered in connection with the Directed Share Program.
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of
the amendment or post-effective amendment to the registration statement to
be filed shortly prior to such Effective Time), of Arthur Andersen LLP
confirming that they are independent public accountants within the meaning
of the Act and the applicable published Rules and Regulations thereunder
and stating substantially to the effect that:
(i) in their opinion the audited financial statements and pro
forma financial statements examined by them and included in the
Registration Statements comply as to form in all material
respects with the applicable accounting requirements of the Act
and the related published Rules and Regulations;
(ii) on the basis of a reading of the latest available interim
financial statements of the Company, inquiries of officials of
the Company who have responsibility for financial and accounting
matters and other specified procedures, nothing came to their
attention that caused them to believe that:
(A) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date
not more than three business days prior to the date of such
letter, there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt of the
Company and its consolidated subsidiaries or, at the date of
the latest available balance sheet read by such accountants,
there was any decrease in consolidated net current assets or
net assets, as compared with amounts shown on the latest
balance sheet included in the Prospectus; or
(B) for the period from the closing date of the latest
income statement included in the Prospectus to the closing
date of the latest available income statement read by such
accountants there were any decreases, as compared with the
corresponding period of the previous year, in consolidated
net sales or consolidated net income,
<PAGE>
except in all cases set forth in clauses (A) and (B) above for
changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such letter;
and
(iii) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the
extent that such dollar amounts, percentages and other financial
information are derived from the general accounting records of
the Company and its subsidiaries subject to the internal controls
of the Company's accounting system or are derived directly from
such records by analysis or computation) with the results
obtained from inquiries, a reading of such general accounting
records and other procedures specified in such letter and have
found such dollar amounts, percentages and other financial
information to be in agreement with such results, except as
otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "REGISTRATION STATEMENTS" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statement is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration is
subsequent to such execution and delivery, "REGISTRATION STATEMENTS" shall mean
the Initial Registration Statement and the additional registration statement as
proposed to be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time, and (iii)
"PROSPECTUS" shall mean the prospectus included in the Registration Statements.
The Company shall have received from Arthur Andersen LLP (and furnished to
the Representatives) an examination report with respect to the Company's pro
forma financial statements for the year ended December 31, 1998 and a review
report with respect to the Company's pro forma financial statements for the year
ended December 31, 1999, each in accordance with Statement on Standards for
Attestation Engagement No. 8 issued by the Auditing Standards Board of the
American Institute of Certified Public Accountants, and such examination report
and review report shall be included in the Registration Statement.
(b) If the Effective Time of the Initial Registration Statement is
not prior to the execution and delivery of this Agreement, such Effective
Time shall have occurred not later than 10:00 P.M., New York time, on the
date of this Agreement or such later date as shall have been consented to
by CSFBC. If the Effective Time of the Additional Registration Statement
(if any) is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or, if earlier, the time the Prospectus
is printed and distributed to any Underwriter, or shall have occurred at
such later date as shall have been consented to by CSFBC. If the Effective
Time of the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with the
Commission in accordance with the Rules and Regulations and Section 5(a) of
this Agreement. Prior to such Closing Date, no stop order suspending the
effectiveness of a Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the
knowledge of the Company or the Representatives, shall be contemplated by
the Commission.
(c) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as one enterprise which, in the judgment of a majority
in interest of the Underwriters including the Representatives, is material
and adverse and makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
Offered Securities; (ii) any downgrading in the rating of any debt
securities of the Company by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the Act), or
any public
<PAGE>
announcement that any such organization has under surveillance or review
its rating of any debt securities of the Company (other than an
announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating); (iii) any material
suspension or material limitation of trading in securities generally on the
New York Stock Exchange or any setting of minimum prices for trading on
such exchange, or any suspension of trading of any securities of the
Company on any exchange or in the over-the-counter market; (iv) any banking
moratorium declared by U.S. Federal or New York authorities; or (v) any
outbreak or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial
national or international calamity or emergency if, in the judgment of a
majority in interest of the Underwriters including the Representatives, the
effect of any such outbreak, escalation, declaration, calamity or emergency
makes it impractical or inadvisable to proceed with completion of the
public offering or the sale of and payment for the Offered Securities.
(d) The Representatives shall have received an opinion, dated such
Closing Date, of Hale and Dorr LLP, counsel for the Company, and, with
respect to the paragraph immediately following clause (vii) below, Sean
Mullaney, General Counsel to the Company, to the effect that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in
the jurisdictions identified on a schedule to the opinion;
(ii) The Offered Securities delivered on such Closing Date and
all other outstanding shares of the Common Stock of the Company have
been duly authorized and validly issued, are fully paid and
nonassessable and conform to the description thereof contained in the
Prospectus; and the stockholders of the Company have no preemptive
rights with respect to the Securities under the Delaware General
Corporation Law statute or any material contract filed as an exhibit
to the Registration Statement or, to such counsel's knowledge, any
other agreement to which the Company is a party;
(iii) Except as described in the Prospectus, there are no
contracts, agreements or understandings known to such counsel between
the Company and any person granting such person the right to require
the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration
statement filed by the Company under the Act, except to the extent any
such rights have been waived;
(iv) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance or sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and
such as may be required under state securities laws;
(v) The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby, and the issuance
and sale of the Offered Securities, will not result in a breach or
violation of any of the terms and provisions of, or constitute a
default under, (i) any statute, rule or regulation; (ii) any order of
any governmental agency or body or any court known to such counsel
having jurisdiction over the Company or any subsidiary of the Company
or any of their properties; (iii) any agreement or instrument to which
the Company or any such subsidiary is a party or by which the Company
or any such subsidiary is bound or to which any of the properties of
the Company or any such subsidiary
<PAGE>
is subject and which agreement or instrument is filed as an exhibit to
the Registration Statement; or (iv) the charter or by-laws of the
Company or any such subsidiary, and the Company has full power and
authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement;
(vi) The Initial Registration Statement was declared effective
under the Act, the Additional Registration Statement (if any) was
filed and became effective under the Act, the Prospectus either was
filed with the Commission pursuant to the subparagraph of Rule 424(b)
specified in such opinion or was included in the Initial Registration
Statement or the Additional Registration Statement (as the case may
be), and, to the knowledge of such counsel, no stop order suspending
the effectiveness of a Registration Statement or any part thereof has
been issued and no proceedings for that purpose have been instituted
or are pending or contemplated under the Act, and each Registration
Statement and the Prospectus, and each amendment or supplement
thereto, as of their respective effective or issue dates, complied as
to form in all material respects with the requirements of the Act and
the Rules and Regulations; the descriptions in the Registration
Statements and Prospectus under the captions "Description of Capital
Stock," "Shares Eligible for Future Sale," "Management" and "Certain
Transactions" of statutes, legal and governmental proceedings and
contracts and other documents are accurate in all material respects
and fairly present the information required to be shown; and such
counsel do not know of any legal or governmental proceedings required
to be described in a Registration Statement or the Prospectus which
are not described as required or of any contracts or documents of a
character required to be described in a Registration Statement or the
Prospectus or to be filed as exhibits to a Registration Statement
which are not described and filed as required; it being understood
that such counsel need express no opinion as to the financial
statements or other financial data contained in the Registration
Statements or the Prospectus; and
(vii) This Agreement has been duly authorized, executed and
delivered by the Company.
The opinion shall also include a statement from such counsel to the
effect that such counsel has participated in conferences with directors,
officers and other representatives of the Company and its subsidiaries,
representatives of the independent public accountants for the Company and
its subsidiaries and representatives of the Underwriters and their counsel,
at which conferences the contents of the Prospectus and related matters
were discussed, and, although they have not independently verified and are
not passing upon the accuracy, completeness or fairness of the statements
contained in the Prospectus (except to the extent specified in the
foregoing opinions), no facts have come to their attention which lead them
to believe that on the date thereof or on the Closing Date, the Prospectus
contained or contains an untrue statement of a material fact or omitted or
omits to state a material fact required to be stated therein or necessary
to make the statements contained therein, in the light of the circumstances
under which they were made, not misleading (except for the financial
statements and related notes and the other financial and accounting data
included in the Prospectus as to which such counsel need not express any
view).
(e) The Representatives shall have received from Cravath, Swaine &
Moore, counsel for the Underwriters, such opinion or opinions, dated such
Closing Date, with respect to the incorporation of the Company, the
validity of the Offered Securities delivered on such Closing Date, the
Registration Statements, the Prospectus and other related matters as the
Representatives may require, and the Company shall have furnished to such
counsel such documents as they reasonably request for the purpose of
enabling them to pass upon such matters.
(f) The Representatives shall have received a certificate, dated such
Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to
their knowledge, shall state that: the representations and warranties of
the Company in this Agreement are true and correct; the Company has
complied with all agreements and
<PAGE>
satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to such Closing Date; no stop order suspending the
effectiveness of any Registration Statement has been issued and no
proceedings for that purpose have been instituted or are contemplated by
the Commission; the Additional Registration Statement (if any) satisfying
the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed
pursuant to Rule 462(b), including payment of the applicable filing fee in
accordance with Rule 111(a) or (b) under the Act, prior to the time the
Prospectus was printed and distributed to any Underwriter; and, subsequent
to the date of the most recent financial statements in the Prospectus,
there has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectus or as described in such certificate.
(g) The Representatives shall have received a letter, dated such
Closing Date, of Arthur Andersen LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to
in such subsection will be a date not more than three days prior to such
Closing Date for the purposes of this subsection.
(h) On or prior to the date of this Agreement, the Representatives
shall have received lockup letters from each executive officer, director
and stockholder of the Company.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
request. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter, its partners, directors and officers and each
person, if any, who controls such Underwriter within the meaning of Section 15
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (b) below; and provided further,
however, that the Company will not be liable to any Underwriter under this
Section 7(a) with respect to any preliminary prospectus to the extent that any
such loss, claim damage or liability of such Underwriter results from an untrue
statement of a material fact contained in, or the omission of a material fact
from, such preliminary prospectus, which untrue statement or omission was
corrected in the Prospectus if such Underwriter sold shares to the person
alleging such loss, claim, damage or liability without sending or giving, at or
prior to the written confirmation of such sale, a copy of the Prospectus if the
Company had previously furnished copies thereof to such Underwriter.
The Company agrees to indemnify and hold harmless the Designated
Underwriter and each person, if any, who controls the Designated Underwriter
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act (the "DESIGNATED ENTITIES"), from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) (i) caused by any untrue statement or
<PAGE>
alleged untrue statement of a material fact contained in any material prepared
by or with the consent of the Company for distribution to Participants in
connection with the Directed Share Program or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) caused by the
failure of any Participant to pay for and accept delivery of Directed Shares
that the Participant agreed to purchase; or (iii) related to, arising out of, or
in connection with the Directed Share Program, other than losses, claims,
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or gross negligence of
the Designated Entities.
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company, its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities to which the Company may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the following information in the Prospectus furnished on behalf of each
Underwriter: the concession and reallowance figures appearing in the fourth
paragraph, and the information contained in the sixth and last paragraphs, each
under the caption "Underwriting".
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. Notwithstanding anything contained herein to
the contrary, if indemnity may be sought pursuant to the last paragraph in
Section 7(a) hereof in respect of such action or proceeding, then in addition to
such separate firm for the indemnified parties, the indemnifying party shall be
liable for the reasonable fees and expenses of not more than one separate firm
(in addition to any local counsel) for the Designated Underwriter for the
defense of any losses, claims, damages and liabilities arising out of the
Directed Share Program, and all persons, if any, who control the Designated
Underwriter within the meaning of either Section 15 of the Act of Section 20 of
the Exchange Act. No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action in respect of which any indemnified party is or could have been a party
and indemnity could have been sought hereunder by such indemnified party unless
such settlement (i) includes an unconditional release of such indemnified party
from all liability on any claims that are the subject matter of such action and
(ii) does not include a statement as to, or an admission of, fault, culpability
or a failure to act by or on behalf of an indemnified party.
<PAGE>
(d) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be in addition
to any liability which the Company may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each director of the Company, to each officer of the Company who
has signed a Registration Statement and to each person, if any, who controls the
Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default in
their obligations to purchase Offered Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of shares of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
as provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person
<PAGE>
substituted for an Underwriter under this Section. Nothing herein will relieve a
defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Offered Securities have been purchased hereunder
the representations and warranties in Section 2 and all obligations under
Section 5 shall also remain in effect. If the purchase of the Offered Securities
by the Underwriters is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8 or the occurrence of
any event specified in clause (iii), (iv) or (v) of Section 6(c), the Company
will reimburse the Underwriters for all out-of-pocket expenses (including fees
and disbursements of counsel) reasonably incurred by them in connection with the
offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered or telegraphed and confirmed to
the Representatives, c/o Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking Department--
Transactions Advisory Group, or, if sent to the Company, will be mailed,
delivered or telegraphed and confirmed to it at ZEFER Corp., 711 Atlantic
Avenue, Boston Massachusetts 02111, Attention: General Counsel; provided,
however, that any notice to an Underwriter pursuant to Section 7 will be mailed,
delivered or telegraphed and confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for the
several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the Federal
and state courts in the Borough of Manhattan in The City of New York in any suit
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
<PAGE>
If the foregoing is in accordance with the Representatives' understanding
of our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement between the Company and the
several Underwriters in accordance with its terms.
Very truly yours,
ZEFER Corp.
By
---------------------------------------
[Insert title]
The foregoing Underwriting Agreement is hereby
confirmed and accepted as of the date first above
written.
Credit Suisse First Boston Corporation
First Union Securities, Inc.
FleetBoston Robertson Stephens Inc.,
Acting on behalf of themselves and as the
Representatives of the several
Underwriters
By Credit Suisse First Boston Corporation
By
-----------------------------------
[Insert title]
<PAGE>
SCHEDULE A
UNDERWRITER NUMBER OF
----------- FIRM SECURITIES
---------------
Credit Suisse First Boston Corporation
First Union Securities, Inc.................................... $
FleetBoston Robertson Stephens Inc.............................
Deutsche Bank Securities Inc...................................
Total..................................................... ---------------
$
===============
<PAGE>
SCHEDULE B
Jurisdictions of Foreign Qualification
--------------------------------------
California
Maryland
Massachusetts
New York
Texas
<PAGE>
EXHIBIT 3.2
BY-LAWS
-------
OF
--
ZC ACQUISITION CORP.
--------------------
(Adopted as of March 23, 1999)
A Delaware Corporation
ARTICLE I
---------
OFFICES
-------
Section 1. Registered Office. The registered office of the
--------- -----------------
corporation in the State of Delaware shall be located at The Corporation Trust
Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The
name of the corporation's registered agent at such address shall be The
Corporation Trust Company. The registered office and/or registered agent of the
corporation may be changed from time to time by action of the board of
directors.
Section 2. Other Offices. The corporation may also have offices at
--------- -------------
such other places, both within and without the State of Delaware, as the board
of directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place and Time of Meetings. An annual meeting of the
--------- --------------------------
stockholders shall be held each year within one hundred twenty (120) days after
the close of the immediately preceding fiscal year of the corporation for the
purpose of electing directors and conducting such other proper business as may
come before the meeting. The date, time and place of the annual meeting shall be
determined by the highest ranking officer of the corporation then in office;
provided, that if such officer does not act, the board of directors shall
determine the date, time and place of such meeting.
Section 2. Special Meetings. Special meetings of stockholders may
--------- ----------------
be called for any purpose and may be held at such time and place, within or
outside of the State of Delaware, as shall be stated in a notice of meeting or
in a duly executed waiver of notice thereof. Except as otherwise provided in
the certificate of incorporation, such meetings may be called at any time by the
board of directors or the highest ranking officer then in office (the "Ranking
Officer") and shall be called by the Ranking Officer upon the written request of
holders of shares entitled to cast not less than fifty percent of the votes at
the meeting. Such written request shall state the purpose or purposes of the
meeting and shall be delivered to the Ranking Officer. On such written request,
the Ranking Officer shall fix a date and time for such meeting within two days
of the date requested for such meeting in such written request.
Section 3. Place of Meetings. The board of directors may designate
--------- -----------------
any place, either within or outside of the State of Delaware, as the place of
meeting for any annual meeting
<PAGE>
or for any special meeting called by the board of directors. If no designation
is made, or if a special meeting be otherwise called, the place of meeting shall
be the principal executive office of the corporation.
Section 4. Notice. Whenever stockholders are required or permitted
--------- ------
to take action at a meeting, written or printed notice stating the place, date,
time, and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting.
All such notices shall be delivered, either personally or by mail, by or at the
direction of the board of directors, the Chief Executive Officer, the President
or the Secretary, and if mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, postage prepaid, addressed to the
stockholder at his, her or its address as the same appears on the records of the
corporation. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends for the express purpose
of objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.
Section 5. Stockholders List. The officer having charge of the
--------- -----------------
stock ledger of the corporation shall make, at least 10 days before every
meeting of the stockholders, a complete list of the stockholders entitled to
vote at such meeting arranged in alphabetical order, showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the annual meeting at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 6. Quorum. The holders of a majority of the outstanding
--------- ------
shares of capital stock entitled to vote, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders, except as
otherwise provided by statute or by the certificate of incorporation. If a
quorum is not present, the holders of a majority of the shares of capital stock
present in person or represented by proxy at the meeting, and entitled to vote
at the meeting, may adjourn the meeting to another time and/or place. When a
quorum is once present to commence a meeting of stockholders, it is not broken
by the subsequent withdrawal of any stockholders or their proxies.
Section 7. Adjourned Meetings. When a meeting is adjourned to
--------- ------------------
another time and place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative
--------- -------------
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the question is one upon which by express provisions of an
applicable law or of the certificate of incorporation a different vote is
-2-
<PAGE>
required, in which case such express provision shall govern and control the
decision of such question.
Section 9. Voting Rights. Except as otherwise provided by the
--------- -------------
General Corporation Law of the State of Delaware or by the certificate of
incorporation of the corporation or any amendments thereto and subject to
Section 3 of Article VI hereof, every stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
common stock held by such stockholder and no votes for any other class or series
of capital stock held by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting
---------- -------
of stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period.
Section 11. Action by Written Consent. Unless otherwise provided in
---------- -------------------------
the certificate of incorporation, any action required to be taken at any annual
or special meeting of stockholders of the corporation, or any action which may
be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken and bearing the dates of
signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the corporation by delivery to its registered office in
the state of Delaware, or the corporation's principal place of business, or an
officer or agent of the corporation having custody of the book or books in which
proceedings of meetings of the stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. All consents properly delivered in accordance
with this section shall be deemed to be recorded when so delivered. No written
consent shall be effective to take the corporate action referred to therein
unless, within sixty days of the earliest dated consent delivered to the
corporation as required by this section, written consents signed by the holders
of a sufficient number of shares to take such corporate action are so recorded.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing and who, if the action had been taken at a meeting, would
have been entitled to notice of the meeting if the record date for such meeting
had been the date that written consents signed by a sufficient number of holders
to take the action were delivered to the corporation. Any action taken pursuant
to such written consent or consents of the stockholders shall have the same
force and effect as if taken by the stockholders at a meeting thereof.
ARTICLE III
-----------
DIRECTORS
---------
Section 1. General Powers. The business and affairs of the
--------- --------------
corporation shall be managed by or under the direction of the board of
directors.
-3-
<PAGE>
Section 2. Number, Election and Term of Office. The number of
--------- -----------------------------------
directors which shall constitute the first board shall be no more than seven
(7). At no time shall the number of directors be less than three. The exact
number of directors within the limitations specified in the preceding sentence
shall be fixed from time to time by resolution of the board. The directors
shall be elected at the annual meeting of stockholders by such stockholders as
have the right to vote on such election. Directors need not be stockholders of
the corporation. The board of directors shall be and is divided into three
classes: Class I, Class II and Class III. The exact number of directors in each
Class shall be fixed from time to time by resolution of the board. Each
director shall serve for a term ending on the date of the third annual meeting
at which such director was elected; provided that each initial director in Class
I shall serve for a term expiring at the corporation's annual meeting held in
2000; each initial director in Class II shall serve for a term expiring at the
corporation's annual meeting held in 200 1; and each initial director in Class
III shall serve for a term expiring at the corporation's annual meeting held in
2002; provided further, that the term of each director shall continue until the
election and qualification of his successor and shall be subject to his earlier
designation, resignation or removal. The provisions contained in this Article
III shall be subject to the terms and conditions of any stockholders agreement
then in effect by and among the corporation and any of its stockholders (the
"Stockholders Agreement") and the certificate of incorporation.
Section 3. Removal and Resignation. Subject to the provisions of
--------- -----------------------
the Stockholders Agreement, any director or the entire board of directors may be
removed at any time, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors. Whenever the holders
of any class or series are entitled to elect one or more directors by the
provisions of the Corporation's certificate of incorporation or the Stockholders
Agreement, the provisions of this section shall apply, in respect to the removal
without cause of a director or directors so elected, to the vote of the holders
of the outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole. Any director may resign at any time upon written
notice to the corporation.
Section 4. Vacancies. Subject to the provisions of the Stockholders
--------- ---------
Agreement, vacancies and newly created directorships resulting from any increase
in the authorized number of directors may be filled by a majority of the shares
then entitled to vote at an election of directors and in accordance with the
Stockholders Agreement. Each director so chosen shall hold office until a
successor is duly elected and qualified or until his or her earlier death,
resignation or removal as herein provided.
Section 5. Annual Meetings. The annual meeting of each newly
--------- ---------------
elected board of directors shall be held without other notice than this by-law
immediately after, and at the same place as, the annual meeting of stockholders.
Section 6. Other Meetings and Notice. Regular meetings, other than
--------- -------------------------
the annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by or at the
request of the Ranking Officer on at least twenty-four (24) hours notice to each
director, either personally, by telephone, by mail, or by facsimile; in like
manner and on like notice the Ranking Officer must call a special meeting on the
written request of at least two of the directors.
-4-
<PAGE>
Section 7. Quorum, Required Vote and Adjournment. Each director
--------- -------------------------------------
shall be entitled to one vote except as otherwise provided in the Certificate of
Incorporation. Directors then in office (and specifically excluding any
vacancies) and holding a majority of the votes of all directors (or such greater
number required by applicable law) shall constitute a quorum for the transaction
of business. The vote of directors holding a majority of votes present at a
meeting at which a quorum is present shall be the act of the board of directors.
If a quorum shall not be present at any meeting of the board of directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 8. Committees. Subject to the provisions of the
--------- ----------
Stockholders Agreement, the board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation, which to the extent
provided in such resolution or these by-laws shall have and may exercise the
powers of the board of directors in the management and affairs of the
corporation except as otherwise limited by law. The board of directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee
shall keep regular minutes of its meetings and report the same to the board of
directors when required.
Section 9. Committee Rules. Each committee of the board of
--------- ---------------
directors may fix its own rules of procedure and shall hold its meetings as
provided by such rules, except as may otherwise be provided by a resolution of
the board of directors designating such committee.
Section 10. Communications Equipment. Members of the board of
---------- ------------------------
directors or any committee thereof may participate in and act at any meeting of
such board or committee through the use of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in the meeting pursuant to this
section shall constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Consent. Any member
---------- -------------------------------------------
of the board of directors or any committee thereof who is present at a meeting
shall be conclusively presumed to have waived notice of such meeting except when
such member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have consented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the Secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 12. Action by Written Consent. Unless otherwise restricted
---------- -------------------------
by the certificate of incorporation, any action required or permitted to be
taken at any meeting of the board of directors, or of any committee thereof, may
be taken without a meeting if all members
-5-
<PAGE>
of the board or committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the board
or committee.
ARTICLE IV
----------
OFFICERS
--------
Section 1. Number. The officers of the corporation shall be elected
--------- ------
by the board of directors and may consist of a chief executive officer,
president, any number of vice presidents, a secretary, a chief financial
officer, any number of assistant secretaries and such other officers and
assistant officers as may be deemed necessary or desirable by the board of
directors. Any number of offices may be held by the same person. In its
discretion, the board of directors may choose not to fill any office for any
period as it may deem advisable, except that the offices of chief executive
officer, president and secretary shall be filled as expeditiously as possible.
Section 2. Election and Term of Office. The officers of the
--------- ---------------------------
corporation shall be elected annually by the board of directors at its first
meeting held after each annual meeting of stockholders or as soon thereafter as
conveniently may be. Vacancies may be filled or new offices created and filled
at any meeting of the board of directors. Each officer shall hold office until
a successor is duly elected and qualified or until his or her earlier death,
resignation or removal as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board of
--------- -------
directors may be removed by the board of directors whenever in its judgment the
best interests of the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
Section 4. Vacancies. Any vacancy occurring in any office because
--------- ---------
of death, resignation, removal, disqualification or otherwise, may be filled by
the board of directors for the unexpired portion of the term by the board of
directors then in office.
Section 5. Compensation. Compensation of all officers shall be
--------- ------------
fixed by the board of directors, and no officer shall be prevented from
receiving such compensation by virtue of his or her also being a director of the
corporation.
Section 6. Chief Executive Officer. The Chief Executive Officer
--------- -----------------------
shall, subject to the powers of the board of directors, be in the general and
active charge of the entire business and affairs of the corporation, and shall
be its chief policy making officer. He or she shall preside at all meetings of
the board of directors and stockholders and shall have such other powers and
perform such other duties as may be prescribed by the board of directors or
provided in these by-laws. Whenever the President is unable to serve, by reason
of sickness, absence or otherwise, the Chief Executive Officer shall perform all
the duties and responsibilities and exercise all the powers of the President.
Section 7. President. The President of the corporation, subject to
--------- ---------
the powers of the board of directors and the Chief Executive Officer, shall have
general charge of the business affairs and property of the corporation, and
control over its officers, agents and employees, and
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<PAGE>
shall see that all orders and resolutions of the board of directors are carried
into effect. The President shall execute bonds, mortgages and other contracts
which the board of directors have authorized to be executed, except where
required or permitted by law to be otherwise signed and executed or except where
the signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation. The President shall
have such other powers and perform such other duties as may be prescribed by the
Chief Executive Officer, the board of directors or as may be provided in these
By-laws. The offices of President and Chief Executive Officer may be held by a
single individual.
Section 8. Chief Financial Officer. The Chief Financial Officer of
--------- -----------------------
the corporation shall, under the direction of the Chief Executive Officer, be
responsible for all financial and accounting matters of the corporation. The
Chief Financial Officer shall have such other powers and perform such other
duties as may be prescribed by the Chief Executive Officer, the President or the
board of directors or as may be provided in these By-laws.
Section 9. Vice-Presidents. The Vice-President, or if there shall
--------- ---------------
be more than one, the Vice-Presidents in the order determined by the board of
directors, shall, in the absence or disability of the President and the Chief
Executive Officer, act with all of the powers and be subject to all the
restrictions of the President. The Vice-Presidents shall also perform such other
duties and have such other powers as the board of directors, the Chief Executive
Officer, the President or these By-laws may, from time to time, prescribe.
Section 10. The Secretary and Assistant Secretaries. The Secretary
---------- ---------------------------------------
shall attend all meetings of the board of directors, all meetings of the
committees thereof and all meetings of the stockholders and record all the
proceedings of the meetings in a book or books to be kept for that purpose.
Under the Chief Executive Officer's supervision, the Secretary shall give, or
cause to be given, all notices required to be given by these by-laws or by law;
shall have such powers and perform such duties as the board of directors, the
Chief Executive Officer, the President or these by-laws may, from time to time,
prescribe; and shall have custody of the corporate seal of the corporation. The
Secretary, or an Assistant Secretary, shall have authority to affix any
corporate seal to any instrument requiring it and when so affixed, it may be
attested by his or her signature or by the signature of such Assistant
Secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
or her signature. The Assistant Secretary, or if there be more than one, the
Assistant Secretaries in the order determined by the board of directors, shall,
in the absence or disability of the Secretary, perform the duties and exercise
the powers of the Secretary and shall perform such other duties and have such
other powers as the board of directors, the Chief Executive Officer, the
President or the Secretary may, from time to time, prescribe.
Section 11. The Treasurer and Assistant Treasurer. The Treasurer
---------- -------------------------------------
shall have the custody of the corporate funds and securities; shall keep full
and accurate accounts of receipts and disbursements in books belonging to the
corporation; shall deposit all monies and other valuable effects in the name and
to the credit of the corporation as may be ordered by the board of directors;
shall cause the funds of the corporation to be disbursed when such disbursements
have been duly authorized, taking proper vouchers for such disbursements; and
shall render to the Chief Executive Officer, the President and the board of
directors, at its regular meeting or when the board of directors so requires, an
account of the corporation; shall have such powers
-7-
<PAGE>
and perform such duties as the board of directors, the Chief Executive Officer,
the President or these by-laws may, from time to time, prescribe. If required by
the board of directors, the Treasurer shall give the corporation a bond (which
shall be rendered every six (6) years) in such sums and with such surety or
sureties as shall be satisfactory to the board of directors for the faithful
performance of the duties of the office of Treasurer and for the restoration to
the corporation, in case of death, resignation, retirement, or removal from
office, of all books, papers, vouchers, money, and other property of whatever
kind in the possession or under the control of the Treasurer belonging to the
corporation. The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the board of directors, shall in
the absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer. The Assistant Treasurers shall perform such other
duties and have such other powers as the board of directors, the Chief Executive
Officer, the President or Treasurer may, from time to time, prescribe.
Section 12. Other Officers, Assistant Officers and Agents. Officers,
---------- ---------------------------------------------
assistant officers and agents, if any, other than those whose duties are
provided for in these By-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
Section 13. Absence or Disability of Officers. In the case of the
---------- ---------------------------------
absence or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person whom it may select.
ARTICLE V
---------
INDEMNIFICATION
---------------
Section 1. Indemnify for Third Party Actions. The corporation
--------- ---------------------------------
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that such person is
or was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director, officer, member, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement ("collectively, Losses") actually and reasonably incurred by such
------
person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner reasonably believed to be within the scope of the
authority conferred on such person by the corporation or such other entity, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful, except that a person shall not be
indemnified for any such Losses incurred by reason of such person's gross
negligence, willful misconduct or breach of an agreement by such person with the
corporation. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which such person reasonably believed to be in
or not opposed to the best interest of the corporation, and, with
-8-
<PAGE>
respect to any criminal action or proceeding, had reasonable cause to believe
that such person's conduct was unlawful.
Section 2. Indemnity for Action by or in right of Corporation. The
--------- --------------------------------------------------
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director or officer of the corporation, or is
or was serving at the request of the corporation as a director, officer or
member of another corporation, partnership, joint venture, trust or other
enterprise, against Losses actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner reasonably believed to be within the scope
of the authority conferred on such person by the corporation or such other
entity, except that a person shall not be indemnified for any such Losses
incurred by reason of such person's gross negligence, willful misconduct or
breach of an agreement by such person with the corporation, and except that no
such indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of Delaware or the
court in which such suit or action was brought shall be determined upon
application that, despite the adjudication of liability but in consideration of
all the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses which such court shall deem proper.
Section 3. Employees. The corporation may, to the extent deemed
--------- ---------
advisable by the Board of Directors, indemnify any person who is or was an
employee or agent (other than a director or officer) of the corporation if such
person would be entitled to such indemnity under the provisions of Section 1 or
2 if such person had been a director or officer of the corporation.
Section 4. Procedure for Indemnity. Any indemnification to be
--------- -----------------------
provided under Section 1, 2 or 3 (unless ordered by a court) shall be made by
the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, member, employee or agent is
proper in the circumstances because such person has met the applicable standard
of conduct set forth in Sections 1 and 2. Such determination shall be made (1)
by a majority vote of directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders.
Section 5. Expenses. Expenses (including attorneys' fees) incurred
--------- --------
by an officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding unless
otherwise determined by the Board of Directors in the specific case, upon
receipt of an undertaking by or on behalf of the director or officer to repay
such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in this Article V.
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
-9-
<PAGE>
Section 6. Article Not Exclusive. The indemnification and
--------- ---------------------
advancement of expenses provided by, or granted pursuant to, this Article V
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any statute,
by-law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in such person's official capacity and as to action in another
capacity while holding such office, and shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, member, employee or agent and shall inure to the benefit of the heirs,
executors, and administrators of such person.
Section 7. Insurance. The corporation shall have the power to
--------- ---------
purchase and maintain insurance on behalf of any person who was or is a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, member, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the corporation would have the power to indemnify such person against such
liability under the provisions of this Article V or of the General Corporation
Law of the State of Delaware.
Section 8. References to "the Corporation". For the purposes of
--------- -------------------------------
this Article V, references to "the corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger and the
corporation which, if its separate existence had continued, would have had power
and authority to (or in fact did) indemnify its directors, officers, employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, member, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article with
respect to the resulting or surviving corporation as such person would have with
respect to such constituent corporation if its separate existence had continued.
ARTICLE VI
----------
CERTIFICATES OF STOCK; RECORD DATE
----------------------------------
Section 1. Form. Every holder of stock in the corporation shall
--------- ----
be entitled to have a certificate, signed by, or in the name of the corporation
by the Chief Executive Officer, the President, the Chief Financial Officer or a
Vice-President and the Secretary or an Assistant Secretary of the corporation,
certifying the number of shares owned by such holder in the corporation. If such
a certificate is countersigned (1) by a transfer agent or an assistant transfer
agent other than the corporation or its employee or (2) by a registrar, other
than the corporation or its employee, the signature of any such Chief Executive
Officer, President, Chief Financial Officer, Vice-President, Secretary, or
Assistant Secretary may be facsimiles. In case any officer or officers who have
signed, or whose facsimile signature or signatures have been used on, any such
certificate or certificates shall cease to be such officer or officers of the
corporation whether because of death, resignation or otherwise before such
certificate or certificates have been delivered by the corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates or whose
-10-
<PAGE>
facsimile signature or signatures have been used thereon had not ceased to be
such officer or officers of the corporation. All certificates for shares shall
be consecutively numbered or otherwise identified. The name of the person to
whom the shares represented thereby are issued, with the number of shares and
date of issue, shall be entered on the books of the corporation. Shares of stock
of the corporation shall only be transferred on the books of the corporation by
the holder of record thereof or by such holder's attorney duly authorized in
writing, upon surrender to the corporation of the certificate or certificates
for such shares endorsed by the appropriate person or persons, with such
evidence of the authenticity of such endorsement, transfer, authorization, and
other matters as the corporation may reasonably require, and accompanied by all
necessary stock transfer stamps. In that event, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate or certificates, and record the transaction on its books.
The board of directors may appoint a bank or trust company organized under the
laws of the United States or any state thereof to act as its transfer agent or
registrar, or both in connection with the transfer of any class or series of
securities of the corporation.
Section 2. Lost Certificates. The board of directors may direct a
--------- -----------------
new certificate or certificates to be issued in place of any certificate or
certificates previously issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a bond
sufficient to indemnify the corporation against any claim that may be made
against the Corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order
--------- ---------------------------------------------
that the corporation may determine the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting. If no record date is fixed by
the board of directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be the close of business
on the next day preceding the day on which notice is given, or if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
Section 4. Fixing a Record Date for Action by Written Consent. In
--------- --------------------------------------------------
order that the corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to
-11-
<PAGE>
corporate action in writing without a meeting, when no prior action by the board
of directors is required by statute, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the board of directors and prior action by
the board of directors is required by statute, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the board of
directors adopts the resolution taking such prior action.
Section 5. Fixing a Record Date for Other Purposes. In order that
--------- ---------------------------------------
the corporation may determine the stockholders entitled to receive payment of
any dividend or other distribution or allotment or any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purposes of any other lawful action,
the board of directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty (60) days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
board of directors adopts the resolution relating thereto.
Section 6. Registered Stockholders. Prior to the surrender to the
--------- -----------------------
corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications, and otherwise to exercise all the rights and
powers of an owner. The corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
Section 7. Subscriptions for Stock. Unless otherwise provided for
--------- -----------------------
in the subscription agreement, subscriptions for shares shall be paid in full at
such time, or in such installments and at such times, as shall be determined by
the board of directors. In case of default in the payment of any installment or
call when such payment is due, the corporation may proceed to collect the amount
due in the same manner as any debt due the corporation.
ARTICLE VII
-----------
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
--------- ---------
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing
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<PAGE>
dividends, or for repairing or maintaining any property of the corporation, or
any other purpose and the directors may modify or abolish any such reserve in
the manner in which it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other
--------- ------------------------
orders for the payment of money by or to the corporation and all notes and other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, agent or agents of the corporation, and in such
manner, as shall be determined by resolution of the board of directors or a duly
authorized committee thereof.
Section 3. Contracts. The board of directors may authorize any
--------- ---------
officer or officers, or any agent or agents, of the corporation to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the corporation, and such authority may be general or confined to
specific instances.
Section 4. Loans. The corporation may lend money to, or guarantee
--------- -----
any obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the corporation shall be
--------- -----------
fixed by resolution of the board of directors.
Section 6. Corporate Seal. The board of directors shall provide a
--------- --------------
corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the corporation and the words "Corporate Seal, Delaware".
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting
--------- --------------------------------------
securities in any other corporation held by the corporation shall be voted by
the Ranking Officer, unless the board of directors specifically confers
authority to vote with respect thereto, which authority may be general or
confined to specific instances, upon some other person or officer. Any person
authorized to vote securities shall have the power to appoint proxies, with
general power of substitution.
Section 8. Inspection of Books and Records. Any stockholder of
--------- -------------------------------
record, in person or by attorney or other agent, shall, upon written demand
under oath stating the purpose thereof, have the right during the usual hours
for business to inspect for any proper purpose the Corporation's stock ledger, a
list of its stockholders, and its other books and records, and to make copies or
extracts therefrom. A proper purpose shall mean any purpose reasonably related
to such person's interest as a stockholder. In every instance where an attorney
or other agent shall be the person who seeks the right to inspection, the demand
under oath shall be accompanied by a power of attorney or such other writing
which authorizes the attorney or other agent to so act
-13-
<PAGE>
on behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in the State of Delaware or at its
principal place of business.
Section 9. Section Headings. Section headings in these by-laws are
--------- ----------------
for convenience of reference only and shall not be given any substantive effect
in limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any
---------- -----------------------
provision of these by-laws is or becomes inconsistent with any provision of the
certificate of incorporation, the General Corporation Law of the State of
Delaware, the Stockholders Agreement or any other applicable law, the provision
of these by-laws shall not be given any effect to the extent of such
inconsistency but shall otherwise be given full force and effect. Each
Reference to the Stockholders Agreement shall be given effect only at such times
as a Stockholders Agreement is then in effect.
ARTICLE VIII
------------
AMENDMENTS
----------
These by-laws may be amended, altered, or repealed and new by-laws adopted
at any meeting of the board of directors by a majority vote. The fact that the
power to adopt, amend, alter, or repeal the by-laws has been conferred upon the
board of directors shall not divest the stockholders of the same power.
-14-
<PAGE>
First Amendment to By-Laws of ZEFER Corp.
The first sentence of Section 2 of Article III of the By-Laws of the corporation
be and hereby is amended in its entirety to read as follows:
The number of directors which shall constitute the board of directors
shall be set at no more than nine (9).
<PAGE>
EXHIBIT 4
NUMBER SHARES
[ ] [ ]
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP [ ]
[Logo Of ZEFER Corp.]
ZEFER Corp.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.001 PER SHARE,
OF
ZEFER Corp. transferable on the books of the Corporation in person or by
attorney upon surrender of this certificate properly endorsed or assigned. This
Certificate and the shares represented hereby are subject to the laws of the
State of Delaware and to the Certificate of Incorporation and the By-laws of the
Corporation, as from time to time amended (copies of which are on file with the
Transfer Agent) to all of which the holder by acceptance hereof assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS WHEREOF, ZEFER Corp. has caused its facsimile corporate seal and
facsimile signatures of its duly authorized officers to be hereunto affixed.
[SEAL OF ZEFER Corp.]
Dated:
Secretary Chairman of the Board, President
and Chief Executive Officer
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
ZEFER Corp.
-1-
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT ______Custodian_______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not Act________________________
as tenants in common (State)
COM PROP - as community property
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ___________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________ Shares
of the capital stock is represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated,_____________________________
X _____________________________
X _____________________________
Notice: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed By: _________________________________
The signature(s) must be guaranteed
by an eligible guarantor institution
(banks, stockbrokers, savings and
loan associations and credit unions
with membership in an approved
signature guarantee medallion
program), pursuant to S.E.C. Rule
17Ad-15.
-2-
<PAGE>
EXHIBIT 5
HALE AND DORR LLP
COUNSELLORS AT LAW
WWW.HALEDORR.COM
60 STATE STREET, BOSTON, MASSACHUSETTS 02109
617-526-6000 * FAX 617-526-5000
March 14, 2000
ZEFER Corp.
711 Atlantic Avenue
Boston, Massachusetts 02111
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-1 (File No. 333-94283) (the "Registration Statement") filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), for the registration
of an aggregate of 4,600,000 shares of Common Stock, $.001 par value per share
(the "Shares"), of ZEFER Corp., a Delaware corporation (the "Company"), of which
(i) 4,000,000 Shares will be issued and sold by the Company; and (ii) the
remaining 600,000 Shares are issuable upon exercise of an over-allotment option
granted by the Company.
The Shares are to be sold by the Company pursuant to an underwriting
agreement (the "Underwriting Agreement") to be entered into by and among the
Company and Credit Suisse First Boston Corporation, First Union Securities, Inc.
and FleetBoston Robertson Stephens Inc., as representatives of the several
underwriters named in the Underwriting Agreement, the form of which will be
filed as Exhibit 1 to the Registration Statement.
We are acting as counsel for the Company in connection with the sale by the
Company of the Shares. We have examined signed copies of the Registration
Statement as filed with the Commission. We have also examined and relied upon
the Underwriting Agreement, minutes of meetings of the stockholders and the
Board of Directors of the Company as provided to us by the Company, stock record
books of the Company as provided to us by the Company, the Certificate of
Incorporation and By-Laws of the Company, each as restated and/or amended to
date, and such other documents as we have deemed necessary for purposes of
rendering the opinions hereinafter set forth.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as copies, the authenticity of the originals of such latter documents and the
legal competence of all signatories to such documents.
<PAGE>
ZEFER Corp.
March 14, 2000
Page 2
We express no opinion herein as to the laws of any state or jurisdiction
other than the state laws of the Commonwealth of Massachusetts, the Delaware
General Corporation Law and the federal laws of the United States of America.
Based upon and subject to the foregoing, we are of the opinion that the
Shares to be issued and sold by the Company have been duly authorized for
issuance and, when such Shares are issued and paid for in accordance with the
terms and conditions of the Underwriting Agreement, such Shares will be validly
issued, fully paid and nonassessable.
It is understood that this opinion is to be used only in connection with
the offer and sale of the Shares while the Registration Statement is in effect.
Please note that we are opining as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matters. This opinion
is based upon currently existing statutes, rules, regulations and judicial
decisions.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters." In
giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ Hale and Dorr LLP
------------------------
HALE AND DORR LLP
<PAGE>
EXHIBIT 10.1
ZEFER CORP.
1999 INCENTIVE PLAN
1. DEFINED TERMS
Exhibit A, which is incorporated by reference, defines the terms used in
the Plan and sets forth certain operational rules related to those terms.
2. GENERAL
The Plan has been established to advance the interests of the Company by
giving selected Employees, directors and other persons (including both
individuals and entities) who provide services to the Company or its Affiliates
Stock-based incentives or incentives based on Performance Criteria.
The Plan shall become effective on the date on which it is approved by the
shareholders of the Company. Grants of Awards under the Plan may be made prior
to that date (but contemporaneous with or after Board adoption of the Plan),
subject to approval of the Plan by such shareholders.
3. ADMINISTRATION
The Administrator has discretionary authority, subject only to the express
provisions of the Plan, to interpret the Plan; determine eligibility for and
grant Awards; determine, modify or waive the terms and conditions of any Award;
prescribe forms, rules and procedures (which it may modify or waive); and
otherwise do all things necessary to carry out the purposes of the Plan. Once
an Award has been communicated in writing to a Participant, the Administrator
may not, without the Participant's consent, alter the terms of the Award so as
to affect adversely the Participant's rights under the Award, unless the
Administrator expressly reserved the right to do so in writing at the time of
such communication. In the case of any Award intended to be eligible for the
performance-based compensation exception under Section 162(m), the Administrator
shall exercise its discretion consistent with qualifying the Award for such
exception.
-1-
<PAGE>
4. LIMITS ON AWARD UNDER THE PLAN
a. Number of Shares. A maximum of 1,500,000 shares of Stock may be
----------------
delivered in satisfaction of Awards under the Plan. For purposes of the
preceding sentence, the following shares shall not be considered to have been
delivered under the Plan: (i) shares remaining under an Award that terminates
without having been exercised in full; (ii) shares subject to an Award, where
cash is delivered to a Participant in lieu of such shares; (iii) shares of
Restricted Stock that are forfeited in accordance with the terms of the
applicable Award; and (iv) shares held back, in satisfaction of the exercise
price or tax withholding requirements, from shares that would otherwise have
been delivered pursuant to an Award. The number of shares of Stock delivered
under an Award shall be determined net of any previously acquired Shares
tendered by the Participant in payment of the exercise price or of withholding
taxes.
b. Type of Shares. Stock delivered by the Company under the Plan
--------------
may be authorized but unissued Stock or previously issued Stock acquired by the
Company and held in treasury. No fractional shares of Stock will be delivered
under the Plan.
c. Option Limits. The maximum number of shares of Stock for which
-------------
Stock Options may be granted to any person in any calendar year and the
aggregate maximum number of shares of Stock subject to other Awards that may be
delivered to any person in any calendar year shall each be 750,000. For
purposes of the preceding sentence, the repricing of a Stock Option shall be
treated as a new grant to the extent required under Section 162(m). Subject to
these limitations, each person eligible to participate in the Plan shall be
eligible in any year to receive Awards covering up to the full number of shares
of Stock then available for Awards under the Plan.
d. Other Award Limits. No more than $1,000,000 may be paid to any
------------------
individual with respect to any Cash Performance Award. In applying the
limitation of the preceding sentence: (A) multiple Cash Performance Awards to
the same individual that are determined by reference to performance periods of
one year or less ending with or within the same fiscal year of the Company shall
be subject in the aggregate to one limit of such amount, and (B) multiple Cash
Performance Awards to the same individual that are determined by reference to
one or more multi-year performance periods ending in the same fiscal year of the
Company shall be subject in the aggregate to a separate limit of such amount.
With respect to any Performance Award other than a Cash Performance Award or a
Stock Option, the maximum Award opportunity shall be 750,000 shares of Stock or
their equivalent value in cash, subject to the limitations of Section 4.c.
-2-
<PAGE>
5. ELIGIBILITY AND PARTICIPATION
The Administrator will select Participants from among those key Employees,
directors and other individuals or entities providing services to the Company or
its Affiliates who, in the opinion of the Administrator, are in a position to
make a significant contribution to the success of the Company and its
Affiliates. Eligibility for ISOs is further limited to those individuals whose
employment status would qualify them for the tax treatment described in Sections
421 and 422 of the Code.
6. RULES APPLICABLE TO AWARDS
a. All Awards
(1) Terms of Awards. The Administrator shall determine the
---------------
terms of all Awards subject to the limitations provided herein.
(2) Performance Criteria. Where rights under an Award depend in
--------------------
whole or in part on satisfaction of Performance Criteria, actions by the Company
that have an effect, however material, on such Performance Criteria or on the
likelihood that they will be satisfied will not be deemed an amendment or
alteration of the Award.
(3) Alternative Settlement. The Company may at any time
----------------------
extinguish rights under an Award in exchange for payment in cash, Stock (subject
to the limitations of Section 4) or other property on such terms as the
Administrator determines.
(4) Transferability Of Awards. Except as the Administrator
-------------------------
otherwise expressly provides, Awards may not be transferred other than by will
or by the laws of descent and distribution, and during a Participant's lifetime
an Award requiring exercise may be exercised only by the Participant (or in the
event of the Participant's incapacity, the person or persons legally appointed
to act on the Participant's behalf).
(5) Vesting, Etc. The Administrator may determine the time or
-------------
times at which an Award will vest (i.e., become free of forfeiture restrictions)
or become exercisable and the terms on which an Award requiring exercise will
remain exercisable. Unless the Administrator expressly provides otherwise,
immediately upon the cessation of the Participant's employment or other service
relationship with the Company and its Affiliates, an Award requiring exercise
will cease to be exercisable, and all Awards to the extent not already fully
vested will be forfeited, except that:
(a) all Stock Options held by a Participant immediately
prior to his or her death, to the extent then exercisable, will remain
exercisable by such Participant's executor or administrator or the person or
persons to whom the Stock Option is transferred by
-3-
<PAGE>
will or the applicable laws of descent and distribution, for the lesser of (i) a
one year period ending with the first anniversary of the Participant's death or
(ii) the period ending on the latest date on which such Stock Option could have
been exercised without regard to this Section 6.a.(5) and shall thereupon
terminate;
(b) all Stock Options held by the Participant immediately
prior to the cessation of the Participant's employment or other service
relationship for reasons other than death and except as provided in Section
6.a.5(c) below, to the extent then exercisable, will remain exercisable for the
lesser of (i) a period of three months or (ii) the period ending on the latest
date on which such Stock Option could have been exercised without regard to this
Section 6.a.(5), and shall thereupon terminate; and
(c) all Stock Options held by the Participant whose
cessation of employment or other service relationship is determined by the
Administrator in its sole discretion to result for reasons which cast such
discredit on the Participant as to justify immediate termination of the Award
shall immediately terminate upon such cessation.
Unless the Administrator expressly provides otherwise, a Participant's
"employment or other service relationship with the Company and its Affiliates"
will be deemed to have ceased, in the case of an employee Participant, upon
termination of the Participant's employment with the Company and its Affiliates
(whether or not the Participant continues in the service of the Company or its
Affiliates in some capacity other than that of an employee of the Company or its
Affiliates), and in the case of any other Participant, when the service
relationship in respect of which the Award was granted terminates (whether or
not the Participant continues in the service of the Company or its Affiliates in
some other capacity).
(6) Taxes. The Administrator will make such provision for the
-----
withholding of taxes as it deems necessary. The Administrator may, but need not,
hold back shares of Stock from an Award or permit a Participant to tender
previously owned shares of Stock in satisfaction of tax withholding
requirements.
(7) Dividend Equivalents, Etc. The Administrator may provide
-------------------------
for the payment of amounts in lieu of cash dividends or other cash distributions
with respect to Stock subject to an Award.
(8) Rights Limited. Nothing in the Plan shall be construed as
---------------
giving any person the right to continued employment or service with the Company
or its Affiliates, or any rights as a shareholder except as to shares of Stock
actually issued under the Plan. The loss of existing or potential profit in
Awards will not constitute an element of damages in the event of termination of
employment or service for any reason, even if the termination is in violation of
an obligation of the Company or Affiliate to the Participant.
(9) Section 162(m). In the case of an Award intended to be
--------------
eligible for the performance-based compensation exception under Section 162(m),
the Plan and such Award
-4-
<PAGE>
shall be construed to the maximum extent permitted by law in a manner consistent
with qualifying the Award for such exception. In the case of a Performance Award
intended to qualify as performance-based for the purposes of Section 162(m)
(other than a Stock Option with an exercise price at least equal to the fair
market value of the underlying Stock on the date of grant), the Committee shall
in writing preestablish one or more specific Performance Criteria no later than
90 days after the commencement of the period of service to which the performance
relates (or at such earlier time as is required to qualify the Award as
performance-based under Section 162(m)). Prior to payment of any Performance
Award (other than a Stock Option with an exercise price at least equal to the
fair market value of the underlying Stock on the date of grant) intended to
qualify as performance-based under Section 162(m), the Committee shall certify
whether the Performance Criteria have been attained and such determination shall
be final and conclusive. If the Performance Criteria with respect to any such
Award are not attained, no other Award shall be provided in substitution of the
Performance Award.
b. Awards Requiring Exercise
(1) Time And Manner Of Exercise. Unless the Administrator
----------------------------
expressly provides otherwise, (a) an Award requiring exercise by the holder will
not be deemed to have been exercised until the Administrator receives a written
notice of exercise (in form acceptable to the Administrator) signed by the
appropriate person and accompanied by any payment required under the Award; and
(b) if the Award is exercised by any person other than the Participant, the
Administrator may require satisfactory evidence that the person exercising the
Award has the right to do so.
(2) Exercise Price. The Administrator shall determine the
--------------
exercise price of each Stock Option, provided that each Stock Option intended to
qualify for the performance-based exception under Section 162(m) of the Code and
each ISO must have an exercise price that is not less than the fair market value
of the Stock subject to the Stock Option, determined as of the date of grant. An
ISO granted to an Employee described in Section 422(b)(6) of the Code must have
an exercise price that is not less than 110% of such fair market value.
(3) Payment Of Exercise Price, If Any. Where the exercise of an
----------------------------------
Award is to be accompanied by payment, the Administrator may determine the
required or permitted forms of payment, subject to the following: (a) all
payments will be by cash, certified check, bank draft or money order, or, if so
permitted by the Administrator (with the consent of the optionee of an ISO if
permitted after the grant), (i) through the delivery of shares of Stock which
have been outstanding for at least six months (unless the Administrator approves
a shorter period) and which have a fair market value equal to the exercise
price, (ii) by delivery of a promissory note of the person exercising the Award
to the Company, payable on such terms as are specified by the Administrator,
(iii) by delivery of an unconditional and irrevocable undertaking by a broker to
deliver immediately to the Company sufficient funds to pay the exercise price,
or (iv) by any combination of the foregoing permissible forms of payment; and
(b)
-5-
<PAGE>
where shares of Stock issued under an Award are part of an original issue of
shares, the Award shall require an exercise price equal to at least the par
value of such shares.
(4) Reload Awards. The Administrator may provide that upon the
--------------
exercise of an Award, either by payment of cash or (if permitted under Section
6.b.(3) above) through the tender of previously owned shares of Stock, the
Participant or other person exercising the Award will automatically receive a
new Award of like kind covering a number of shares of Stock equal to the number
of shares of Stock for which the first Award was exercised.
(5) ISOs. No ISO may be granted under the Plan after May 21,
----
2009 (ten years from the date of Board approval), but ISOs granted on or before
May 21, 2009 may extend beyond that date.
c. Awards Not Requiring Exercise
Awards of Restricted Stock and Unrestricted Stock may be made in return for
either (i) services determined by the Administrator to have a value not less
than the par value of the Awarded shares of Stock, or (ii) cash or other
property having a value not less than the par value of the Awarded shares of
Stock plus such additional amounts (if any) as the Administrator may determine
payable in such combination and type of cash, other property (of any kind) or
services as the Administrator may determine.
7. EFFECT OF CERTAIN TRANSACTIONS
a. Mergers, Etc.
In the event of a Covered Transaction, the Administrator may (i) vest any
or all outstanding Awards, (ii) if relevant, cause any or all outstanding Awards
to become exercisable, (iii) accelerate any or all deferrals, other than
deferrals of amounts that are neither measured by reference to nor payable in
shares of Stock, or (iv) make a cash payment in settlement of one or more
outstanding Awards based on the expected consideration to be received in the
Covered Transaction, immediately prior to the Covered Transaction. Upon
consummation of the Covered Transaction, all Awards then outstanding and
requiring exercise shall terminate and be forfeited unless assumed by an
acquiring or surviving entity or its affiliate as provided in the following
sentence. In connection with any Covered Transaction in which there is an
acquiring or surviving entity, the Administrator may provide for substitute or
replacement Awards from, or the assumption of Awards by, the acquiring or
surviving entity or its affiliates, any such substitution, replacement or
assumption to be on such terms as the Administrator determines.
-6-
<PAGE>
b. Changes In and Distributions with Respect to the Stock
(1) Basic Adjustment Provisions. In the event of a stock
----------------------------
dividend, stock split or combination of shares, recapitalization or other change
in the Company's capital structure, the Administrator will make appropriate
adjustments to the maximum number of shares that may be delivered under the Plan
under Section 4.a. and to the maximum share limits described in Section 4, and
will also make appropriate adjustments to the number and kind of shares of stock
or securities subject to Awards then outstanding or subsequently granted, any
exercise prices relating to Awards and any other provision of Awards affected by
such change.
(2) Certain Other Adjustments. The Administrator may also make
--------------------------
adjustments of the type described in Section 7.b.(1) to take into account
distributions to common stockholders other than those provided for in Section
7.a. and 7.b.(1), or any other event, if the Administrator determines that
adjustments are appropriate to avoid distortion in the operation of the Plan and
to preserve the value of Awards made hereunder; provided, that no such
adjustment shall be made to the maximum share limits described in Section 4.c.
or 4.d., or otherwise to an Award intended to be eligible for the performance-
based exception under Section 162(m), except to the extent consistent with that
exception, nor shall any change be made to ISOs except to the extent consistent
with their continued qualification under Section 422 of the Code.
(3) Continuing Application of Plan Terms. References in the
------------------------------------
Plan to shares of Stock shall be construed to include any stock or securities
resulting from an adjustment pursuant to Section 7.b.(1) or 7.b.(2) above.
8. LEGAL CONDITIONS ON DELIVERY OF STOCK
The Company will not be obligated to deliver any shares of Stock pursuant
to the Plan or to remove any restriction from shares of Stock previously
delivered under the Plan until the Company's counsel has approved all legal
matters in connection with the issuance and delivery of such shares; if the
outstanding Stock is at the time of delivery listed on any stock exchange or
national market system, the shares to be delivered have been listed or
authorized to be listed on such exchange or system upon official notice of
issuance; and all conditions of the Award have been satisfied or waived. If the
sale of Stock has not been registered under the Securities Act of 1933, as
amended, the Company may require, as a condition to exercise of the Award, such
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act. The Company may require that
certificates evidencing Stock issued under the Plan bear an appropriate legend
reflecting any restriction on transfer applicable to such Stock.
-7-
<PAGE>
9. AMENDMENT AND TERMINATION
Subject to the last sentence of Section 3, the Administrator may at any
time or times amend the Plan or any outstanding Award for any purpose which may
at the time be permitted by law, or may at any time terminate the Plan as to any
further grants of Awards; provided, that (except to the extent expressly
required or permitted by the Plan) no such amendment will, without the approval
of the stockholders of the Company, effectuate a change for which stockholder
approval is required in order for the Plan to continue to qualify under Section
422 of the Code and for Awards to be eligible for the performance-based
exception under Section 162(m).
10. NON-LIMITATION OF THE COMPANY'S RIGHTS
The existence of the Plan or the grant of any Award shall not in any way
affect the Company's right to grant Awards, bonuses or other compensation in
addition to Awards under the Plan or to adopt other plans or arrangements under
which Awards may be issued.
11. GOVERNING LAW
The Plan shall be construed in accordance with the laws of the Commonwealth
of Massachusetts.
-8-
<PAGE>
EXHIBIT A
Definition of Terms
-------------------
The following terms, when used in the Plan, shall have the meanings and be
subject to the provisions set forth below:
"Administrator": The Board or, if one or more Committees have been
appointed, the Committee.
"Affiliate": Any corporation or other entity owning, directly or
indirectly, 50% or more of the outstanding Stock of the Company, or in which the
Company or any such corporation or other entity owns, directly or indirectly,
50% of the outstanding capital stock (determined by aggregate voting rights) or
other voting interests.
"Award": Any or a combination of the following:
(i) Stock Options.
(ii) Restricted Stock.
(iii)Unrestricted Stock.
(iv) Deferred Stock.
(v) Securities (other than Stock Options) that are convertible into
or exchangeable for Stock on such terms and conditions as the Administrator
determines.
(vi) Cash Performance Awards.
(vii) Performance Awards.
(viii) Grants of cash, or loans, made in connection with other Awards
in order to help defray in whole or in part the economic cost (including
tax cost) of the Award to the Participant.
"Board": The Board of Directors of the Company.
"Cash Performance Award": A Performance Award payable in cash. The right
of the Company under Section 6.a.(3) to extinguish an Award in exchange for cash
or the exercise by the Company of such right shall not make an Award otherwise
not payable in cash a Cash Performance Award.
-9-
<PAGE>
"Code": The U.S. Internal Revenue Code of 1986 as from time to time
amended and in effect, or any successor statute as from time to time in effect.
"Committee": One or more committees of the Board which in the case of
Awards granted to officers of the Company shall be comprised solely of two or
more outside directors within the meaning of Section 162(m). Any Committee may
delegate ministerial tasks to such persons (including Employees) as it deems
appropriate.
"Company": ZEFER Corp., a Delaware corporation.
"Covered Transaction": Any of (i) a consolidation or merger in which the
Company is not the surviving corporation or which results in the acquisition of
all or substantially all of the Company's then outstanding common stock by a
single person or entity or by a group of persons and/or entities acting in
concert, (ii) a sale or transfer of all or substantially all the Company's
assets, or (iii) a dissolution or liquidation of the Company.
"Deferred Stock": A promise to deliver Stock or other securities in the
future on specified terms.
"Employee": Any person who is employed by the Company or an Affiliate.
"ISO": A Stock Option intended to be an "incentive stock option" within
the meaning of Section 422 of the Code. No Stock Option Awarded under the Plan
will be an ISO unless the Administrator expressly provides for ISO treatment.
"Participant": An Employee, director or other person providing services to
the Company or its Affiliates who is granted an Award under the Plan.
"Performance Award": An Award subject to Performance Criteria. The
Committee in its discretion may grant Performance Awards that are intended to
qualify for the performance-based compensation exception under Section 162(m)
and Performance Awards that are not intended so to qualify.
"Performance Criteria": Specified criteria the satisfaction of which is a
condition for the exercisability, vesting or full enjoyment of an Award. For
purposes of Performance Awards that are intended to qualify for the performance-
based compensation exception under Section 162(m), a Performance Criterion shall
mean an objectively determinable measure of performance relating to any of the
following (determined either on a consolidated basis or, as the context permits,
on a divisional, subsidiary, line of business, project or geographical basis or
in combinations thereof): (i) sales; revenues; assets; expenses; earnings
before or after deduction for all or any portion of interest, taxes,
depreciation, amortization or other items, whether or not on a continuing
operations or an aggregate or per share basis; return on equity, investment,
capital or assets; one or more operating ratios; borrowing levels, leverage
ratios or credit rating;
-10-
<PAGE>
market share; capital expenditures; cash flow; stock price; stockholder return;
sales of particular products or services; customer acquisition, expansion and
retention; or any combination of the foregoing; or (ii) acquisitions and
divestitures (in whole or in part); joint ventures and strategic alliances;
spin-offs, split-ups and the like; reorganizations; recapitalizations,
restructurings, financings (issuance of debt or equity) and refinancings;
transactions that would constitute a change of control; or any combination of
the foregoing. A Performance Criterion measure and targets with respect thereto
determined by the Administrator need not be based upon an increase, a positive
or improved result or avoidance of loss.
"Plan": The ZEFER Corp. 1999 Incentive Plan as from time to time amended
and in effect.
"Restricted Stock": An Award of Stock subject to restrictions requiring
that such Stock be redelivered to the Company if specified conditions are not
satisfied.
"Section 162(m)": Section 162(m) of the Code.
"Stock": Common Stock of the Company, par value $.01 per share.
"Stock Options": Options entitling the recipient to acquire shares of
Stock upon payment of the exercise price.
"Unrestricted Stock": An Award of Stock not subject to any restrictions
under the Plan.
-11-
<PAGE>
First Amendment to 1999 Incentive Plan
The number of 1,500,000 in the first sentence of Section 4(a) of the
Corporation's 1999 Incentive Plan be and hereby is deleted and replaced with
2,000,000.
Approved by the Directors
of the Corporation on October 20, 1999
Approved by the Stockholders
of the Corporation on October 20, 1999
<PAGE>
Second Amendment to 1999 Incentive Plan
The number 2,000,000 in the first sentence of Section 4(a) of the
Corporation's 1999 Incentive Plan be and hereby is deleted and replaced with
22,666,666, after giving effect to the 3-for-4 stock split effected in December
1999.
Approved by the Directors
of the Corporation as of January 1, 2000
Approved by the Stockholders
of the Corporation as of January 1, 2000
<PAGE>
EXHIBIT 10.2
ZEFER CORP.
1999 STOCK OPTION PLAN
1. PURPOSE
The purpose of this Stock Option Plan (the "Plan") is to advance the
interests of ZEFER Corp. and its subsidiaries (together, the "Company") by
enhancing the ability of the Company to complete acquisitions and attract and
retain employees, consultants or advisers who are in a position to make
significant contributions to the success of the Company, to reward them for
their contributions and to encourage them to take into account the long-term
interests of the Company.
The Plan provides for the award of options to purchase shares of the
Company's common stock ("Stock"). Options granted pursuant to the Plan will be
non-incentive options.
2. ELIGIBILITY FOR AWARDS
Persons eligible to receive awards under the Plan shall be all employees,
consultants and advisers of businesses or entities that the Company acquires
who, in the opinion of the Board of Directors of the Company (the "Board"), are
in a position to make a significant contribution to the success of the Company.
Persons selected for awards under the Plan are referred to herein as
"participants." It is intended that the options hereunder be issued only to
employees of or consultants to businesses acquired by the Company.
3. ADMINISTRATION
The Plan shall be administered by the Board. The Board shall have
authority, not inconsistent with the express provisions of the Plan, (a) to
grant awards consisting of options to such participants as the Board may select;
(b) to determine the time or times when awards shall be granted and the number
of shares of Stock subject to each award; (c) to determine the terms and
conditions of each award; (d) to prescribe the form or forms of any instruments
evidencing awards and any other instruments required under the Plan and to
change such forms from time to time; (e) to adopt, amend and rescind rules and
regulations for the administration of the Plan; and (f) to interpret the Plan
and to decide any questions and settle all controversies and disputes that may
arise in connection with the Plan. Such determinations of the Board shall be
conclusive and shall bind all parties. Subject to Section 8, the Board shall
also have the authority, both generally and in particular instances, to waive
compliance by a participant with any obligation to be performed by the
participant under an award, to waive any condition or provision of an award, and
to amend or cancel any award (and if an award is canceled, to grant a new award
on such terms as the Board shall specify) except that the Board may not take any
action with respect to an
<PAGE>
outstanding award that would adversely affect the rights of the participant
under such award without such participant's consent. Nothing in the preceding
sentence shall be construed as limiting the power of the Board to make
adjustments required by Section 5(c) and Section 6(i).
The Board may, in its discretion, delegate some or all of its powers with
respect to the Plan to a committee (the "Committee"), in which event all
references in this Plan (as appropriate) to the Board shall be deemed to refer
to the Committee. The Committee, if one is appointed, shall consist of at least
two directors. A majority of the members of the Committee shall constitute a
quorum, and all determinations of the Committee shall be made by a majority of
its members. Any determination of the Committee under the Plan may be made
without notice or meeting of the Committee by a writing signed by a majority of
the Committee members.
4. EFFECTIVE DATE AND TERM OF PLAN
The Plan shall become effective on the date on which it is approved by the
Board.
No options shall be granted under the Plan after the completion of ten
years from the date on which the Plan was adopted by the Board, but options
granted on or before the completion of such ten-year period may extend beyond
that date.
5. SHARES SUBJECT TO THE PLAN
(a) Number of Shares. Subject to adjustment as provided in Section 5(c),
----------------
the aggregate number of shares of Stock that may be delivered upon the exercise
of options granted under the Plan shall be 1,500,000. For purposes of the
preceding sentence, the following shares of Stock shall not be considered to
have been delivered under the Plan and shall be available for future grants
within the limits set forth in this Section 5(a): (i) shares of Stock
remaining under an option that terminates without having been exercised in full
and (ii) shares of Stock held back, in satisfaction of the exercise price or tax
withholding requirements, from shares that would otherwise have been delivered
pursuant to an option.
(b) Shares to be Delivered. Shares delivered under the Plan shall be
----------------------
authorized but unissued Stock or, if the Board so decides in its sole
discretion, previously issued Stock acquired by the Company and held in its
treasury. No fractional shares of Stock shall be delivered under the Plan.
(c) Changes in Stock. In the event of a stock dividend, stock split or
----------------
combination of shares, recapitalization or other change in the Company's capital
stock, the number and kind of shares of Stock subject to options then
outstanding or subsequently granted under the Plan, the exercise price of such
options, the maximum number of shares of Stock that may be delivered
2
<PAGE>
under the Plan, and other relevant provisions shall be appropriately adjusted by
the Board, whose determination shall be binding on all persons.
The Board may also adjust the number of shares subject to outstanding
options and the exercise price and the terms of outstanding options to take into
consideration material changes in accounting practices or principles,
extraordinary dividends, consolidations or mergers (except those described in
Section 6(i)), acquisitions or dispositions of stock or property or any other
event if it is determined by the Board that such adjustment is appropriate to
avoid distortion in the operation of the Plan.
6. TERMS AND CONDITIONS OF OPTIONS
(a) Exercise Price of Options. The exercise price of each option shall be
-------------------------
determined by the Board, but the exercise price, in the case of an original
issue of Stock, shall not be less than par value.
(b) Duration of Options. Options shall be exercisable during such period
-------------------
or periods as the Board may specify. The latest date on which an option may be
exercised (the "Final Exercise Date") shall be the date that is ten years from
the date the option was granted unless the Board specifies another date either
at the time the option is granted or at any time thereafter.
(c) Exercise of Options. Options shall become exercisable at such time or
-------------------
times and upon such conditions as the Board shall specify. In the case of an
option not immediately exercisable in full, the Board may at any time accelerate
the time at which all or any part of the option may be exercised.
(1) Options may be exercised only in writing. Written notice of
exercise must be signed by the proper person and furnished to the Company,
together with (i) such documents as the Board may require and (ii) payment
in full as specified below in Section 6(d) for the number of shares for
which the option is exercised.
(2) The delivery of Stock upon the exercise of an option shall be
subject to compliance with (i) applicable federal and state laws and
regulations, (ii) if the outstanding Stock is at the time listed on any
stock exchange, the listing requirements of such exchange, and (iii)
Company counsel's approval of all other legal matters in connection with
the issuance and delivery of such Stock. If the sale of Stock has not been
registered under the Securities Act of 1933, the Company may require, as a
condition to exercise of the option, such representations or agreements as
counsel for the Company may consider appropriate to avoid violation of such
Act and may require that the certificates evidencing such Stock bear an
appropriate legend restricting transfer.
3
<PAGE>
(3) The Board shall have the right to require that the participant
exercising the option remit to the Company an amount sufficient to satisfy
any federal, state, or local withholding tax requirements (or make other
arrangements satisfactory to the Company with regard to such taxes) prior
to the delivery of any Stock pursuant to the exercise of the option. If
permitted by the Board, either at the time of the grant of the option or at
the time of exercise, the participant may elect, at such time and in such
manner as the Board may prescribe, to satisfy such withholding obligation
by (i) delivering to the Company Stock (which in the case of Stock acquired
from the Company shall have been owned by the participant for at least six
months prior to the delivery date) having a fair market value equal to such
withholding obligation, or (ii) requesting that the Company withhold from
the shares of Stock to be delivered upon the exercise a number of shares of
Stock having a fair market value equal to the minimum amount of such
withholding obligation.
(4) If an option is exercised by the executor or administrator of a
deceased participant, or by the person or persons to whom the option has
been transferred by the participant's will or the applicable laws of
descent and distribution, the Company shall be under no obligation to
deliver Stock pursuant to such exercise until the Company is satisfied as
to the authority of the person or persons exercising the option.
(d) Payment for and Delivery of Stock. Stock purchased upon exercise of
---------------------------------
an option under the Plan shall be paid for as follows:
(1) in cash or by certified check, bank draft or money order payable
to the order of the Company; or
(2) if so permitted by the Board, (A) through the delivery of shares
of Stock (which, in the case of Stock acquired from the Company, shall have
been held for at least six months prior to delivery) having a fair market
value on the last business day preceding the date of exercise equal to the
purchase price or (B) by delivery of a promissory note of the participant
to the Company, such note to be payable on such terms as are specified by
the Board or (C) if the Stock is then registered under Section 12 of the
Securities Exchange Act of 1934, by delivery of an unconditional and
irrevocable undertaking by a broker to deliver promptly to the Company
sufficient funds to pay the exercise price or (D) by any combination of the
permissible forms of payment; provided, that if the Stock delivered upon
--------
exercise of the option is an original issue of Stock, at least so much of
the exercise price as represents the par value of such Stock shall be paid
other than by a personal check or promissory note of the person exercising
the option.
(e) Rights as Shareholder. A participant shall not have the rights of a
---------------------
shareholder with regard to awards under the Plan except as to Stock actually
received by the participant under the Plan.
4
<PAGE>
(f) Nontransferability of Awards. Except as the Board may otherwise
----------------------------
determine, no option may be transferred other than by will or by the laws of
descent and distribution, and during a participant's lifetime an option may be
exercised only by the participant.
(g) Death. If a participant dies, each option held by the participant
-----
immediately prior to death may be exercised, to the extent it was exercisable
immediately prior to death, by the participant's executor or administrator or by
the person or persons to whom the option is transferred by will or the
applicable laws of descent and distribution, at any time within the one-year
period (or such longer or shorter period as the Board may determine) beginning
with the date of the participant's death but in no event beyond the Final
Exercise Date. Except as the Board may otherwise determine, all options held by
a participant immediately prior to death that are not then exercisable shall
terminate on the date of death.
(h) Termination of Service Other Than By Death. If an employee's
------------------------------------------
employment with the Company terminates for any reason other than by death,
unless the Board shall otherwise determine, all options held by the employee
that are not then exercisable shall terminate. Options that are exercisable on
the date employment terminates shall continue to be exercisable for a period of
three months (or such longer period as the Board may determine) unless the
employee was discharged for cause that in the opinion of the Board casts such
discredit on the employee as to justify termination of the employee's options.
After completion of the post-termination exercise period, such options shall
terminate to the extent not previously exercised, expired or terminated. For
purposes of this Section 6(h), employment shall not be considered terminated (i)
in the case of sick leave or other bona fide leave of absence approved for
purposes of the Plan by the Board, so long as the employee's right to
reemployment is guaranteed either by statute or by contract, or (ii) in the case
of a transfer of employment between the Company and a subsidiary or between
subsidiaries, or to the employment of a corporation (or a parent or subsidiary
corporation of such corporation) issuing or assuming an option.
In the case of a participant who is not an employee, provisions relating to
the exercisability of options following termination of service shall be
specified in the award. If not so specified, all options held by such
participant that are not then exercisable shall terminate upon termination of
service. Options that are exercisable on the date the participant's service as
a director, consultant or adviser terminates shall continue to be exercisable
for a period of three months (or such longer period as the Board may determine,
but in no event beyond the Final Exercise Date) unless the director, consultant
or adviser was terminated for cause that in the opinion of the Board casts such
discredit on him or her as to justify termination of his or her options. After
completion of the post-termination exercise period, such options shall terminate
to the extent not previously exercised, expired or terminated.
(i) Mergers, etc. etc. In the event of a consolidation or merger in which
------------ ---
the Company is not the surviving corporation or which results in the acquisition
of substantially all the Company's outstanding Stock by a single person or
entity or by a group of persons and/or entities acting in concert, or in the
event of the sale or transfer of substantially all the Company's assets
5
<PAGE>
(each, a "covered transaction"), all outstanding Options shall terminate upon
the completion of the covered transaction. Before the completion of the covered
transaction, the Board may take any of the following actions:
(a) provide that one or more of the outstanding Options shall become
exercisable immediately prior to completion of the covered transaction;
(b) subject to completion of the covered transaction, if there is a
surviving or acquiring corporation, arrange for the assumption of the
Options or the grant to participants of replacement options by that
corporation or an affiliate of that corporation, which awards in the case
of incentive options shall satisfy the requirements of section 424(a) of
the Internal Revenue Code (the "Code");
(c) make a cash payment in settlement of one or more of the outstanding
Options in an amount equal to the difference between the exercise price of
the Option and the consideration per share of Stock being received in the
covered transaction;
(d) provide for none of, or any combination of, the foregoing.
7. EMPLOYMENT RIGHTS
Neither the adoption of the Plan nor the grant of options shall confer upon
any participant any right to continue as an employee or director of, or
consultant or adviser to, the Company or any parent or affect in any way the
right of the Company or parent to terminate the options at any time. Except as
specifically provided by the Board in any particular case, the loss of existing
or potential profit in options granted under this Plan shall not constitute an
element of damages in the event of termination of the relationship of a
participant even if the termination is in violation of an obligation of the
Company to the participant by contract or otherwise.
8. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of options to a participant
shall affect the Company's right to grant options to such participant that are
not subject to the Plan, to issue to such participant Stock as a bonus or
otherwise, or to adopt other plans or arrangements under which Stock may be
issued.
The Board may at any time discontinue granting options under the Plan.
With the consent of the participant, the Board may at any time cancel an
existing option in whole or in part and grant another option for such number of
shares as the Board specifies. The Board may at any time or times amend the
Plan or any outstanding option for the purpose of satisfying the
6
<PAGE>
requirements of the Code or of any changes in applicable laws or regulations or
for any other purpose that may at the time be permitted by law, or may at any
time terminate the Plan as to further grants of awards, but no such amendment
shall adversely affect the rights of any participant (without the participant's
consent) under any option previously granted.
9. GOVERNING LAW.
This Plan shall be governed by, construed and enforced in accordance with
the laws of The Commonwealth of Massachusetts.
7
<PAGE>
EXHIBIT 10.3
ZEFER CORP.
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock Purchase
Plan of ZEFER Corp.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
a. "Board" shall mean the Board of Directors of the Company.
b. "Code" shall mean the Internal Revenue Code of 1986, as amended.
c. "Common Stock" shall mean the Common Stock of the Company.
d. "Company" shall mean ZEFER Corp. and any Designated Subsidiary of
the Company.
e. "Compensation" means the amount of money reportable on your
Federal Income Tax Withholding Statement (Form W-2) before any withholdings for
health insurance or under a Section 401(k), 125, 129 or similar plan, excluding
overtime, shift premium, incentive or bonus awards, allowances and
reimbursements for expenses such as relocation allowances for travel expenses,
income or gains attributable to restricted stock, stock options, stock
appreciation rights or other similar equity based compensation, imputed income
for non cash items, such as life insurance premiums, and similar items, whether
or not specifically itemized on Form W-2, but including, in the case of
salespersons, sales commissions to the extent determined by the Board or the
committee administering the Plan.
f. "Designated Subsidiary" shall mean any Subsidiary which has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
g. "Employee" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is more
than five (5) months in any calendar year. For purposes of the Plan, the
employment relationship shall be treated as continuing intact while the
individual is on sick leave or other leave of absence approved by the Company.
Where the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed either by statute or by contract, the employment
relationship shall be deemed to have terminated on the 91/st/ day of such leave.
<PAGE>
h. "Enrollment Date" shall mean the first day of each Offering
Period.
i. "Exercise Date" shall mean the last Trading Day of each Purchase
Period.
j. "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation The Nasdaq
National Market or The Nasdaq Small Cap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of such determination, as reported
in The Wall Street Journal or such other source as the Board deems reliable; or
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock prior
to the date of such determination, as reported in The Wall Street Journal or
such other source as the Board deems reliable; or
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(4) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement on Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
k. "Offering Periods" shall mean the periods of approximately twelve
(12) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after January 1, April 1,
July 1 and October 1 of each year and terminating on the last Trading Day in the
periods ending twelve months later; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares effective the
Company's first Registration Statement on Form S-1 under the Securities Act of
1933, as amended (the "Registration Statement"), and ending on the last Trading
Day on or before April 1, 2001. The duration and timing of Offering Periods may
be changed pursuant to Section 4 of this Plan.
l. "Plan" shall mean this Employee Stock Purchase Plan.
m. "Purchase Period" shall mean the approximately one year period
commencing on the Enrollment Date and ending on the last Trading Day of the
related Offering Period; provided, however, that the first Purchase Period under
the Plan shall commence with the first Trading Day on or after the date on which
the Securities and Exchange Commission declares the Registration Statement
effective and shall end on the last Trading Day on or before April 1, 2001.
2
<PAGE>
n. "Purchase Price" shall mean 85% of the Fair Market Value of a
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that, in the event (i) the Company's stockholders
approve an increase in the number of shares available for issuance under the
Plan, (ii) all or a portion of such additional shares are to be issued with
respect to one or more Offering Periods that are underway at the time of such
stockholder approval ("New Shares"), and (iii) the Fair Market Value of a share
of Common Stock on the date of such approval (the "Authorization Date FMV") is
higher than the Fair Market Value on the Enrollment Date for any such Offering
Period, the Purchase Price with respect to New Shares shall be 85% of the
Authorization Date FMV or the Fair Market Value of a share of Common Stock on
the Exercise Date, whichever is lower.
o. "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
p. "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
q. "Trading Day" shall mean a day on which national stock exchanges
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
a. Any Employee who shall be employed by the Company at least five
(5) calendar days prior to a given Enrollment Date shall be eligible to
participate in the Plan.
b. Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its Subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after January 1, April 1, July 1 and October 1 of each year,
or on such other date as the Board shall determine, and continuing thereafter
until terminated in accordance with Section 20 hereof; provided, however, that
the first Offering Period under the Plan shall commence with the first Trading
Day on or after the date on which the Securities and Exchange Commission
declares the Registration Statement effective and ending on the last Trading Day
on or before April 1, 2001. The Board shall have the power to change the
duration of Offering Periods (including the
3
<PAGE>
commencement dates thereof) with respect to future offerings without stockholder
approval if such change is announced at least five (5) days prior to the
scheduled beginning of the first Offering Period to be affected thereafter.
5. Participation.
-------------
a. An eligible Employee may become a participant in the Plan by
completing a subscription agreement in the form of Exhibit A authorizing payroll
---------
deductions in a form provided by the Company's payroll office and filing it with
the Company's payroll office prior to the applicable Enrollment Date. An
Employee may only participate in one Offering at a time.
b. Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
termination by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
a. At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
b. All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
c. A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions to not more than 10 percent (10%) or less than
zero percent (0%) not more than two (2) times during each Offering Period by
completing or filing with the Company a new subscription agreement authorizing
such change in payroll deduction rate. The Board may, in its discretion,
increase or decrease the number of participation rate changes during any
Offering Period. The change in rate shall be effective with the first full
payroll period following the fifth (5th) business day after the Company's
receipt of the new subscription agreement unless the Company elects to process a
given change in participation more quickly. A participant's subscription
agreement shall remain in effect for successive Purchase Periods unless
terminated as provided in Section 10 hereof.
d. At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax
4
<PAGE>
deductions or benefits attributable to sale or early disposition of Common Stock
by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase (at the applicable Purchase Price) up to a whole number of
shares of the Company's Common Stock determined by dividing $25,000 by the Fair
Market Value of a share of Common Stock on the Enrollment Date (subject to any
adjustment pursuant to Section 19), and provided that such purchase shall be
subject to the limitations set forth in Section 3(b) and 13 hereof. The option
shall be exercisable as to 100% of the total number of shares on the Exercise
Date of the Offering Period. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof. The option shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option which have vested on such Exercise Date shall be
purchased for such participant at the applicable Purchase Price with the
accumulated payroll deductions in his or her account. No fractional shares
shall be purchased. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
----------
a. A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
---------
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
b. A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
-------------------------
Employee, for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to
5
<PAGE>
exercise the option shall be returned to such participant or, in the case of his
or her death, to the person or persons entitled thereto under Section 15 hereof,
and such participant's option shall be automatically terminated. The preceding
sentence notwithstanding, a participant who receives payment in lieu of notice
of termination of employment shall be treated as continuing to be an Employee
for the participant's customary number of hours per week of employment during
the period in which the participant is subject to such payment in lieu of
notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
a. Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 500,000 shares. If, on a given Exercise Date, the number of shares
with respect to which options are to be exercised exceeds the number of shares
then available under the Plan, the Company shall make a pro rata allocation of
the shares remaining available for purchase in as uniform a manner as shall be
practicable and as it shall determine to be equitable.
b. The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
c. Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
a. A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
b. Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's
6
<PAGE>
death, the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
- ---------------------
a. Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
b. Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the
7
<PAGE>
Board. The New Exercise Date shall be before the date of the Company's proposed
dissolution or liquidation. The Board shall notify each participant in writing,
at least ten (10) business days prior to the New Exercise Date, that the
Exercise Date for the participant's option has been changed to the New Exercise
Date and that the participant's option shall be exercised automatically on the
New Exercise Date, unless prior to such date the participant has withdrawn from
the Offering Period as provided in Section 10 hereof.
c. Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a New Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
a. The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in Section 19
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or any
other applicable law, regulation or stock exchange rule), the Company shall
obtain stockholder approval in such a manner and to such a degree as required.
b. Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
8
<PAGE>
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the date of the
------------
Company's initial public offering of its equity securities registered on Form S-
1 with the Securities and Exchange Commission. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 20 hereof.
9
<PAGE>
EXHIBIT A
---------
ZEFER CORP.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
----------------------
_______ Original Application Enrollment Date: ____________
_______ Change in Payroll Deduction Rate (Complete only Section 2 and date and
sign).
_______ Change of Beneficiary (ies) (Complete only Section 8 and date and
sign).
1. ______________________________ hereby elects to participate in the
ZEFER Corp. 2000 Employee Stock Purchase Plan (the "EMPLOYEE STOCK PURCHASE
PLAN") and subscribes to purchase shares of the Company's Common Stock in
accordance with this Subscription Agreement and the Employee Stock Purchase
Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (not to exceed 10%) during the
Offering Period in accordance with the Employee Stock Purchase Plan. (Please
note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price determined
in accordance with the Employee Stock Purchase Plan. I understand that if I do
not withdraw from an Offering Period, any accumulated payroll deductions will be
used to automatically exercise my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in all
respects subject to the terms of the Plan. I understand that my ability to
exercise the option under this Subscription Agreement is subject to stockholder
approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and Spouse only):
________________.
6. I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal to
the excess of the fair market value of the shares at the time such shares were
purchased by me over the price which I paid for the shares. I HEREBY AGREE TO
NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY DISPOSITION
OF MY SHARES AND I WILL MAKE ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER TAX
WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION OF THE COMMON
STOCK. The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
10
<PAGE>
obligation including any withholding necessary to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by me. If I dispose of such shares at any time after the expiration
of the 2-year and 1-year holding periods, I understand that I will be treated
for federal income tax purposes as having received income only at the time of
such disposition, and that such income will be taxed as ordinary income only to
the extent of an amount equal to the lesser of (1) the excess of the fair market
value of the shares at the time of such disposition over the purchase price
which I paid for the shares, or (2) 15% of the fair market value of the shares
on the first day of the Offering Period. The remainder of the gain, if any,
recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the Employee
Stock Purchase Plan:
NAME: (Please Print) _________________________________________________________
(First) (Middle) (Last)
____________________________________________________________________
Relationship
___________________________________
Address
Employee's Social
Security Number: ____________________________________________________
Employee's Address: ____________________________________________________
____________________________________________________
____________________________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated: _____________________________ ___________________________________
Signature of Employee
(Please print)
___________________________________
Spouse's Signature (If beneficiary
other than Spouse)
11
<PAGE>
EXHIBIT B
---------
ZEFER CORP.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the ZEFER Corp. 2000
Employee Stock Purchase Plan which began on ________________, 19 ____ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
___________________________________
___________________________________
___________________________________
Signature:
___________________________________
Date:______________________________
12
<PAGE>
EXHIBIT 10.43
NON-QUALIFIED OPTION AWARD AND SHAREHOLDERS AGREEMENT
UNDER THE
ZEFER CORP. 1999 INCENTIVE PLAN
This NON-QUALIFIED OPTION AWARD AND SHAREHOLDERS AGREEMENT (the "Award
Agreement") is made as of the _____________ day of ____________, _____ (the
"Grant Date") between ZEFER Corp. ("ZEFER" or the "Company") and (First_Name)
(Last_Name) ("Participant"), residing at the address that appears on the
signature page of this Award Agreement.
W I T N E S E T H:
The Company hereby grants to Participant an option (the "Option") to
purchase (M_Options) shares ("Shares") of its common stock, par value $.01 per
share ("Common Stock"), at $(Strike_Price) per Share (the "Option Price").
Participant may exercise this Option, subject to the vesting requirements set
forth in Section 2 of this Award Agreement, until the tenth anniversary of the
Grant Date (the "Final Exercise Date"). After the Final Exercise Date, this
Option shall be null and void. This Option is not intended to qualify as an
"incentive stock option" under Section 422 of the Internal Revenue Code. This
Option is subject to the following terms and conditions:
1. Definitions. Unless otherwise defined in this Award Agreement,
-----------
Capitalized terms in this Award Agreement shall have the meanings specified in
the ZEFER Corp. 1999 Incentive Plan (the "Plan") unless the context otherwise
requires.
2. Vesting and Exercisability. On each anniversary of the Grant Date,
--------------------------
twenty-five percent (25%) of the Shares covered by the Option shall vest and
become exercisable by Participant; provided, however, that Participant may not
exercise any portion of this Option prior to the earlier of (i) June 30, 2005 or
(ii) the effective date of the Company's first registration statement under the
Securities Act of 1933 covering the offer and sale of Common Stock. Except as
otherwise provided in the Plan, Shares that have vested and become exercisable
under the Option may be exercised by Participant only during either (i) the
period in which Participant is an employee of the Company, or (ii) the three
month period immediately following the date of termination of Participant's
employment with the Company. Notwithstanding the foregoing, Participant may not
exercise this Option or any portion of the Option after the Final Exercise Date,
or in the event that Participant is terminated for "Cause" in accordance with
Section 9 of this Award Agreement.
3. Transfer Restrictions. This Option is not transferable except that, in
---------------------
the event of Participant's death, the vested portion of this Option that has
become exercisable may be exercised, prior to the Final Exercise Date, by the
executor or administrator of Participant's estate or Participant's distributee
during the one-year period commencing on the date of Participant's death.
4. Payment on Exercise of Option. Any vested portion of this Option that
-----------------------------
has become exercisable may be exercised at the office of the Company in Boston,
Massachusetts (or at such other location as determined by the Company) by giving
written notice to ZEFER (Attention: Stock Option Plan Administrator) of the
exercise of such vested portion of this Option. The Option Price for the Shares
that are the subject of the exercise may be paid by delivery of cash, certified
check, bank draft or money order. In addition, at any time that the Common
Stock is registered under Section 12 of the Securities Exchange Act of 1934, the
Option Price may be paid by (i) delivering shares of Company stock (which, if
acquired directly from the Company, shall have been held for at least six
months, unless
<PAGE>
the Stock Option Plan Administrator approves a shorter period) with a fair
market value equal to the Option Price for the Shares that Participant is
exercising; (ii) delivery of an unconditional undertaking by a broker to deliver
the Option Price immediately following a sale of the Shares that are the subject
of the exercise; or (iii) any combination of the foregoing permissible forms of
payment. In the event that any portion of this Option is exercised by the
executor or administrator of Participant's estate, Participant's personal
representative or distributee, the Company shall be under no obligation to
deliver Shares hereunder unless and until the Company is satisfied as to the
authority of the person or persons exercising such portion of this Option. The
value of any share of Common Stock delivered in payment of the Option Price
shall be the closing price of the Common Stock on the principal market in which
it is traded on the day before the date of exercise (the "Market Price").
5. Issuance of Shares. Upon the exercise of this Option for all or any
------------------
part of the Shares, the Company shall issue and deliver to Participant a
certificate or certificates representing the number of Shares for which the
Option was exercised.
6. Plan. This Option is awarded pursuant to the Plan and is subject to
----
all of the terms and conditions of the Plan, the terms of which are incorporated
by reference into this Award Agreement.
7. Withholding Taxes. The Company will have the right to (i) make
-----------------
deductions from any payment, including delivery of Shares, or require that
Shares or cash, or both, be withheld from any payment, in each case in an amount
sufficient to satisfy the minimum statutory withholding rates for federal and
state tax purposes arising as a result of the exercise of any portion or all of
this Option; or (ii) take such other action as may be necessary or appropriate
to satisfy any such minimum withholding obligations. The Committee (as that
term is defined in the Plan) may determine the manner in which such tax
withholding shall be satisfied, and may permit Shares (rounded up to the next
whole number) to be used to satisfy the minimum required tax withholding based
on the Market Price of such Shares on the exercise date.
8. Employment. Participation in the Plan shall not affect the Company's
----------
right to discharge Participant or constitute an agreement of employment between
Participant and the Company.
9. Certain Forfeitures upon Termination for Cause. Notwithstanding the
----------------------------------------------
provisions of Section 2 or any other provision of this Award Agreement, if
Participant's employment is terminated for Cause, Participant shall forfeit this
Option immediately, whether or not vested and whether or not exercisable, and
this Option shall be null and void. As used in this Award Agreement, "Cause"
shall be defined as (i) Participant's willful failure to perform, or gross
negligence in the performance of, his duties and responsibilities to the
Company; (ii) fraud, embezzlement or other material dishonesty with respect to
the Company; (iii) material breach by Participant of any provision of his or her
ZEFER Employment Agreement or this Award Agreement, where such breach is
materially harmful to the business, interests or reputation of the Company or
any of its affiliates; or (iv) conviction of, or plea of nolo contendere to, a
felony or other crime involving moral turpitude.
10. Stockholder Agreements and Holdback Agreements.
----------------------------------------------
10.1 Agreement to sign Stockholders Agreement. If, at the time that a
----------------------------------------
portion or all of a portion of this Option is exercised, the Company is a party
to any agreement affecting all or substantially all of the outstanding shares of
Common Stock, such portion or all of this Option may be exercised only if the
Shares so acquired are made subject to the provisions of such agreement.
10.2 Holdback Agreement. In connection with any underwritten public
------------------
offering, if requested by the Company and the managing underwriter, Participant
hereby agrees not to effect any
2
<PAGE>
public sale or distribution of any shares of Common Stock, nor engage in any
transaction that would be reasonably likely to result in a public sale or
distribution of securities of the same class as the Stock for a specified period
of time (not to exceed 180 days for the Company's initial public offering and 90
days for all other offerings) following the effective date of the registration
statement for the offering (the "Holdback Period"). Such agreement shall be in
writing in a form satisfactory to the Company and the managing underwriter. The
Company may impose stop-transfer instructions with respect to the Shares or
other securities subject to the foregoing restriction until the end of the
Holdback Period.
11. Legend; Purchase for Investment. Participant covenants that any
-------------------------------
Shares acquired pursuant to the exercise of any portion of this Option shall be
acquired for investment and not with a view towards the distribution thereof,
that the Shares may not be transferred, except to the extent permitted hereunder
and in compliance with applicable federal and state securities laws, and that
unless the exercise of this Option is covered by an effective registration
statement under the Securities Act of 1933 the Shares will bear a restrictive
legend, the content of which shall be substantially as follows:
"THE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION UNDER OR OTHER
COMPLIANCE WITH THAT ACT AND THOSE LAWS AND THE RULES AND REGULATIONS
ADOPTED THEREUNDER."
12. Notices. All notices required or permitted to be given to Participant
-------
hereunder shall be deemed to have been duly given when sent by registered or
certified mail, return receipt requested, to Participant's address set forth
below or to such other address of which notice shall have been given to the
Company in accordance with this sentence.
13. Binding Effect; Successors and Assigns.
--------------------------------------
(a) This Award Agreement shall be binding upon and inure to the benefit of
the parties and their successors, assigns, heirs, executors and legal
representatives.
(b) This Award Agreement may not be modified, amended or changed, except by
a written instrument executed by the parties.
14. Specific Performance. As the Shares cannot be readily purchased or
--------------------
sold in the open market, and the parties desire to impose certain restrictions
on transfer of the Shares, the parties agree that any damage available at law
for a breach of this Award Agreement would not be an adequate remedy, and
irreparable damage will result if this Award Agreement is not specifically
enforced. Therefore, the provisions hereof and the obligations of the parties
hereunder shall be enforceable in a court of equity, or other tribunal having
jurisdiction, by a decree of specific performance, and appropriate injunctive
relief may be applied for and granted in connection therewith. Such remedies
and all other remedies provided in this Award Agreement shall, however, be
cumulative and not exclusive and shall be in addition to any other remedies
which any party may have under this Award Agreement.
15. Severability. Any provision of this Award Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the parties hereby waive any provision of law which renders
any provision hereof prohibited or unenforceable in any respect.
3
<PAGE>
16. Law Governing. This Award Agreement shall be construed both as to
-------------
validity and performance in accordance with, and governed by, the law of the
Commonwealth of Massachusetts (without regard to any rules of conflicts of laws
that would look to the laws of any other jurisdiction).
17. No Waiver. No course of dealing and no delay on the part of any party
---------
in exercising any right, power or remedy conferred by this Award Agreement shall
operate as a waiver thereof or otherwise prejudice such party's rights, powers
and remedies. No single or partial exercise of any rights, powers or remedies
conferred by this Award Agreement shall preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.
18. No Oral Agreements or Understandings. Participant acknowledges that
------------------------------------
this Award Agreement, together with the Plan, his/her employment offer letter
and ZEFER Employment Agreement, constitutes the only agreement or understanding
that Participant has with the Company respecting such Participant's employment
with the Company and right to receive an award of equity ownership of the
Company.
IN WITNESS WHEREOF, the parties hereto have caused this Award Agreement to
be executed as of the day and year first hereinabove written.
Company: Participant:
- ------- -----------
ZEFER CORP. (First_Name) (Last_Name)
By:
-------------------------------- ------------------------------------
A duly authorized representative Address:
4
<PAGE>
EXHIBIT 10.44
NON-QUALIFIED OPTION AND SHAREHOLDERS AGREEMENT
This Non-Qualified Option and Shareholders Agreement (the "Agreement") is
made as of the twenty-third day of June, 1999 (the "Grant Date") between ZEFER
Corp. ("ZEFER" or the "Company") and Richard Nolan ("Optionee"), residing at the
address that appears on the signature page of this Agreement.
W I T N E S E T H:
The Company hereby grants to Optionee an option (the "Option") to purchase
30,000 shares ("Shares") of its common stock, par value $.01 per share ("Common
Stock"), at $0.75 per Share (the "Option Price"). Optionee may exercise this
Option, subject to the vesting requirements set forth in Section 1 of this
Agreement, until the tenth anniversary of the Grant Date (the "Final Exercise
Date"). After the Final Exercise Date, this Option shall be null and void. This
Option is not intended to qualify as an "incentive stock option" under Section
422 of the Internal Revenue Code. This Option is subject to the following terms
and conditions:
1. Vesting and Exercisability. On each anniversary of the Grant Date,
--------------------------
twenty-five percent (25%) of the Shares covered by the Option shall vest and
become exercisable by Optionee; provided, however, that Optionee may not
exercise any portion of this Option prior to the earlier of (i) June 30, 2005 or
(ii) the effective date of the Company's first registration statement under the
Securities Act of 1933 covering the offer and sale of Common Stock. Shares that
have vested and become exercisable under the Option may be exercised by Optionee
only during either (i) the period in which Optionee is a director or employee
of, or consultant to, the Company, or (ii) the three month period immediately
following the date of termination of Optionee's foregoing relationship with the
Company. Notwithstanding the foregoing, Optionee may not exercise this Option or
any portion of the Option after the Final Exercise Date, or in the event that
Optionee is terminated for "Cause" in accordance with Section 6 of this
Agreement.
2. Transfer Restrictions. This Option is not transferable except that, in
---------------------
the event of Optionee's death, the vested portion of this Option that has become
exercisable may be exercised, prior to the Final Exercise Date, by the executor
or administrator of Optionee's estate or Optionee's distributee during the one-
year period commencing on the date of Optionee's death.
3. Payment on Exercise of Option. Any vested portion of this Option that
-----------------------------
has become exercisable may be exercised at the office of the Company in Boston,
Massachusetts (or at such other location as determined by the Company) by giving
written notice to ZEFER (Attention: Stock Option Plan Administrator) of the
exercise of such vested portion of this Option. The Option Price for the Shares
that are the subject of the exercise may be paid by delivery of cash, certified
check, bank draft or money order. In addition, at any time that the Common Stock
is registered under Section 12 of the Securities Exchange Act of 1934, the
Option Price may be paid by (i) delivering shares of Company stock (which, if
acquired directly from the Company, shall have been held for at least six
months, unless the Stock Option Plan Administrator approves a shorter period)
with a fair market value equal to the Option Price for the Shares that Optionee
is exercising; (ii) delivery of an unconditional undertaking by a broker to
deliver the Option Price immediately following a sale of the Shares that are the
subject of the exercise; or (iii) any combination of the foregoing permissible
forms of payment. In the event that any portion of this Option is exercised by
the executor or administrator of Optionee's estate, Optionee's personal
representative or distributee, the Company shall be under no obligation to
deliver Shares hereunder unless and until the Company is satisfied as to the
authority of the person or persons
1
<PAGE>
exercising such portion of this Option. The value of any share of Common Stock
delivered in payment of the Option Price shall be the closing price of the
Common Stock on the principal market in which it is traded on the day before the
date of exercise (the "Market Price").
4. Issuance of Shares. Upon the exercise of this Option for all or any
------------------
part of the Shares, the Company shall issue and deliver to Optionee a
certificate or certificates representing the number of Shares for which the
Option was exercised.
5. Employment. The grant of this option shall not affect the Company's
----------
right to discharge Optionee or constitute an agreement of employment between
Optionee and the Company.
6. Certain Forfeitures upon Termination for Cause. Notwithstanding the
----------------------------------------------
provisions of Section 1 or any other provision of this Agreement, if Optionee's
relationship with the Company is terminated for Cause, Optionee shall forfeit
this Option immediately, whether or not vested and whether or not exercisable,
and this Option shall be null and void. As used in this Agreement, "Cause" shall
be defined as (i) Optionee's willful failure to perform, or gross negligence in
the performance of, his duties and responsibilities to the Company; (ii) fraud,
embezzlement or other material dishonesty with respect to the Company; or (iii)
conviction of, or plea of nolo contendere to, a felony or other crime involving
moral turpitude.
7. Stockholder Agreements and Holdback Agreements.
----------------------------------------------
7.1 Agreement to sign Stockholders Agreement. If, at the time that a
----------------------------------------
portion or all of a portion of this Option is exercised, the Company is a party
to any agreement affecting all or substantially all of the outstanding shares of
Common Stock, such portion or all of this Option may be exercised only if the
Shares so acquired are made subject to the provisions of such agreement.
7.2 Holdback Agreement. In connection with any underwritten public
------------------
offering, if requested by the Company and the managing underwriter, Optionee
hereby agrees not to effect any public sale or distribution of any shares of
Common Stock, nor engage in any transaction that would be reasonably likely to
result in a public sale or distribution of securities of the same class as the
Stock for a specified period of time (not to exceed 180 days for the Company's
initial public offering and 90 days for all other offerings) following the
effective date of the registration statement for the offering (the "Holdback
Period"). Such agreement shall be in writing in a form satisfactory to the
Company and the managing underwriter. The Company may impose stop-transfer
instructions with respect to the Shares or other securities subject to the
foregoing restriction until the end of the Holdback Period.
8. Legend; Purchase for Investment. Optionee covenants that any Shares
-------------------------------
acquired pursuant to the exercise of any portion of this Option shall be
acquired for investment and not with a view towards the distribution thereof,
that the Shares may not be transferred, except to the extent permitted hereunder
and in compliance with applicable federal and state securities laws, and that
unless the exercise of this Option is covered by an effective registration
statement under the Securities Act of 1933 the Shares will bear a restrictive
legend, the content of which shall be substantially as follows:
"THE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION UNDER OR OTHER
COMPLIANCE WITH THAT ACT AND THOSE LAWS AND THE RULES AND REGULATIONS
ADOPTED THEREUNDER."
2
<PAGE>
9. Notices. All notices required or permitted to be given to Optionee
-------
hereunder shall be deemed to have been duly given when sent by registered or
certified mail, return receipt requested, to Optionee's address set forth below
or to such other address of which notice shall have been given to the Company in
accordance with this sentence.
10. Binding Effect; Successors and Assigns.
--------------------------------------
(a) This Agreement shall be binding upon and inure to the benefit of
the parties and their successors, assigns, heirs, executors and legal
representatives.
(b) This Agreement may not be modified, amended or changed, except by
a written instrument executed by the parties.
11. Specific Performance. As the Shares cannot be readily purchased or
--------------------
sold in the open market, and the parties desire to impose certain restrictions
on transfer of the Shares, the parties agree that any damage available at law
for a breach of this Agreement would not be an adequate remedy, and irreparable
damage will result if this Agreement is not specifically enforced. Therefore,
the provisions hereof and the obligations of the parties hereunder shall be
enforceable in a court of equity, or other tribunal having jurisdiction, by a
decree of specific performance, and appropriate injunctive relief may be applied
for and granted in connection therewith. Such remedies and all other remedies
provided in this Agreement shall, however, be cumulative and not exclusive and
shall be in addition to any other remedies which any party may have under this
Agreement.
12. Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by applicable law, the parties
hereby waive any provision of law which renders any provision hereof prohibited
or unenforceable in any respect.
13. Law Governing. This Agreement shall be construed both as to validity
-------------
and performance in accordance with, and governed by, the law of the Commonwealth
of Massachusetts (without regard to any rules of conflicts of laws that would
look to the laws of any other jurisdiction).
14. No Waiver. No course of dealing and no delay on the part of any party
---------
in exercising any right, power or remedy conferred by this Agreement shall
operate as a waiver thereof or otherwise prejudice such party's rights, powers
and remedies. No single or partial exercise of any rights, powers or remedies
conferred by this Agreement shall preclude any other or further exercise thereof
or the exercise of any other right, power or remedy.
15. No Oral Agreements or Understandings. Optionee acknowledges that this
------------------------------------
Agreement constitutes the only agreement or understanding that Optionee has with
the Company respecting such Optionee's right to receive an award of equity
ownership of the Company.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first hereinabove written.
Company: Optionee:
- -------- --------
ZEFER CORP. RICHARD NOLAN
By:________________________________ ________________________________
A duly authorized representative Address:
4
<PAGE>
EXHIBIT 10.45
NON-QUALIFIED OPTION AND SHAREHOLDERS AGREEMENT
This Non-Qualified Option and Shareholders Agreement (the "Agreement") is
made as of the fifteenth day of December, 1999 (the "Grant Date") between ZEFER
Corp. ("ZEFER" or the "Company") and Masood Jabbar ("Optionee"), residing at the
address that appears on the signature page of this Agreement.
W I T N E S E T H:
The Company hereby grants to Optionee an option (the "Option") to purchase
30,000 shares ("Shares") of its common stock, par value $.001 per share ("Common
Stock"), at $5.00 per Share (the "Option Price"). Optionee may exercise this
Option, subject to the vesting requirements set forth in Section 1 of this
Agreement, until the tenth anniversary of the Grant Date (the "Final Exercise
Date"). After the Final Exercise Date, this Option shall be null and void. This
Option is not intended to qualify as an "incentive stock option" under Section
422 of the Internal Revenue Code. This Option is subject to the following terms
and conditions:
1. Vesting and Exercisability. On each anniversary of the Grant Date,
--------------------------
twenty-five percent (25%) of the Shares covered by the Option shall vest and
become exercisable by Optionee; provided, however, that Optionee may not
exercise any portion of this Option prior to the earlier of (i) June 30, 2005 or
(ii) the effective date of the Company's first registration statement under the
Securities Act of 1933 covering the offer and sale of Common Stock. Shares that
have vested and become exercisable under the Option may be exercised by Optionee
only during either (i) the period in which Optionee is a director or employee
of, or consultant to, the Company, or (ii) the three month period immediately
following the date of termination of Optionee's foregoing relationship with the
Company. Notwithstanding the foregoing, Optionee may not exercise this Option or
any portion of the Option after the Final Exercise Date, or in the event that
Optionee is terminated for "Cause" in accordance with Section 6 of this
Agreement.
2. Transfer Restrictions. This Option is not transferable except that, in
---------------------
the event of Optionee's death, the vested portion of this Option that has become
exercisable may be exercised, prior to the Final Exercise Date, by the executor
or administrator of Optionee's estate or Optionee's distributee during the one-
year period commencing on the date of Optionee's death.
3. Payment on Exercise of Option. Any vested portion of this Option that
-----------------------------
has become exercisable may be exercised at the office of the Company in Boston,
Massachusetts (or at such other location as determined by the Company) by giving
written notice to ZEFER (Attention: Stock Option Plan Administrator) of the
exercise of such vested portion of this Option. The Option Price for the Shares
that are the subject of the exercise may be paid by delivery of cash, certified
check, bank draft or money order. In addition, at any time that the Common Stock
is registered under Section 12 of the Securities Exchange Act of 1934, the
Option Price may be paid by (i) delivering shares of Company stock (which, if
acquired directly from the Company, shall have been held for at least six
months, unless the Stock Option Plan Administrator approves a shorter period)
with a fair market value equal to the Option Price for the Shares that Optionee
is exercising; (ii) delivery of an unconditional undertaking by a broker to
deliver the Option Price immediately following a sale of the Shares that are the
subject of the exercise; or (iii) any combination of the foregoing permissible
forms of payment. In the event that any portion of this Option is exercised by
the executor or administrator of Optionee's estate, Optionee's personal
representative or distributee, the Company shall be under no obligation to
deliver Shares hereunder unless and until the Company is satisfied as to the
authority of the person or persons
<PAGE>
exercising such portion of this Option. The value of any share of Common Stock
delivered in payment of the Option Price shall be the closing price of the
Common Stock on the principal market in which it is traded on the day before the
date of exercise (the "Market Price").
4. Issuance of Shares. Upon the exercise of this Option for all or any
------------------
part of the Shares, the Company shall issue and deliver to Optionee a
certificate or certificates representing the number of Shares for which the
Option was exercised.
5. Employment. The grant of this option shall not affect the Company's
----------
right to discharge Optionee or constitute an agreement of employment between
Optionee and the Company.
6. Certain Forfeitures upon Termination for Cause. Notwithstanding the
----------------------------------------------
provisions of Section 1 or any other provision of this Agreement, if Optionee's
relationship with the Company is terminated for Cause, Optionee shall forfeit
this Option immediately, whether or not vested and whether or not exercisable,
and this Option shall be null and void. As used in this Agreement, "Cause" shall
be defined as (i) Optionee's willful failure to perform, or gross negligence in
the performance of, his duties and responsibilities to the Company; (ii) fraud,
embezzlement or other material dishonesty with respect to the Company; or (iii)
conviction of, or plea of nolo contendere to, a felony or other crime involving
moral turpitude.
7. Stockholder Agreements and Holdback Agreements.
----------------------------------------------
7.1 Agreement to sign Stockholders Agreement. If, at the time that a
----------------------------------------
portion or all of a portion of this Option is exercised, the Company is a party
to any agreement affecting all or substantially all of the outstanding shares of
Common Stock, such portion or all of this Option may be exercised only if the
Shares so acquired are made subject to the provisions of such agreement.
7.2 Holdback Agreement. In connection with any underwritten public
------------------
offering, if requested by the Company and the managing underwriter, Optionee
hereby agrees not to effect any public sale or distribution of any shares of
Common Stock, nor engage in any transaction that would be reasonably likely to
result in a public sale or distribution of securities of the same class as the
Stock for a specified period of time (not to exceed 180 days for the Company's
initial public offering and 90 days for all other offerings) following the
effective date of the registration statement for the offering (the "Holdback
Period"). Such agreement shall be in writing in a form satisfactory to the
Company and the managing underwriter. The Company may impose stop-transfer
instructions with respect to the Shares or other securities subject to the
foregoing restriction until the end of the Holdback Period.
8. Legend; Purchase for Investment. Optionee covenants that any Shares
-------------------------------
acquired pursuant to the exercise of any portion of this Option shall be
acquired for investment and not with a view towards the distribution thereof,
that the Shares may not be transferred, except to the extent permitted hereunder
and in compliance with applicable federal and state securities laws, and that
unless the exercise of this Option is covered by an effective registration
statement under the Securities Act of 1933 the Shares will bear a restrictive
legend, the content of which shall be substantially as follows:
"THE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION UNDER OR OTHER
COMPLIANCE WITH THAT ACT AND THOSE LAWS AND THE RULES AND REGULATIONS
ADOPTED THEREUNDER."
2
<PAGE>
9. Notices. All notices required or permitted to be given to Optionee
-------
hereunder shall be deemed to have been duly given when sent by registered or
certified mail, return receipt requested, to Optionee's address set forth below
or to such other address of which notice shall have been given to the Company in
accordance with this sentence.
10. Binding Effect; Successors and Assigns.
--------------------------------------
(a) This Agreement shall be binding upon and inure to the benefit of
the parties and their successors, assigns, heirs, executors and legal
representatives.
(b) This Agreement may not be modified, amended or changed, except by
a written instrument executed by the parties.
11. Specific Performance. As the Shares cannot be readily purchased or
--------------------
sold in the open market, and the parties desire to impose certain restrictions
on transfer of the Shares, the parties agree that any damage available at law
for a breach of this Agreement would not be an adequate remedy, and irreparable
damage will result if this Agreement is not specifically enforced. Therefore,
the provisions hereof and the obligations of the parties hereunder shall be
enforceable in a court of equity, or other tribunal having jurisdiction, by a
decree of specific performance, and appropriate injunctive relief may be applied
for and granted in connection therewith. Such remedies and all other remedies
provided in this Agreement shall, however, be cumulative and not exclusive and
shall be in addition to any other remedies which any party may have under this
Agreement.
12. Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by applicable law, the parties
hereby waive any provision of law which renders any provision hereof prohibited
or unenforceable in any respect.
13. Law Governing. This Agreement shall be construed both as to validity
-------------
and performance in accordance with, and governed by, the law of the Commonwealth
of Massachusetts (without regard to any rules of conflicts of laws that would
look to the laws of any other jurisdiction).
14. No Waiver. No course of dealing and no delay on the part of any party
---------
in exercising any right, power or remedy conferred by this Agreement shall
operate as a waiver thereof or otherwise prejudice such party's rights, powers
and remedies. No single or partial exercise of any rights, powers or remedies
conferred by this Agreement shall preclude any other or further exercise thereof
or the exercise of any other right, power or remedy.
15. No Oral Agreements or Understandings. Optionee acknowledges that this
------------------------------------
Agreement constitutes the only agreement or understanding that Optionee has with
the Company respecting such Optionee's right to receive an award of equity
ownership of the Company.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first hereinabove written.
Company: Optionee:
- -------- --------
ZEFER CORP. MASOOD JABBAR
By:________________________________ _______________________________
A duly authorized representative Address:
4
<PAGE>
EXHIBIT 10.46
THIS WARRANT AND ANY SHARES OF STOCK OBTAINABLE UPON ITS EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE'S SECURITIES LAWS AND MAY NOT BE
TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT TO AN EXEMPTION
THEREFROM.
THIS WARRANT AND ANY SHARES OF STOCK OBTAINABLE UPON ITS EXERCISE ARE
SUBJECT TO CERTAIN TRANSFER AND VOTING RESTRICTIONS PURSUANT TO A
STOCKHOLDERS AGREEMENT, DATED AS OF MARCH 23, 1999 (AS AMENDED AND MODIFIED
FROM TIME TO TIME), AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND
CERTAIN OF THE COMPANY'S STOCKHOLDERS. A COPY OF SUCH STOCKHOLDERS
AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER
HEREOF UPON WRITTEN REQUEST.
ZEFER CORP.
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: January 12, 2000 Certificate No. W-P-2
FOR VALUE RECEIVED, ZEFER Corp., a Delaware corporation (the
"Company"), hereby grants to GTCR Capital Partners, L.P., a Delaware limited
-------
partnership, or its registered assigns (the "Registered Holder") the right to
-----------------
purchase from the Company, at any time or from time to time during the Exercise
Period (as defined in Section 1A below), (i) up to 182.41 shares (as such number
of shares shall be adjusted from time to time in accordance with Section 2
hereof) of the Company's Class A Preferred Stock, par value $.01 per share, at a
per share purchase price equal to the "Exercise Price" (as defined in Section 5
--------------
below). This Warrant is issued pursuant to the terms of that certain Warrant
Agreement, dated as of November 24, 1999 (as amended and modified from time to
time), between the Company and GTCR Capital Partners, L.P. (the "Warrant
-------
Agreement") and is one of the "Warrants" described therein. Certain capitalized
- ---------
terms used herein and not otherwise defined are defined in Section 5 hereof.
Any capitalized terms used in this Warrant but not defined herein shall have the
meaning ascribed to such term in the Warrant Agreement. The amount and kind of
securities obtainable pursuant to the rights granted hereunder and the purchase
price to be paid for such securities are subject to adjustment pursuant to the
provisions contained in this Warrant.
For income tax purposes, the value of this Warrant on the date hereof
is $182,410.
This Warrant is subject to the following provisions:
<PAGE>
Section 1. Exercise of Warrant.
-------------------
1A. Exercise Period. The Registered Holder may exercise, in whole or
---------------
part, the purchase rights represented by this Warrant at any time and from time
to time after the Date of Issuance hereof and prior to the tenth anniversary
thereof (the "Exercise Period"). The Company shall give the Registered Holder
---------------
written notice of the expiration of the Exercise Period at least 30 days but not
more than 90 days prior to the end of the Exercise Period.
1B. Exercise Procedure.
------------------
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
-------------
(a) a completed Exercise Agreement, as described in Section 1C
below, executed by the Person exercising all or any portion of the purchase
rights represented by this Warrant (the "Purchaser");
---------
(b) this Warrant; and
(c) if this Warrant is not registered in the name of the
Purchaser, an Assignment or Assignments in the form set forth in Exhibit II
----------
hereto evidencing the assignment of this Warrant to the Purchaser, in which
case the Registered Holder shall have complied with the provisions set
forth in Section 7 hereof.
(ii) Certificates evidencing the Warrant Shares purchased upon
exercise of all or any portion of this Warrant shall be delivered by the Company
to the Purchaser within five business days after date of the Exercise Time.
Unless this Warrant has expired or all of the purchase rights represented hereby
have been exercised, the Company shall prepare a new Warrant, substantially
identical hereto, representing the rights formerly represented by this Warrant
which have not expired or been exercised and shall, within such five-day period,
deliver such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Warrant Shares issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Warrant Shares at the Exercise Time.
(iv) The issuance of certificates evidencing Warrant Shares upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares. Each Warrant Share issuable upon exercise of this Warrant shall
be fully paid and nonassessable and free from all liens and charges with respect
to the issuance thereof.
-2-
<PAGE>
(v) The Company shall not close its books against the transfer of
this Warrant or of any Warrant Share issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company shall from time to time take all such action as may be
necessary to assure that the par value per share of the unissued Warrant Shares
obtainable upon exercise of this Warrant is at all times equal to or less than
the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any Registered
Holder or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).
(vii) Notwithstanding any other provision hereof, if an exercise of
any portion of this Warrant is to be made in connection with a registered public
offering or the sale of the Company (whether by merger, sale of stock or
otherwise), the exercise of any portion of this Warrant may, at the election of
the holder hereof, be conditioned upon the consummation of the public offering
or the sale of the Company in which case such exercise shall not be deemed to be
effective until the consummation of such transaction.
(viii) The Company shall at all times reserve and keep available out
of its authorized capital stock the number of shares of its Preferred Stock
issuable upon the exercise of this Warrant solely for the purpose of issuance
upon the exercise of this Warrant. The Company shall take all such actions as
may be necessary to assure that all such Warrant Shares may be so issued without
violation of any applicable law or governmental regulation or any requirements
of any domestic securities exchange upon which the Warrant Shares may be listed
(except for official notice of issuance which shall be immediately delivered by
the Company upon each such issuance). The Company shall not take any action
which would cause the number of authorized but unissued shares of its Preferred
Stock to be less than the number of such shares required to be reserved
hereunder for issuance upon exercise of this Warrant.
1C. Exercise Agreement. Upon any exercise of this Warrant, a
------------------
completed Exercise Agreement substantially in the form of Exhibit I attached
---------
hereto, executed by the Person exercising all or any portion of the purchase
rights represented by this Warrant, shall be delivered to the Company; provided
--------
that, if the Warrant Shares are to be issued to a Person other than the Person
whose name this Warrant is registered, the Exercise Agreement shall also state
the name of the Person to whom the certificates evidencing the Warrant Shares
are to be issued; provided further, if the number of Warrant Shares to be issued
-------- -------
does not include all the Warrant Shares obtainable hereunder, the Exercise
Agreement shall also state the name of the Person to whom a new Warrant for the
unexercised portion of the rights hereunder is to be delivered. Such Exercise
Agreement shall be dated the actual date of execution thereof.
Section 2. Adjustment of Exercise Price and Number of Shares. In
-------------------------------------------------
order to prevent dilution of the rights granted under this Warrant, the Exercise
Price and the number of Warrant Shares obtainable upon exercise of this Warrant
shall each be subject to adjustment from time to time as provided in this
Section 2.
-3-
<PAGE>
2A. Subdivision or Combination of Stock. If the Company at any time
-----------------------------------
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
its outstanding shares of Preferred Stock, then the Exercise Price in effect
immediately prior to such subdivision shall be proportionately reduced and the
number of Warrant Shares obtainable upon exercise of this Warrant shall be
proportionately increased. If the Company at any time combines (by reverse
stock split or otherwise) its outstanding shares of Preferred Stock, then the
Exercise Price in effect immediately prior to such combination shall be
proportionately increased and the number of Warrant Shares obtainable upon
exercise of this Warrant shall be proportionately decreased.
2B. Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
which in each case is effected in such a way that the holders of its outstanding
shares of Preferred Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for such Preferred Stock, is referred to herein as an "Organic Change."
--------------
Prior to the consummation of any Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the Registered
Holder of this Warrant) to insure that the Registered Holder of this Warrant
shall thereafter have the right to obtain and receive, in lieu of or in addition
to (as the case may be) the Warrant Shares immediately theretofore obtainable
and receivable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for the number of Warrant Shares immediately theretofore acquirable and
receivable upon exercise of this Warrant had such Organic Change not taken
place. In any such case, the Company shall make appropriate provision (in form
and substance satisfactory to the Registered Holder of this Warrant) with
respect to the Registered Holder's rights and interests to insure that the
provisions of this Section 2 and Sections 3 and 4 hereof shall thereafter be
applicable to this Warrant (including, without limitation, in the case of any
such consolidation, merger or sale in which the successor entity or purchasing
entity is other than the Company and in which the value of the Warrant Shares as
reflected by the terms of such transaction is less than the Exercise Price in
effect immediately prior to such transaction, an immediate adjustment of the
Exercise Price and a corresponding immediate adjustment in the number of Warrant
Shares obtainable and receivable upon exercise of this Warrant). The Company
shall not effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the Company) resulting
from consolidation or merger or the entity purchasing such assets assumes by
written instrument (in form and substance satisfactory to the Registered Holder
of this Warrant), the obligation to deliver to the Registered Holder such shares
of stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
2C. Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 2 but not expressly provided for by such
provisions, then the Company's board of directors shall make an appropriate
adjustment in the Exercise Price and an appropriate adjustment in the number of
Warrant Shares obtainable upon exercise of this Warrant so as to protect the
rights of the holders of this Warrant; provided that no such adjustment shall
--------
increase the Exercise Price or decrease the number of Warrant Shares obtainable
as otherwise determined pursuant to this Section 2.
-4-
<PAGE>
2D. Notices.
-------
(i) Immediately upon any adjustment of the Exercise Price,
the Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the Registered
Holder at least 20 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Preferred Stock, (B) with respect to any pro rata subscription offer to holders
of the Preferred Stock or (C) for determining rights to vote with respect to any
Organic Change, dissolution or liquidation. The Company shall also give written
notice to the Registered Holder at least 20 days prior to the date on which any
Organic Change, dissolution or liquidation shall take place.
Section 3. Liquidating Dividends. If the Company declares or pays a
---------------------
dividend upon the Preferred Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles, consistently applied) except for a stock dividend payable in shares
of Preferred Stock (a "Liquidating Dividend"), then the Company shall pay to the
--------------------
Registered Holder of this Warrant at the time of payment thereof the Liquidating
Dividend which would have been paid to the Registered Holder on the Warrant
Shares had this Warrant been fully exercised immediately prior to the date on
which the record was taken for such Liquidating Dividend or, if no record was
taken, the date as of which the record holders of Preferred Stock entitled to
such dividends are to be determined.
Section 4. Purchase Rights. If at any time the Company grants,
---------------
issues or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of its
shares of Preferred Stock (the "Purchase Rights"), then the Registered Holder of
---------------
this Warrant shall be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of Warrant Shares obtainable upon
complete exercise of this Warrant immediately before the date on which the
record is taken for the grant, issuance or sale of such Purchase Rights or, if
no such record is taken, the date as of which the record holders of its shares
of Preferred Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
Section 5. Definitions. The following terms have meanings set forth
-----------
below:
"Preferred Stock" means the Company's Class A Preferred Stock, par
---------------
value $.01 per share.
"Exercise Price" means $.01 per share, which is deemed paid upon the
--------------
issuance of this Warrant by virtue of the making of the Subsequent Loan on the
date hereof.
-5-
<PAGE>
"Convertible Securities" means any stock or securities (directly or
----------------------
indirectly) convertible into or exchangeable for shares of Preferred Stock.
"Options" means any rights or options to subscribe for or purchase
-------
shares of Preferred Stock and/or Convertible Securities.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
"Stockholders Agreement" shall mean that certain Stockholders
----------------------
Agreement dated as of March 23, 1999 (as amended and modified from time to
time), by and among the Company and certain of its stockholders.
"Warrant Share" means any share of Preferred Stock obtained or
-------------
obtainable upon the exercise of this Warrant; provided that, if there is a
--------
change such that the securities issuable upon exercise of this Warrant are
issued by an entity other than the Company or there is a change in the type or
class of securities so issuable, then the term "Warrant Share" shall mean one
share of the security issuable upon exercise of the Warrants if such security is
issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.
"Warrant Shares" means, collectively, each Warrant Share obtained or
--------------
obtainable upon the exercise of this Warrant.
Section 6. No Voting Rights; Limitations of Liability. This Warrant
------------------------------------------
shall not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Warrant Shares, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of the Registered holder for any further payment in respect of the
Warrant Shares or as a stockholder of the Company.
Section 7. Warrant Transferable. Subject to the transfer conditions
--------------------
referred to in the legend imprinted hereon and in the Stockholders Agreement,
this Warrant and all rights hereunder are transferable, in whole or in part,
without charge to the Registered Holder, upon surrender of this Warrant with a
properly executed Assignment (in the form of Exhibit II attached hereto) at the
----------
principal office of the Company.
Section 8. Warrant Exchangeable for Different Denominations. This
------------------------------------------------
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the purchase rights hereunder, and each such new Warrant shall
represent such portion of such rights as is designated by the Registered Holder
at the time of such surrender. The date the Company initially issues this
Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the
----------------
number of times new certificates representing the unexpired and
-6-
<PAGE>
unexercised rights formerly represented by this Warrant shall be issued. All
Warrants representing portions of the rights hereunder are referred to herein
collectively as the "Warrant."
-------
Section 9. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
this Warrant and/or any certificate evidencing Warrant Shares, and in the case
of any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Company (provided that, if the holder is a financial
--------
institution or other institutional investor, its own agreement shall be
satisfactory) or, in the case of any such mutilation, upon surrender of this
Warrant and/or such certificate (as applicable), the Company shall (at its
expense) execute and deliver, in lieu of this Warrant and/or such certificate, a
new Warrant and/or certificate of like kind representing the same rights
represented by, and dated the date of, such lost, stolen, destroyed or mutilated
Warrant and/or certificate (as applicable).
Section 10. Notices. Except as otherwise expressly provided herein,
-------
all notices referred to in this Warrant shall be in writing and shall be
delivered personally, sent by reputable overnight courier service (charges
prepaid) or sent by registered or certified mail, return receipt requested,
postage prepaid and shall be deemed to have been given when so delivered, sent
or deposited in the U. S. Mail (i) to the Company at its principal executive
offices and (ii) to the Registered Holder of this Warrant, at such holder's
address as it appears in the records of the Company (unless otherwise indicated
by any such holder).
Section 11. Amendment and Waiver. Except as otherwise provided
--------------------
herein, the provisions of this Warrant may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the prior written consent of
the holder(s) of a majority of the purchase rights represented by this Warrant.
Section 12. Descriptive Headings. The descriptive headings of the
--------------------
several Sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant.
Section 13. Governing Law. This Warrant shall be governed by, and
-------------
shall be construed and enforced in accordance with, the laws of the State of
Illinois without giving effect to any choice of law or conflict of law provision
or rule (whether of the State of Illinois or any other jurisdictions) that would
cause the application of the laws of any jurisdiction other than the State of
Illinois.
* * * *
-7-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by its duly authorized officers and dated as of the Date of
Issuance.
ZEFER CORP.
By: /s/ Sean Mullaney
-----------------------------------
Its: ___________________________________
Attest:
By: ____________________________
Its: Secretary
<PAGE>
EXHIBIT I
---------
EXERCISE AGREEMENT
------------------
To: ZEFER Corp. Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-P-2), hereby elects to purchase ________ shares of
Preferred Stock obtainable under such Warrant, the purchase price of $.01 per
share having previously been paid.
Signature: ____________________________
Name: ____________________________
On behalf of: ____________________________
Its: ____________________________
Address:
<PAGE>
EXHIBIT II
----------
ASSIGNMENT
----------
FOR VALUE RECEIVED, _________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-P-2) with respect to the number of Warrant Shares set
forth below and covered thereby, unto:
Names of Assignee Address Class of Shares No. of Shares
- ----------------- ------- --------------- -------------
Dated: Signature _______________________
_______________________
Witness _______________________
<PAGE>
EXHIBIT 10.47
THIS WARRANT AND ANY SHARES OF STOCK OBTAINABLE UPON ITS EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE'S SECURITIES LAWS AND MAY NOT BE
TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT TO AN EXEMPTION
THEREFROM.
THIS WARRANT AND ANY SHARES OF STOCK OBTAINABLE UPON ITS EXERCISE ARE
SUBJECT TO CERTAIN TRANSFER AND VOTING RESTRICTIONS PURSUANT TO A
STOCKHOLDERS AGREEMENT, DATED AS OF MARCH 23, 1999 (AS AMENDED AND MODIFIED
FROM TIME TO TIME), AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND
CERTAIN OF THE COMPANY'S STOCKHOLDERS. A COPY OF SUCH STOCKHOLDERS
AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER
HEREOF UPON WRITTEN REQUEST.
ZEFER CORP.
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: January 25, 2000 Certificate No. W-P-3
FOR VALUE RECEIVED, ZEFER Corp., a Delaware corporation (the
"Company"), hereby grants to GTCR Capital Partners, L.P., a Delaware limited
-------
partnership, or its registered assigns (the "Registered Holder") the right to
-----------------
purchase from the Company, at any time or from time to time during the Exercise
Period (as defined in Section 1A below), (i) up to 401.30 shares (as such number
of shares shall be adjusted from time to time in accordance with Section 2
hereof) of the Company's Class A Preferred Stock, par value $.01 per share, at a
per share purchase price equal to the "Exercise Price" (as defined in Section 5
--------------
below). This Warrant is issued pursuant to the terms of that certain Warrant
Agreement, dated as of November 24, 1999 (as amended and modified from time to
time), between the Company and GTCR Capital Partners, L.P. (the "Warrant
-------
Agreement") and is one of the "Warrants" described therein. Certain capitalized
- ---------
terms used herein and not otherwise defined are defined in Section 5 hereof.
Any capitalized terms used in this Warrant but not defined herein shall have the
meaning ascribed to such term in the Warrant Agreement. The amount and kind of
securities obtainable pursuant to the rights granted hereunder and the purchase
price to be paid for such securities are subject to adjustment pursuant to the
provisions contained in this Warrant.
For income tax purposes, the value of this Warrant on the date hereof
is $401,300.
This Warrant is subject to the following provisions:
<PAGE>
Section 1. Exercise of Warrant.
-------------------
1A. Exercise Period. The Registered Holder may exercise, in whole or
---------------
part, the purchase rights represented by this Warrant at any time and from time
to time after the Date of Issuance hereof and prior to the tenth anniversary
thereof (the "Exercise Period"). The Company shall give the Registered Holder
---------------
written notice of the expiration of the Exercise Period at least 30 days but not
more than 90 days prior to the end of the Exercise Period.
1B. Exercise Procedure.
------------------
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
-------------
(a) a completed Exercise Agreement, as described in Section 1C
below, executed by the Person exercising all or any portion of the purchase
rights represented by this Warrant (the "Purchaser");
---------
(b) this Warrant; and
(c) if this Warrant is not registered in the name of the
Purchaser, an Assignment or Assignments in the form set forth in Exhibit II
----------
hereto evidencing the assignment of this Warrant to the Purchaser, in which
case the Registered Holder shall have complied with the provisions set
forth in Section 7 hereof.
(ii) Certificates evidencing the Warrant Shares purchased upon
exercise of all or any portion of this Warrant shall be delivered by the Company
to the Purchaser within five business days after date of the Exercise Time.
Unless this Warrant has expired or all of the purchase rights represented hereby
have been exercised, the Company shall prepare a new Warrant, substantially
identical hereto, representing the rights formerly represented by this Warrant
which have not expired or been exercised and shall, within such five-day period,
deliver such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Warrant Shares issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Warrant Shares at the Exercise Time.
(iv) The issuance of certificates evidencing Warrant Shares upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares. Each Warrant Share issuable upon exercise of this Warrant shall
be fully paid and nonassessable and free from all liens and charges with respect
to the issuance thereof.
-2-
<PAGE>
(v) The Company shall not close its books against the transfer of
this Warrant or of any Warrant Share issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company shall from time to time take all such action as may be
necessary to assure that the par value per share of the unissued Warrant Shares
obtainable upon exercise of this Warrant is at all times equal to or less than
the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any Registered
Holder or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).
(vii) Notwithstanding any other provision hereof, if an exercise of
any portion of this Warrant is to be made in connection with a registered public
offering or the sale of the Company (whether by merger, sale of stock or
otherwise), the exercise of any portion of this Warrant may, at the election of
the holder hereof, be conditioned upon the consummation of the public offering
or the sale of the Company in which case such exercise shall not be deemed to be
effective until the consummation of such transaction.
(viii) The Company shall at all times reserve and keep available out
of its authorized capital stock the number of shares of its Preferred Stock
issuable upon the exercise of this Warrant solely for the purpose of issuance
upon the exercise of this Warrant. The Company shall take all such actions as
may be necessary to assure that all such Warrant Shares may be so issued without
violation of any applicable law or governmental regulation or any requirements
of any domestic securities exchange upon which the Warrant Shares may be listed
(except for official notice of issuance which shall be immediately delivered by
the Company upon each such issuance). The Company shall not take any action
which would cause the number of authorized but unissued shares of its Preferred
Stock to be less than the number of such shares required to be reserved
hereunder for issuance upon exercise of this Warrant.
1C. Exercise Agreement. Upon any exercise of this Warrant, a
------------------
completed Exercise Agreement substantially in the form of Exhibit I attached
---------
hereto, executed by the Person exercising all or any portion of the purchase
rights represented by this Warrant, shall be delivered to the Company; provided
--------
that, if the Warrant Shares are to be issued to a Person other than the Person
whose name this Warrant is registered, the Exercise Agreement shall also state
the name of the Person to whom the certificates evidencing the Warrant Shares
are to be issued; provided further, if the number of Warrant Shares to be issued
-------- -------
does not include all the Warrant Shares obtainable hereunder, the Exercise
Agreement shall also state the name of the Person to whom a new Warrant for the
unexercised portion of the rights hereunder is to be delivered. Such Exercise
Agreement shall be dated the actual date of execution thereof.
Section 2. Adjustment of Exercise Price and Number of Shares. In
-------------------------------------------------
order to prevent dilution of the rights granted under this Warrant, the Exercise
Price and the number of Warrant Shares obtainable upon exercise of this Warrant
shall each be subject to adjustment from time to time as provided in this
Section 2.
-3-
<PAGE>
2A. Subdivision or Combination of Stock. If the Company at any time
-----------------------------------
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
its outstanding shares of Preferred Stock, then the Exercise Price in effect
immediately prior to such subdivision shall be proportionately reduced and the
number of Warrant Shares obtainable upon exercise of this Warrant shall be
proportionately increased. If the Company at any time combines (by reverse
stock split or otherwise) its outstanding shares of Preferred Stock, then the
Exercise Price in effect immediately prior to such combination shall be
proportionately increased and the number of Warrant Shares obtainable upon
exercise of this Warrant shall be proportionately decreased.
2B. Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
which in each case is effected in such a way that the holders of its outstanding
shares of Preferred Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for such Preferred Stock, is referred to herein as an "Organic Change."
--------------
Prior to the consummation of any Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the Registered
Holder of this Warrant) to insure that the Registered Holder of this Warrant
shall thereafter have the right to obtain and receive, in lieu of or in addition
to (as the case may be) the Warrant Shares immediately theretofore obtainable
and receivable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for the number of Warrant Shares immediately theretofore acquirable and
receivable upon exercise of this Warrant had such Organic Change not taken
place. In any such case, the Company shall make appropriate provision (in form
and substance satisfactory to the Registered Holder of this Warrant) with
respect to the Registered Holder's rights and interests to insure that the
provisions of this Section 2 and Sections 3 and 4 hereof shall thereafter be
applicable to this Warrant (including, without limitation, in the case of any
such consolidation, merger or sale in which the successor entity or purchasing
entity is other than the Company and in which the value of the Warrant Shares as
reflected by the terms of such transaction is less than the Exercise Price in
effect immediately prior to such transaction, an immediate adjustment of the
Exercise Price and a corresponding immediate adjustment in the number of Warrant
Shares obtainable and receivable upon exercise of this Warrant). The Company
shall not effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the Company) resulting
from consolidation or merger or the entity purchasing such assets assumes by
written instrument (in form and substance satisfactory to the Registered Holder
of this Warrant), the obligation to deliver to the Registered Holder such shares
of stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
2C. Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 2 but not expressly provided for by such
provisions, then the Company's board of directors shall make an appropriate
adjustment in the Exercise Price and an appropriate adjustment in the number of
Warrant Shares obtainable upon exercise of this Warrant so as to protect the
rights of the holders of this Warrant; provided that no such adjustment shall
--------
increase the Exercise Price or decrease the number of Warrant Shares obtainable
as otherwise determined pursuant to this Section 2.
-4-
<PAGE>
2D. Notices.
-------
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the Registered
Holder at least 20 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Preferred Stock, (B) with respect to any pro rata subscription offer to holders
of the Preferred Stock or (C) for determining rights to vote with respect to any
Organic Change, dissolution or liquidation. The Company shall also give written
notice to the Registered Holder at least 20 days prior to the date on which any
Organic Change, dissolution or liquidation shall take place.
Section 3. Liquidating Dividends. If the Company declares or pays a
---------------------
dividend upon the Preferred Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles, consistently applied) except for a stock dividend payable in shares
of Preferred Stock (a "Liquidating Dividend"), then the Company shall pay to the
--------------------
Registered Holder of this Warrant at the time of payment thereof the Liquidating
Dividend which would have been paid to the Registered Holder on the Warrant
Shares had this Warrant been fully exercised immediately prior to the date on
which the record was taken for such Liquidating Dividend or, if no record was
taken, the date as of which the record holders of Preferred Stock entitled to
such dividends are to be determined.
Section 4. Purchase Rights. If at any time the Company grants,
---------------
issues or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of its
shares of Preferred Stock (the "Purchase Rights"), then the Registered Holder of
---------------
this Warrant shall be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of Warrant Shares obtainable upon
complete exercise of this Warrant immediately before the date on which the
record is taken for the grant, issuance or sale of such Purchase Rights or, if
no such record is taken, the date as of which the record holders of its shares
of Preferred Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
Section 5. Definitions. The following terms have meanings set forth
-----------
below:
"Preferred Stock" means the Company's Class A Preferred Stock, par
---------------
value $.01 per share.
"Exercise Price" means $.01 per share, which is deemed paid upon the
--------------
issuance of this Warrant by virtue of the making of the Subsequent Loan on the
date hereof.
-5-
<PAGE>
"Convertible Securities" means any stock or securities (directly or
----------------------
indirectly) convertible into or exchangeable for shares of Preferred Stock.
"Options" means any rights or options to subscribe for or purchase
-------
shares of Preferred Stock and/or Convertible Securities.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
"Stockholders Agreement" shall mean that certain Stockholders
----------------------
Agreement dated as of March 23, 1999 (as amended and modified from time to
time), by and among the Company and certain of its stockholders.
"Warrant Share" means any share of Preferred Stock obtained or
-------------
obtainable upon the exercise of this Warrant; provided that, if there is a
--------
change such that the securities issuable upon exercise of this Warrant are
issued by an entity other than the Company or there is a change in the type or
class of securities so issuable, then the term "Warrant Share" shall mean one
share of the security issuable upon exercise of the Warrants if such security is
issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.
"Warrant Shares" means, collectively, each Warrant Share obtained or
--------------
obtainable upon the exercise of this Warrant.
Section 6. No Voting Rights; Limitations of Liability. This Warrant
------------------------------------------
shall not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Warrant Shares, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of the Registered holder for any further payment in respect of the
Warrant Shares or as a stockholder of the Company.
Section 7. Warrant Transferable. Subject to the transfer conditions
--------------------
referred to in the legend imprinted hereon and in the Stockholders Agreement,
this Warrant and all rights hereunder are transferable, in whole or in part,
without charge to the Registered Holder, upon surrender of this Warrant with a
properly executed Assignment (in the form of Exhibit II attached hereto) at the
----------
principal office of the Company.
Section 8. Warrant Exchangeable for Different Denominations. This
------------------------------------------------
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the purchase rights hereunder, and each such new Warrant shall
represent such portion of such rights as is designated by the Registered Holder
at the time of such surrender. The date the Company initially issues this
Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the
----------------
number of times new certificates representing the unexpired and
-6-
<PAGE>
unexercised rights formerly represented by this Warrant shall be issued. All
Warrants representing portions of the rights hereunder are referred to herein
collectively as the "Warrant."
-------
Section 9. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
this Warrant and/or any certificate evidencing Warrant Shares, and in the case
of any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Company (provided that, if the holder is a financial
--------
institution or other institutional investor, its own agreement shall be
satisfactory) or, in the case of any such mutilation, upon surrender of this
Warrant and/or such certificate (as applicable), the Company shall (at its
expense) execute and deliver, in lieu of this Warrant and/or such certificate, a
new Warrant and/or certificate of like kind representing the same rights
represented by, and dated the date of, such lost, stolen, destroyed or mutilated
Warrant and/or certificate (as applicable).
Section 10. Notices. Except as otherwise expressly provided herein,
-------
all notices referred to in this Warrant shall be in writing and shall be
delivered personally, sent by reputable overnight courier service (charges
prepaid) or sent by registered or certified mail, return receipt requested,
postage prepaid and shall be deemed to have been given when so delivered, sent
or deposited in the U. S. Mail (i) to the Company at its principal executive
offices and (ii) to the Registered Holder of this Warrant, at such holder's
address as it appears in the records of the Company (unless otherwise indicated
by any such holder).
Section 11. Amendment and Waiver. Except as otherwise provided
--------------------
herein, the provisions of this Warrant may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the prior written consent of
the holder(s) of a majority of the purchase rights represented by this Warrant.
Section 12. Descriptive Headings. The descriptive headings of the
--------------------
several Sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant.
Section 13. Governing Law. This Warrant shall be governed by, and
-------------
shall be construed and enforced in accordance with, the laws of the State of
Illinois without giving effect to any choice of law or conflict of law provision
or rule (whether of the State of Illinois or any other jurisdictions) that would
cause the application of the laws of any jurisdiction other than the State of
Illinois.
* * * *
-7-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by its duly authorized officers and dated as of the Date of
Issuance.
ZEFER CORP.
By: /s/ Sean Mullaney
-----------------------------------
Its: ___________________________________
Attest:
By: ____________________________
Its: Secretary
<PAGE>
EXHIBIT I
---------
EXERCISE AGREEMENT
------------------
To: ZEFER Corp. Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-P-3), hereby elects to purchase ________ shares of
Preferred Stock obtainable under such Warrant, the purchase price of $.01 per
share having previously been paid.
Signature: ____________________________
Name: ____________________________
On behalf of: ____________________________
Its: ____________________________
Address:
<PAGE>
EXHIBIT II
----------
ASSIGNMENT
----------
FOR VALUE RECEIVED, _________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-P-3) with respect to the number of Warrant Shares set
forth below and covered thereby, unto:
Names of Assignee Address Class of Shares No. of Shares
- ----------------- ------- --------------- -------------
Dated: Signature _______________________
_______________________
Witness _______________________
<PAGE>
EXHIBIT 10.49
NON-QUALIFIED OPTION AND SHAREHOLDERS AGREEMENT
This Non-Qualified Option and Shareholders Agreement (the "Agreement")
is made as of the ninth day of February, 2000 (the "Grant Date") between ZEFER
Corp. ("ZEFER" or the "Company") and Catherine Viscardi Johnston ("Optionee"),
residing at the address that appears on the signature page of this Agreement.
W I T N E S E T H:
The Company hereby grants to Optionee an option (the "Option") to
purchase 30,000 shares ("Shares") of its common stock, par value $.001 per share
("Common Stock"), at $11.00 per Share (the "Option Price"). Optionee may
exercise this Option, subject to the vesting requirements set forth in Section 1
of this Agreement, until the tenth anniversary of the Grant Date (the "Final
Exercise Date"). After the Final Exercise Date, this Option shall be null and
void. This Option is not intended to qualify as an "incentive stock option"
under Section 422 of the Internal Revenue Code. This Option is subject to the
following terms and conditions:
1. Vesting and Exercisability. On each anniversary of the Grant
--------------------------
Date, twenty-five percent (25%) of the Shares covered by the Option shall vest
and become exercisable by Optionee; provided, however, that Optionee may not
exercise any portion of this Option prior to the earlier of (i) June 30, 2005 or
(ii) the effective date of the Company's first registration statement under the
Securities Act of 1933 covering the offer and sale of Common Stock. Shares that
have vested and become exercisable under the Option may be exercised by Optionee
only during either (i) the period in which Optionee is a director or employee
of, or consultant to, the Company, or (ii) the three month period immediately
following the date of termination of Optionee's foregoing relationship with the
Company. Notwithstanding the foregoing, Optionee may not exercise this Option or
any portion of the Option after the Final Exercise Date, or in the event that
Optionee is terminated for "Cause" in accordance with Section 6 of this
Agreement.
2. Transfer Restrictions. This Option is not transferable except
---------------------
that, in the event of Optionee's death, the vested portion of this Option that
has become exercisable may be exercised, prior to the Final Exercise Date, by
the executor or administrator of Optionee's estate or Optionee's distributee
during the one-year period commencing on the date of Optionee's death.
3. Payment on Exercise of Option. Any vested portion of this Option
-----------------------------
that has become exercisable may be exercised at the office of the Company in
Boston, Massachusetts (or at such other location as determined by the Company)
by giving written notice to ZEFER (Attention: Stock Option Plan Administrator)
of the exercise of such vested portion of this Option. The Option Price for the
Shares that are the subject of the exercise may be paid by delivery of cash,
certified check, bank draft or money order. In addition, at any time that the
Common Stock is registered under Section 12 of the Securities Exchange Act of
1934, the Option Price may be paid by (i) delivering shares of Company stock
(which, if acquired directly from the Company, shall have been held for at least
six months, unless the Stock Option Plan Administrator approves a shorter
period) with a fair market value equal to the Option Price for the Shares that
Optionee is exercising; (ii) delivery of an unconditional undertaking by a
broker to deliver the Option Price immediately following a sale of the Shares
that are the subject of the exercise; or (iii) any combination of the foregoing
permissible forms of payment. In the event that any portion of this Option is
exercised by the executor or administrator of Optionee's estate, Optionee's
personal representative or distributee, the Company shall be under no obligation
to deliver Shares hereunder unless and until the Company is satisfied as to the
authority of the person or persons
<PAGE>
exercising such portion of this Option. The value of any share of Common Stock
delivered in payment of the Option Price shall be the closing price of the
Common Stock on the principal market in which it is traded on the day before the
date of exercise (the "Market Price").
4. Issuance of Shares. Upon the exercise of this Option for all or
------------------
any part of the Shares, the Company shall issue and deliver to Optionee a
certificate or certificates representing the number of Shares for which the
Option was exercised.
5. Employment. The grant of this option shall not affect the
----------
Company's right to discharge Optionee or constitute an agreement of employment
between Optionee and the Company.
6. Certain Forfeitures upon Termination for Cause. Notwithstanding
----------------------------------------------
the provisions of Section 1 or any other provision of this Agreement, if
Optionee's relationship with the Company is terminated for Cause, Optionee shall
forfeit this Option immediately, whether or not vested and whether or not
exercisable, and this Option shall be null and void. As used in this Agreement,
"Cause" shall be defined as (i) Optionee's willful failure to perform, or gross
negligence in the performance of, his duties and responsibilities to the
Company; (ii) fraud, embezzlement or other material dishonesty with respect to
the Company; or (iii) conviction of, or plea of nolo contendere to, a felony or
other crime involving moral turpitude.
7. Stockholder Agreements and Holdback Agreements.
----------------------------------------------
7.1 Agreement to sign Stockholders Agreement. If, at the time
----------------------------------------
that a portion or all of a portion of this Option is exercised, the Company is a
party to any agreement affecting all or substantially all of the outstanding
shares of Common Stock, such portion or all of this Option may be exercised only
if the Shares so acquired are made subject to the provisions of such agreement.
7.2 Holdback Agreement. In connection with any underwritten
------------------
public offering, if requested by the Company and the managing underwriter,
Optionee hereby agrees not to effect any public sale or distribution of any
shares of Common Stock, nor engage in any transaction that would be reasonably
likely to result in a public sale or distribution of securities of the same
class as the Stock for a specified period of time (not to exceed 180 days for
the Company's initial public offering and 90 days for all other offerings)
following the effective date of the registration statement for the offering (the
"Holdback Period"). Such agreement shall be in writing in a form satisfactory to
the Company and the managing underwriter. The Company may impose stop-transfer
instructions with respect to the Shares or other securities subject to the
foregoing restriction until the end of the Holdback Period.
8. Legend; Purchase for Investment. Optionee covenants that any
-------------------------------
Shares acquired pursuant to the exercise of any portion of this Option shall be
acquired for investment and not with a view towards the distribution thereof,
that the Shares may not be transferred, except to the extent permitted hereunder
and in compliance with applicable federal and state securities laws, and that
unless the exercise of this Option is covered by an effective registration
statement under the Securities Act of 1933 the Shares will bear a restrictive
legend, the content of which shall be substantially as follows:
"THE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION UNDER OR
OTHER COMPLIANCE WITH THAT ACT AND THOSE LAWS AND THE RULES AND
REGULATIONS ADOPTED THEREUNDER."
2
<PAGE>
9. Notices. All notices required or permitted to be given to
--------
Optionee hereunder shall be deemed to have been duly given when sent by
registered or certified mail, return receipt requested, to Optionee's address
set forth below or to such other address of which notice shall have been given
to the Company in accordance with this sentence.
10. Binding Effect; Successors and Assigns.
--------------------------------------
(a) This Agreement shall be binding upon and inure to the
benefit of the parties and their successors, assigns, heirs, executors and legal
representatives.
(b) This Agreement may not be modified, amended or changed,
except by a written instrument executed by the parties.
11. Specific Performance. As the Shares cannot be readily purchased
--------------------
or sold in the open market, and the parties desire to impose certain
restrictions on transfer of the Shares, the parties agree that any damage
available at law for a breach of this Agreement would not be an adequate remedy,
and irreparable damage will result if this Agreement is not specifically
enforced. Therefore, the provisions hereof and the obligations of the parties
hereunder shall be enforceable in a court of equity, or other tribunal having
jurisdiction, by a decree of specific performance, and appropriate injunctive
relief may be applied for and granted in connection therewith. Such remedies and
all other remedies provided in this Agreement shall, however, be cumulative and
not exclusive and shall be in addition to any other remedies which any party may
have under this Agreement.
12. Severability. Any provision of this Agreement which is prohibited
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the parties hereby waive any provision of law which renders
any provision hereof prohibited or unenforceable in any respect.
13. Law Governing. This Agreement shall be construed both as to
-------------
validity and performance in accordance with, and governed by, the law of the
Commonwealth of Massachusetts (without regard to any rules of conflicts of laws
that would look to the laws of any other jurisdiction).
14. No Waiver. No course of dealing and no delay on the part of any
---------
party in exercising any right, power or remedy conferred by this Agreement shall
operate as a waiver thereof or otherwise prejudice such party's rights, powers
and remedies. No single or partial exercise of any rights, powers or remedies
conferred by this Agreement shall preclude any other or further exercise thereof
or the exercise of any other right, power or remedy.
15. No Oral Agreements or Understandings. Optionee acknowledges that
------------------------------------
this Agreement constitutes the only agreement or understanding that Optionee has
with the Company respecting such Optionee's right to receive an award of equity
ownership of the Company.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first hereinabove written.
Company: Optionee:
- -------- --------
ZEFER CORP. CATHERINE VISCARDI JOHNSTON
By:________________________________ ________________________________
A duly authorized representative Address:
4
<PAGE>
EXHIBIT 10.50
THIS WARRANT AND ANY SHARES OF STOCK OBTAINABLE UPON ITS EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE'S SECURITIES LAWS AND MAY NOT BE
TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT TO AN EXEMPTION
THEREFROM.
THIS WARRANT AND ANY SHARES OF STOCK OBTAINABLE UPON ITS EXERCISE ARE
SUBJECT TO CERTAIN TRANSFER AND VOTING RESTRICTIONS PURSUANT TO A
STOCKHOLDERS AGREEMENT, DATED AS OF MARCH 23, 1999 (AS AMENDED AND MODIFIED
FROM TIME TO TIME), AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND
CERTAIN OF THE COMPANY'S STOCKHOLDERS. A COPY OF SUCH STOCKHOLDERS
AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER
HEREOF UPON WRITTEN REQUEST.
ZEFER CORP.
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: February 25, 2000 Certificate No. W-P-4
FOR VALUE RECEIVED, ZEFER Corp., a Delaware corporation (the
"Company"), hereby grants to GTCR Capital Partners, L.P., a Delaware limited
-------
partnership, or its registered assigns (the "Registered Holder") the right to
-----------------
purchase from the Company, at any time or from time to time during the Exercise
Period (as defined in Section 1A below), (i) up to 1,208.8346 shares (as such
number of shares shall be adjusted from time to time in accordance with Section
2 hereof) of the Company's Class A Preferred Stock, par value $.01 per share, at
a per share purchase price equal to the "Exercise Price" (as defined in Section
--------------
5 below). This Warrant is issued pursuant to the terms of that certain Warrant
Agreement, dated as of November 24, 1999 (as amended and modified from time to
time), between the Company and GTCR Capital Partners, L.P. (the "Warrant
-------
Agreement") and is one of the "Warrants" described therein. Certain capitalized
- ---------
terms used herein and not otherwise defined are defined in Section 5 hereof.
Any capitalized terms used in this Warrant but not defined herein shall have the
meaning ascribed to such term in the Warrant Agreement. The amount and kind of
securities obtainable pursuant to the rights granted hereunder and the purchase
price to be paid for such securities are subject to adjustment pursuant to the
provisions contained in this Warrant.
For income tax purposes, the value of this Warrant on the date hereof
is $1,208,834.60.
This Warrant is subject to the following provisions:
<PAGE>
Section 1. Exercise of Warrant.
-------------------
1A. Exercise Period. The Registered Holder may exercise, in whole or
---------------
part, the purchase rights represented by this Warrant at any time and from time
to time after the Date of Issuance hereof and prior to the tenth anniversary
thereof (the "Exercise Period"). The Company shall give the Registered Holder
---------------
written notice of the expiration of the Exercise Period at least 30 days but not
more than 90 days prior to the end of the Exercise Period.
1B. Exercise Procedure.
------------------
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
-------------
(a) a completed Exercise Agreement, as described in Section 1C
below, executed by the Person exercising all or any portion of the purchase
rights represented by this Warrant (the "Purchaser");
---------
(b) this Warrant; and
(c) if this Warrant is not registered in the name of the
Purchaser, an Assignment or Assignments in the form set forth in Exhibit II
----------
hereto evidencing the assignment of this Warrant to the Purchaser, in which
case the Registered Holder shall have complied with the provisions set
forth in Section 7 hereof.
(ii) Certificates evidencing the Warrant Shares purchased upon
exercise of all or any portion of this Warrant shall be delivered by the Company
to the Purchaser within five business days after date of the Exercise Time.
Unless this Warrant has expired or all of the purchase rights represented hereby
have been exercised, the Company shall prepare a new Warrant, substantially
identical hereto, representing the rights formerly represented by this Warrant
which have not expired or been exercised and shall, within such five-day period,
deliver such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Warrant Shares issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Warrant Shares at the Exercise Time.
(iv) The issuance of certificates evidencing Warrant Shares upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares. Each Warrant Share issuable upon exercise of this Warrant shall
be fully paid and nonassessable and free from all liens and charges with respect
to the issuance thereof.
-2-
<PAGE>
(v) The Company shall not close its books against the transfer of
this Warrant or of any Warrant Share issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company shall from time to time take all such action as may be
necessary to assure that the par value per share of the unissued Warrant Shares
obtainable upon exercise of this Warrant is at all times equal to or less than
the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any Registered
Holder or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).
(vii) Notwithstanding any other provision hereof, if an exercise of
any portion of this Warrant is to be made in connection with a registered public
offering or the sale of the Company (whether by merger, sale of stock or
otherwise), the exercise of any portion of this Warrant may, at the election of
the holder hereof, be conditioned upon the consummation of the public offering
or the sale of the Company in which case such exercise shall not be deemed to be
effective until the consummation of such transaction.
(viii) The Company shall at all times reserve and keep available out
of its authorized capital stock the number of shares of its Preferred Stock
issuable upon the exercise of this Warrant solely for the purpose of issuance
upon the exercise of this Warrant. The Company shall take all such actions as
may be necessary to assure that all such Warrant Shares may be so issued without
violation of any applicable law or governmental regulation or any requirements
of any domestic securities exchange upon which the Warrant Shares may be listed
(except for official notice of issuance which shall be immediately delivered by
the Company upon each such issuance). The Company shall not take any action
which would cause the number of authorized but unissued shares of its Preferred
Stock to be less than the number of such shares required to be reserved
hereunder for issuance upon exercise of this Warrant.
1C. Exercise Agreement. Upon any exercise of this Warrant, a
------------------
completed Exercise Agreement substantially in the form of Exhibit I attached
---------
hereto, executed by the Person exercising all or any portion of the purchase
rights represented by this Warrant, shall be delivered to the Company; provided
--------
that, if the Warrant Shares are to be issued to a Person other than the Person
whose name this Warrant is registered, the Exercise Agreement shall also state
the name of the Person to whom the certificates evidencing the Warrant Shares
are to be issued; provided further, if the number of Warrant Shares to be issued
-------- -------
does not include all the Warrant Shares obtainable hereunder, the Exercise
Agreement shall also state the name of the Person to whom a new Warrant for the
unexercised portion of the rights hereunder is to be delivered. Such Exercise
Agreement shall be dated the actual date of execution thereof.
Section 2. Adjustment of Exercise Price and Number of Shares. In
-------------------------------------------------
order to prevent dilution of the rights granted under this Warrant, the Exercise
Price and the number of Warrant Shares obtainable upon exercise of this Warrant
shall each be subject to adjustment from time to time as provided in this
Section 2.
-3-
<PAGE>
2A. Subdivision or Combination of Stock. If the Company at any time
-----------------------------------
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
its outstanding shares of Preferred Stock, then the Exercise Price in effect
immediately prior to such subdivision shall be proportionately reduced and the
number of Warrant Shares obtainable upon exercise of this Warrant shall be
proportionately increased. If the Company at any time combines (by reverse
stock split or otherwise) its outstanding shares of Preferred Stock, then the
Exercise Price in effect immediately prior to such combination shall be
proportionately increased and the number of Warrant Shares obtainable upon
exercise of this Warrant shall be proportionately decreased.
2B. Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
which in each case is effected in such a way that the holders of its outstanding
shares of Preferred Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for such Preferred Stock, is referred to herein as an "Organic Change."
--------------
Prior to the consummation of any Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the Registered
Holder of this Warrant) to insure that the Registered Holder of this Warrant
shall thereafter have the right to obtain and receive, in lieu of or in addition
to (as the case may be) the Warrant Shares immediately theretofore obtainable
and receivable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for the number of Warrant Shares immediately theretofore acquirable and
receivable upon exercise of this Warrant had such Organic Change not taken
place. In any such case, the Company shall make appropriate provision (in form
and substance satisfactory to the Registered Holder of this Warrant) with
respect to the Registered Holder's rights and interests to insure that the
provisions of this Section 2 and Sections 3 and 4 hereof shall thereafter be
applicable to this Warrant (including, without limitation, in the case of any
such consolidation, merger or sale in which the successor entity or purchasing
entity is other than the Company and in which the value of the Warrant Shares as
reflected by the terms of such transaction is less than the Exercise Price in
effect immediately prior to such transaction, an immediate adjustment of the
Exercise Price and a corresponding immediate adjustment in the number of Warrant
Shares obtainable and receivable upon exercise of this Warrant). The Company
shall not effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the Company) resulting
from consolidation or merger or the entity purchasing such assets assumes by
written instrument (in form and substance satisfactory to the Registered Holder
of this Warrant), the obligation to deliver to the Registered Holder such shares
of stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
2C. Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 2 but not expressly provided for by such
provisions, then the Company's board of directors shall make an appropriate
adjustment in the Exercise Price and an appropriate adjustment in the number of
Warrant Shares obtainable upon exercise of this Warrant so as to protect the
rights of the holders of this Warrant; provided that no such adjustment shall
--------
increase the Exercise Price or decrease the number of Warrant Shares obtainable
as otherwise determined pursuant to this Section 2.
-4-
<PAGE>
2D. Notices.
-------
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the Registered
Holder at least 20 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Preferred Stock, (B) with respect to any pro rata subscription offer to holders
of the Preferred Stock or (C) for determining rights to vote with respect to any
Organic Change, dissolution or liquidation. The Company shall also give written
notice to the Registered Holder at least 20 days prior to the date on which any
Organic Change, dissolution or liquidation shall take place.
Section 3. Liquidating Dividends. If the Company declares or pays a
---------------------
dividend upon the Preferred Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles, consistently applied) except for a stock dividend payable in shares
of Preferred Stock (a "Liquidating Dividend"), then the Company shall pay to the
--------------------
Registered Holder of this Warrant at the time of payment thereof the Liquidating
Dividend which would have been paid to the Registered Holder on the Warrant
Shares had this Warrant been fully exercised immediately prior to the date on
which the record was taken for such Liquidating Dividend or, if no record was
taken, the date as of which the record holders of Preferred Stock entitled to
such dividends are to be determined.
Section 4. Purchase Rights. If at any time the Company grants,
---------------
issues or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of its
shares of Preferred Stock (the "Purchase Rights"), then the Registered Holder of
---------------
this Warrant shall be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of Warrant Shares obtainable upon
complete exercise of this Warrant immediately before the date on which the
record is taken for the grant, issuance or sale of such Purchase Rights or, if
no such record is taken, the date as of which the record holders of its shares
of Preferred Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
Section 5. Definitions. The following terms have meanings set forth
-----------
below:
"Preferred Stock" means the Company's Class A Preferred Stock, par
---------------
value $.01 per share.
"Exercise Price" means $.01 per share, which is deemed paid upon the
--------------
issuance of this Warrant by virtue of the making of the Subsequent Loan on the
date hereof.
-5-
<PAGE>
"Convertible Securities" means any stock or securities (directly or
----------------------
indirectly) convertible into or exchangeable for shares of Preferred Stock.
"Options" means any rights or options to subscribe for or purchase
-------
shares of Preferred Stock and/or Convertible Securities.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
"Stockholders Agreement" shall mean that certain Stockholders
----------------------
Agreement dated as of March 23, 1999 (as amended and modified from time to
time), by and among the Company and certain of its stockholders.
"Warrant Share" means any share of Preferred Stock obtained or
-------------
obtainable upon the exercise of this Warrant; provided that, if there is a
--------
change such that the securities issuable upon exercise of this Warrant are
issued by an entity other than the Company or there is a change in the type or
class of securities so issuable, then the term "Warrant Share" shall mean one
share of the security issuable upon exercise of the Warrants if such security is
issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.
"Warrant Shares" means, collectively, each Warrant Share obtained or
--------------
obtainable upon the exercise of this Warrant.
Section 6. No Voting Rights; Limitations of Liability. This Warrant
------------------------------------------
shall not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Warrant Shares, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of the Registered holder for any further payment in respect of the
Warrant Shares or as a stockholder of the Company.
Section 7. Warrant Transferable. Subject to the transfer conditions
--------------------
referred to in the legend imprinted hereon and in the Stockholders Agreement,
this Warrant and all rights hereunder are transferable, in whole or in part,
without charge to the Registered Holder, upon surrender of this Warrant with a
properly executed Assignment (in the form of Exhibit II attached hereto) at the
----------
principal office of the Company.
Section 8. Warrant Exchangeable for Different Denominations. This
------------------------------------------------
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the purchase rights hereunder, and each such new Warrant shall
represent such portion of such rights as is designated by the Registered Holder
at the time of such surrender. The date the Company initially issues this
Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the
----------------
number of times new certificates representing the unexpired and
-6-
<PAGE>
unexercised rights formerly represented by this Warrant shall be issued. All
Warrants representing portions of the rights hereunder are referred to herein
collectively as the "Warrant."
-------
Section 9. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
this Warrant and/or any certificate evidencing Warrant Shares, and in the case
of any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Company (provided that, if the holder is a financial
--------
institution or other institutional investor, its own agreement shall be
satisfactory) or, in the case of any such mutilation, upon surrender of this
Warrant and/or such certificate (as applicable), the Company shall (at its
expense) execute and deliver, in lieu of this Warrant and/or such certificate, a
new Warrant and/or certificate of like kind representing the same rights
represented by, and dated the date of, such lost, stolen, destroyed or mutilated
Warrant and/or certificate (as applicable).
Section 10. Notices. Except as otherwise expressly provided herein,
-------
all notices referred to in this Warrant shall be in writing and shall be
delivered personally, sent by reputable overnight courier service (charges
prepaid) or sent by registered or certified mail, return receipt requested,
postage prepaid and shall be deemed to have been given when so delivered, sent
or deposited in the U.S. Mail (i) to the Company at its principal executive
offices and (ii) to the Registered Holder of this Warrant, at such holder's
address as it appears in the records of the Company (unless otherwise indicated
by any such holder).
Section 11. Amendment and Waiver. Except as otherwise provided
--------------------
herein, the provisions of this Warrant may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the prior written consent of
the holder(s) of a majority of the purchase rights represented by this Warrant.
Section 12. Descriptive Headings. The descriptive headings of the
--------------------
several Sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant.
Section 13. Governing Law. This Warrant shall be governed by, and
-------------
shall be construed and enforced in accordance with, the laws of the State of
Illinois without giving effect to any choice of law or conflict of law provision
or rule (whether of the State of Illinois or any other jurisdictions) that would
cause the application of the laws of any jurisdiction other than the State of
Illinois.
* * * *
-7-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by its duly authorized officers and dated as of the Date of
Issuance.
ZEFER CORP.
By: ___________________________________
Its: ___________________________________
Attest:
By: ____________________________
Its: Secretary
<PAGE>
EXHIBIT I
---------
EXERCISE AGREEMENT
------------------
To: ZEFER Corp. Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-P-4), hereby elects to purchase ________ shares of
Preferred Stock obtainable under such Warrant, the purchase price of $.01 per
share having previously been paid.
Signature: ____________________________
Name: ____________________________
On behalf of: ____________________________
Its: ____________________________
Address:
<PAGE>
EXHIBIT II
----------
ASSIGNMENT
----------
FOR VALUE RECEIVED, _________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-P-4) with respect to the number of Warrant Shares set
forth below and covered thereby, unto:
Names of Assignee Address Class of Shares No. of Shares
- ----------------- ------- --------------- -------------
Dated: Signature _______________________
_______________________
Witness _______________________
<PAGE>
EXHIBIT 10.51
FORM OF AGREEMENT TO BE BOUND BY STOCKHOLDERS AGREEMENT
-------------------------------------------------------
The undersigned, [insert the name of each entity and individual who is
becoming a party to the Stockholders Agreement], hereby certify to, and agree
with ZC Acquisition Corp, a Delaware corporation ("ZC Corp"), as follows:
1. The undersigned have each read a copy of that certain Stockholders
Agreement, dated March 23, 1999 (the "Stockholders Agreement"), by and among ZC
Corp, CTCR Fund VI, L.P., a Delaware limited partnership, CTCR VI Executive
Fund, L.P., a Delaware limited partnership, GTCR Associates VI, a Delaware
general partnership, William Seibel and any other executive employees of ZC Corp
or other entities and individuals who, at any time, acquire securities of ZC
Corp in accordance with Section 9 of the Stockholders Agreement
2. The undersigned agree that their signatures below shall constitute an
executed counterpart signature page to the Stockholders Agreement and that they
shall succeed to all of the rights and obligations of an "Other Stockholder"
under the Stockholders Agreement as contemplated by Section 9 of the
Stockholders agreement.
Executed this ____ day of ____________, _____.
[Insert a signature line for each entity and individual who is becoming a
party to the Stockholders Agreement]
As required by Section 9 of the Stockholders Agreement referred to above,
the undersigned hereby consents to [insert the name of each entity and
individual who is becoming a party to the Stockholders Agreement] succeeding to
all of the rights and obligations of an "Other Stockholder" under such
Stockholders Agreement.
GTCR FUND VI, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, LLC
Its: General Partner
By: __________________________
Its: Principal
The foregoing agreement was entered into between ZEFER Corp. and the
following stockholders as of the date set forth opposite each stockholders'
name:
1261417 Ontario Limited, April 30, 1999
Matthew P. Burkley, April 30, 1999
Ian R. Colliety, April 30, 1999
<PAGE>
Stephen R. DiMarco, April 30, 1999
Deborah E. Frieze, April 30, 1999
Edmond C. Jay, April 30, 1999
Alexandre Scherer, April 30, 1999
Kaming Ng, April 30, 1999
Anthony K. Tjan, April 30, 1999
Gregory S. Hipwell, May 14, 1999
Jason J. Zada, May 14, 1999
Diedre O. Aubuchon, May 21, 1999
Karen S. Baker, May 21, 1999
Richard N. Barnwell, May 21, 1999
Dominique Bastos, May 21, 1999
Henry L. Clement, May 21, 1999
John P. Colby, May 21, 1999
David T. Cowing, May 21, 1999
Gerard E. Dube, May 21, 1999
Richard K. Fouts, May 21, 1999
Melissa Grossman, May 21, 1999
Robert M. Hanson, May 21, 1999
Deepak Indoliya, May 21, 1999
Nicole A. Jacoby, May 21, 1999
John M. Kelly, May 21, 1999
David Lubin, May 21, 1999
Sean W. Mullaney, May 21, 1999
Michelle Palomera, May 21, 1999
Susan C. Perry, May 21, 1999
Runa Puri, May 21, 1999
James H. Rock, May 21, 1999
Martha L. Stephens, May 21, 1999
Francis J. Torbey, May 21, 1999
Gustavo J. Trujillo, May 21, 1999
Anita Ward, May 21, 1999
Edward C. Winslow, May 21, 1999
Stephen P. Wyman, May 21, 1999
Renaissance Worldwide, Inc., May 28, 1999
Allan L. Cohen, September 13, 1999
Fred Luconi, September 13, 1999
Thomas J. Waite, September 13, 1999
<PAGE>
EXHIBIT 10.52
FORM OF AGREEMENT TO BE BOUND BY REGISTRATION AGREEMENT
-------------------------------------------------------
The undersigned, [insert the name of each entity and individual who is
become a party to the Registration Agreement], hereby certify to, and agree with
ZC Acquisition Corp, a Delaware corporation ("ZC Corp"), as follows:
1. The undersigned have each read a copy of that certain Registration
Agreement, dated March 23, 1999 (the "Registration Agreement"), by and among ZC
Corp, CTCR Fund VI, L.P., a Delaware limited partnership, CTCR VI Executive
Fund, L.P., a Delaware limited partnership, GTCR Associates VI, a Delaware
general partnership, William Seibel and any other executive employees of ZC Corp
or other entities and individuals who, at any time, acquire securities of ZC
Corp in accordance with Section 8 of the Registration Agreement
2. The undersigned agree that their signatures below shall constitute an
executed counterpart signature page to the Registration Agreement and that they
shall succeed to all of the rights and obligations of an "Other Stockholder"
under the Registration Agreement as contemplated by Section 8 of the
Registration agreement.
Executed this ____ day of _______________, _____.
[Insert a signature line for each entity and individual who is becoming a party
to the Registration Agreement]
As required by Section 8 of the Registration Agreement referred to above,
the undersigned hereby consents to [insert the name of each entity and
individual who is becoming a party to the Registration Agreement] succeeding to
all of the rights and obligations of an "Other Stockholder" under such
Registration Agreement.
GTCR FUND VI, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, LLC
Its: General Partner
By: _________________________
Its: Principal
<PAGE>
The foregoing agreement was entered into between ZEFER Corp. and the
following stockholders as of the date set forth opposite each stockholders'
name:
1261417 Ontario Limited, April 30, 1999
Matthew P. Burkley, April 30, 1999
Ian R. Colliety, April 30, 1999
Stephen R. DiMarco, April 30, 1999
Deborah E. Frieze, April 30, 1999
Edmond C. Jay, April 30, 1999
Alexandre Scherer, April 30, 1999
Kaming Ng, April 30, 1999
Anthony K. Tjan, April 30, 1999
Gregory S. Hipwell, May 14, 1999
Jason J. Zada, May 14, 1999
Renaissance Worldwide, Inc., May 28, 1999
Allan L. Cohen, September 13, 1999
Fred Luconi, September 13, 1999
Thomas J. Waite, September 13, 1999
<PAGE>
EXHIBIT 10.53
FORM OF AMENDMENT TO RESTRICTED STOCK VESTING SCHEDULE
[ZEFER Corp. Letterhead]
March __, 2000
[Name of Party]
[Address of Party]
Re: Amendment to Senior Management Agreement
Dear [Name of Party]:
This letter agreement amends that certain [insert the type of agreement to
be amended] (the "Agreement") dated as of [date of the relevant agreement with
the Party] between you, ZEFER Corp. (the "Company"), GTCR Fund VI, L.P., GTCR
Executive Fund VI, L.P., and GTCR Associates Fund VI, L.P. (collectively, the
"GTCR Affiliates").
Section 2 of the Agreement is hereby amended as follows:
1. Amendment to Section 2(a). Section 2(a) of the agreement is hereby amended
--------------------------
and modified by replacing the second sentence thereof with the following"
"Except as otherwise provided in Sections 2(b), 2(c) and 2(d) below, the
Executive Stock will become vested in accordance with the following
schedule (the "Vesting Schedule"), if as of each such date Executive is
----------------
still employed by the Company or any of its Subsidiaries.
2. Amendment to Section 2(d). Section of the Agreement is hereby amended and
--------------------------
modified by adding the following subsection:
"(d) In the event that William A. Seibel is no longer serving as the
President or Chief Executive Officer of the Company, and (i) the Company
terminates the Executive's employment without Cause or (ii) the Executive
resigns from his/her position with the Company for Good Reason, then all
shares of Executive Stock which have not yet vested shall automatically
vest one business day prior to the time of such event and such shares shall
not be subject to the provisions of Section 3 hereof.
3. General. Except as specifically modified and amended hereby, the Agreement
--------
remains in full force and effect and is hereby ratified, confirmed and
approved in all respects. This Letter Agreement reflects the complete
agreement and
<PAGE>
understanding among the parties and supersede and preempt any prior
understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any
way. This Letter Agreement may be executed in separate counterparts, each
of which is deemed to be an original and all of which taken together
constitute one and the same agreement. The laws of Delaware shall govern
all issues concerning the relative rights of the Company and its
stockholders and all other questions concerning the construction, validity
and interpretation of this Letter Agreement, without giving effect to any
choice of law or other conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of
Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Senior Management
Agreement on the date first written above.
ZEFER CORP.
By:________________________________
Its:
___________________________________
Executive
Agreed and Accepted:
GTCR FUND VI, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: _________________________________
Name: _________________________________
Its: Principal
GTCR VI EXECUTIVE FUND, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
<PAGE>
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: __________________________________
Name: __________________________________
Its: Principal
GTCR ASSOCIATES VI
By: GTCR Partners VI, L.P.
Its: Managing General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: ____________________________
Name: ____________________________
Its: Principal
The foregoing Letter Agreement was entered into between ZEFER Corp. and
the following stockholders of ZEFER Corp. to modify the type of agreement, and
on a certain date set forth opposite such stockholders' name:
Amendments to Senior Management Agreements
Diedre Aubuchon, 3/13/2000
Allan Cohen, 3/13/2000
Gerard E. Dube, 3/13/2000
John Kelly, 3/13/2000
Sean W. Mullaney, 3/13/2000
William Seibel, 3/13/2000
James L. Slamp, 3/13/2000
Martha Stephens, 3/13/2000
Frank Torbey, 3/13/2000
Thomas Waite, 3/13/2000
Amendments to Employment Agreements
Anthony Tjan, 3/13/2000
<PAGE>
EXHIBIT 10.54
FIRST AMENDMENT TO SENIOR MANAGEMENT AGREEMENT
----------------------------------------------
THIS FIRST AMENDMENT TO SENIOR MANAGEMENT AGREEMENT (this "Amendment")
---------
is made of January 10, 2000, between ZEFER Corp., a Delaware corporation (the
"Company"), and William Seibel ("Executive"). Except as otherwise indicated
- -------- ---------
herein, capitalized terms used and not otherwise defined herein shall have the
meanings ascribed to such terms in the Purchase Agreement (as defined below).
WHEREAS, the parties to this Amendment are all of the parties to that
certain Senior Management Agreement, dated as of March 23, 1999, between the
Company and Executive (the "Senior Management Agreement");
---------------------------
WHEREAS, the parties hereto desire to make certain amendments to the
Purchase Agreement in accordance with Section 12(i) thereof; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. Amendments to Senior Management Agreement.
-----------------------------------------
1A. Section 2(a) of the Senior Management Agreement shall be amended
and restated in its entirety as follows:
(a) All of the shares of Executive Stock acquired hereunder
shall be subject to vesting in the manner specified in this Section 2.
Except as otherwise provided in Sections 2(b) and 2(c) below,
commencing on the day immediately following the Closing and continuing
so long as Executive is still employed by the Company or any of its
Subsidiaries, the Executive Stock will vest daily on a pro rata basis
so that 100% of the Executive Stock will be vested on the 5th
Anniversary of the Closing (the "Vesting Schedule").
----------------
1B. Section 2(b) of the Senior Management Agreement shall be amended
and restated in its entirety as follows:
(b) In the event the Company consummates its initial Public
Offering prior to the 1st Anniversary of the Closing, the Vesting
Schedule shall be modified such that, so long as Executive is still
employed by the Company or any of its Subsidiaries, the shares of
Executive Stock will vest as follows: (i) 33% of the Executive Stock
will vest upon the occurrence of such Public Offering, and (ii)
commencing on the day immediately following such Public Offering, the
remaining unvested shares of Executive Stock will vest daily on a pro
rata basis so that 100% of the Executive Stock will be vested on the
5th Anniversary of the Closing. In the event the Company consummates
its initial Public Offering after the 1st Anniversary of the Closing
but prior to the 2nd Anniversary of the Closing, the Vesting Schedule
shall be modified such that, so long as Executive is still employed by
the Company or any of its Subsidiaries, the shares of Executive Stock
that are unvested immediately prior to such initial Public Offering
will vest as follows: (i) an additional number of shares of Executive
Stock will vest upon the
<PAGE>
occurrence of such Public Offering so that 33% of the Executive Stock
will be vested immediately thereafter, (ii) commencing on the day
immediately following such Public Offering and continuing until the
2nd Anniversary of the Closing, an additional number of shares of
Executive Stock will vest daily on a pro rata basis so that 40% of the
Executive Stock will be vested on the 2nd Anniversary of the Closing,
and (iii) commencing on the day immediately following the 2nd
Anniversary of the Closing, the remaining unvested shares of Executive
Stock will vest daily on a pro rata basis so that100% of the Executive
Stock will be vested on the 5th Anniversary of the Closing.
Section 2. Retroactive Application of Amended and Restated Vesting
-------------------------------------------------------
Schedule. The amendment set forth in Section 1A above shall be applied
- --------
retroactively so as to cause the Executive Stock to be subject to the amended
and restated Vesting Schedule as of March 23, 1999.
Section 3. Limitations. Except as expressly amended by this Amendment, all
-----------
of the terms and provisions of the Senior Management Agreement shall remain in
full force and effect. This Amendment supersedes and preempts any prior
understandings, agreements or representations by or between the parties, written
or oral, which may have related to the subject matter hereof in any way.
* * * *
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment to Senior Management Agreement on the date first written above.
ZEFER Corp.
By: /s/ William Seibel
-------------------------------
Its: President
-----------------------------------
William Seibel
Agreed and Accepted:
GTCR FUND VI, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: /s/ Philip Canfield
---------------------------------
Name:
---------------------------------
Its: Principal
GTCR VI EXECUTIVE FUND, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: /s/ Philip Canfield
---------------------------------
Name:
---------------------------------
Its: Principal
GTCR ASSOCIATES VI
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: /s/ Philip Canfield
---------------------------------
Name:
---------------------------------
Its: Principal
SIGNATURE PAGE TO FIRST AMENDMENT
TO SENIOR MANAGEMENT AGREEMENT
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Company Jurisdiction
------------------------ --------------
1. Waite & Company, Inc. Massachusetts
2. Zefer Canada Inc. Ontario, Canada
3. Zefer Corp. Northeast Delaware
4. Zefer Corp. West LLC California
5. Zefer Ltd. United Kingdom
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 13, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Amendment No. 2 to the
Registration Statement of Zefer Corp on Form S-1 (File No. 333-94283) filed
with the SEC on March 14, 2000 of our report dated March 12, 1998 on
Neoglyphics Media Corporation as of December 31, 1997 and for the year then
ended.
Katch, Tyson & Company
Certified Public Accountants
March 13, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM S-1 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> MAR-18-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,271,105
<SECURITIES> 0
<RECEIVABLES> 10,685,065
<ALLOWANCES> 280,237
<INVENTORY> 0
<CURRENT-ASSETS> 1,497,668
<PP&E> 11,171,907
<DEPRECIATION> 2,581,358
<TOTAL-ASSETS> 50,935,971
<CURRENT-LIABILITIES> 36,550,447
<BONDS> 0
0
25,803,156
<COMMON> 39,854
<OTHER-SE> (25,063,808)
<TOTAL-LIABILITY-AND-EQUITY> 50,935,971
<SALES> 0
<TOTAL-REVENUES> 25,276,935
<CGS> 0
<TOTAL-COSTS> 59,357,124
<OTHER-EXPENSES> 44,383
<LOSS-PROVISION> 280,237
<INTEREST-EXPENSE> 2,297,432
<INCOME-PRETAX> (36,333,238)
<INCOME-TAX> 5,760,400
<INCOME-CONTINUING> (30,572,838)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,572,838)
<EPS-BASIC> (1.14)
<EPS-DILUTED> (1.14)
</TABLE>
