<PAGE>
As filed with the Securities and Exchange Commission on February 17, 2000
Registration No. 333-94283
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
AMENDMENT NO. 1
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. [_]
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CALCULATION OF REGISTRATION FEE
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Per Aggregate Offering Amount of
Securities to be Registered Registered(1) Unit Price(2) Registration Fee(3)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.001 per share...... 4,600,000 shares $13.00 $59,800,000 $15,788
- -------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Includes 600,000 shares that the underwriters have an option to purchase
from the registrant to cover overallotments, if any.
(2) Estimated pursuant to Rule 457(a) under the Securities Act of 1933 solely
for purposes of calculating the registration fee.
(3) $18,216 previously paid.
-------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 FEBRUARY 17, 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..................... 11
Dividend Policy..................... 12
Capitalization...................... 13
Dilution............................ 14
Selected Pro Forma Financial Data... 15
Management's Discussion and Analysis
of Pro Forma Results of
Operations......................... 16
Selected Financial Data............. 19
Management's Discussion and Analysis
of Historical Financial Condition
and Results of Operations.......... 20
Business............................ 25
<CAPTION>
Page
----
<S> <C>
Management......................... 35
Certain Transactions............... 44
Principal Stockholders............. 48
Description of Capital Stock....... 49
Shares Eligible for Future Sale.... 51
U.S. Federal Tax Considerations for
Non-United States Holders......... 53
Underwriting....................... 57
Notice to Canadian Residents....... 59
Legal Matters...................... 60
Experts............................ 60
Where You Can Find More
Information....................... 60
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. Unless
otherwise indicated, all information in this prospectus:
. assumes that the underwriters will not exercise their over-allotment
option;
. reflects a four-for-three stock split effective as of December 1, 1999;
. assumes the issuance during the first quarter of 2000 of an aggregate of
20,863 shares of class A preferred stock to existing holders of class A
preferred stock for $18,658,000 pursuant to a Securities Purchase
Agreement, dated March 23, 1999;
. reflects the exchange upon the closing of this offering of all
outstanding shares of class A preferred stock, including related accrued
and unpaid dividends, for 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.
[LOGO OF ZEFER]
ZEFER Corp. was founded for the purpose of providing consulting, software
application development and strategy implementation services to dot-com and
traditional companies to enable them to effectively use the Internet in their
businesses. A key aspect of our service offering is that we involve business
strategy consultants throughout our engagements in order to continually improve
the client solution in light of evolving markets and technologies. We refer to
this as a "strategy-led" approach.
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 solutions that can be adapted over time to our
clients' evolving needs.
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.
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, and many of them are experts in their fields.
1
<PAGE>
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, 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.
The Offering
<TABLE>
<C> <S>
Common stock offered by ZEFER....................... 4,000,000 shares
Common stock to be outstanding after this offering.. 47,995,767 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.
Investing in our common stock involves risk. In particular, we have a
history of operating losses, incurred an operating loss of $34.0 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
principal stockholder and our executive officers and directors will
beneficially own an aggregate of approximately 79.4% of our capital stock. 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."
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) (47,511) (6,983) (9,395) (10,125) (21,008)
Net loss................ (20,878) (45,364) (7,721) (8,720) (6,818) (22,106)
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) (34,003)
Net income (loss)....... 1,295 (4,194) (5,043) (555) (2,280) (30,496)
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 Financial Data," "Management's Discussion and Analysis of Historical
Financial Condition and Results of Operations" and the financial statements and
related notes included elsewhere in this prospectus. The as adjusted balance
sheet data give effect to (1) receipt of the estimated net proceeds 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, (2) 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 Golder Rauner, L.L.C., or GTCR, (3) the exchange upon
the closing of this offering of all outstanding shares of class A preferred
stock, including related accrued and unpaid dividends, for shares of common
stock at an exchange rate based on an assumed initial public offering price of
$12.00 per share and (4) 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.
<TABLE>
<CAPTION>
December 31, 1999
------------------
As
Actual Adjusted
-------- --------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................................... $ 1,271 $43,353
Working capital (deficit).................................... (23,377) 18,705
Total assets................................................. 50,936 93,018
Lines of credit.............................................. 19,566 150
Other debt, including current portion........................ 2,980 980
Subordinated debt payable to GTCR............................ 11,119 11,119
Redeemable preferred stock................................... 25,803 --
Total stockholders' equity (deficit)......................... (25,024) 64,277
</TABLE>
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 $30.5 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 revenues
increased from $2.6 million for the three months ended June 30, 1999 to $13.3
million for the three months ended December 31, 1999, and 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. We may
undertake additional acquisitions of Internet professional service firms or
other complementary businesses in the future which 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>
Our quarterly revenues and operating results are likely to vary, which may
cause the market price of our common stock to decline
We expect our quarterly revenues and operating results to be volatile and
difficult to predict. They are likely to vary significantly from quarter to
quarter. Factors that may cause our results to fluctuate include:
. the amount and timing of demand by our clients for Internet professional
services;
. cancellations or reductions in the scope of major projects; and
. the length of the sales cycle associated with our service offerings.
Because a high percentage of our expenses, such as employee and facilities
costs, is fixed, any of the factors listed above could cause significant
variations in our operating results in any given quarter. Any decline in
revenues or earnings or a greater than expected loss for any quarter could
reduce the market price of our common stock, even if not reflective of any
long-term problems with our business.
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 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 remain highly leveraged 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;
. take advantage of acquisition or expansion opportunities; or
. develop new services.
If we cannot obtain financing on terms acceptable to us or at all, we may be
forced to curtail some or all of these activities, which could impair our
growth. 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 principal
stockholder will still be able to control all matters submitted to stockholders
for approval
When this offering is completed, our executive officers, directors and
principal stockholder will, in the aggregate, beneficially own shares
representing approximately 79.4% 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.
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 $11.12 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
46.4% of the aggregate price paid by all purchasers of our stock but will own
only approximately 8.3% of our common stock outstanding after this offering.
See "Dilution."
9
<PAGE>
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 43,995,767 shares
outstanding at the time of this offering:
. 4,571,761 shares may be sold 90 days after the effective date of this
offering; and
. 33,832,246 additional shares may be sold upon the expiration of 180-day
lock-up agreements.
Existing stockholders holding an aggregate of approximately 40,000,000
shares of common stock have the right to require us to register their 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.
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.
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.
10
<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, which indebtedness was incurred
on July 16, 1999 to fund operating losses, bears interest at the prime lending
rate, 8.5% as of January 31, 2000, is guaranteed by GTCR and is due on demand.
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 businesses, products and technologies and
minority investments in some of our clients. From time to time we engage in
discussions with potential acquisition candidates. 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 that the net proceeds from this offering exceed $42.8 million,
we will use additional proceeds for the following purposes:
. first, to repay outstanding subordinated indebtedness owed to an
affiliate of GTCR. We incurred $12.8 million of such indebtedness in
November 1999 to fund operating losses and repurchase shares of stock
held by GTCR and expect to incur an additional $9.1 million of
indebtedness to fund operations during the first quarter of 2000. The
aggregate indebtedness bears interest at a rate of 12.0% per annum and
currently matures upon the closing of this offering. We are negotiating
with GTCR to extend the maturity date of the loan; and
. second, to redeem on a pro rata basis shares of our common stock issued
to holders of class A preferred stock 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 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.
11
<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 Historical
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and note 7 of the ZEFER Corp. financial statements.
12
<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 20,863
shares of class A preferred stock to existing holders of class A
preferred stock for $18,658,000 pursuant to a Securities Purchase
Agreement, dated March 23, 1999;
. the exchange upon the closing of this offering of all outstanding shares
of class A preferred stock, including related accrued and unpaid
dividends, for 3,933,166 shares of common stock at an exchange rate
based on an assumed initial public offering price of $12.00 per share;
. 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 the estimated net proceeds 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.
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 Historical 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 $19,929 $43,353
======== ======= =======
Lines of credit................................ $ 19,566 $19,566 $ 150
Other debt, including current portion.......... 2,980 980 980
Subordinated debt payable to GTCR.............. 11,119 11,119 11,119
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; 43,995,767 shares
outstanding, pro forma; 47,995,767 shares
outstanding, pro forma as adjusted.......... 40 44 48
Additional paid-in-capital................... 7,144 56,338 99,174
Subscriptions receivable..................... (1,138) (1,138) (1,138)
Deferred compensation........................ (574) (574) (574)
Accumulated deficit.......................... (30,496) (33,233) (33,233)
-------- ------- -------
Total stockholders' equity (deficit)....... (25,024) 21,437 64,277
-------- ------- -------
Total capitalization..................... $ 34,444 $53,102 $76,526
======== ======= =======
</TABLE>
13
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of December 31,
1999 was approximately $(0.5) million, or $(0.01) 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 exchange of
all outstanding shares of class A preferred stock, including related accrued
and unpaid dividends, for 3,933,166 shares of common stock at an exchange rate
based on an assumed initial public offering price of $12.00 per share and (b)
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
$42.3 million, or $0.88 per share. This represents an immediate increase in pro
forma net tangible book value of $0.89 per share to existing stockholders and
an immediate dilution in pro forma net tangible book value of $11.12 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......................................................... $(0.01)
Increase in pro forma net tangible book value per share
attributable to new investors................................ 0.89
------
Pro forma net tangible book value per share after this
offering....................................................... 0.88
------
Dilution per share to new investors............................. $11.12
======
</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 4,141,499 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........... 43,995,767 91.7% $ 55,512,543 53.6% $ 1.26
New investors................... 4,000,000 8.3 48,000,000 46.4 12.00
---------- ----- ------------ -----
Total......................... 47,995,767 100.0% $103,512,543 100.0%
========== ===== ============ =====
</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.
14
<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 Pro Forma 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 have been prepared on
the same basis as the pro forma combined condensed financial statements for the
years ended December 31, 1998 and 1999 included elsewhere in this prospectus.
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 6,066 10,331 3,933 23,662
Depreciation and
amortization......... 3,869 3,969 4,781 5,257 15,160 17,876
------- -------- -------- -------- -------- --------
Total operating
expenses........... 10,940 15,007 20,337 34,311 36,253 80,595
------- -------- -------- -------- -------- --------
Loss from operations.... (6,983) (9,395) (10,125) (21,008) (18,269) (47,511)
Interest and other
expense, net........... (738) (1,089) (689) (1,097) (2,609) (3,613)
------- -------- -------- -------- -------- --------
Loss before taxes....... (7,721) (10,484) (10,814) (22,105) (20,878) (51,124)
Benefit from income
taxes.................. -- 1,764 3,996 -- -- 5,760
------- -------- -------- -------- -------- --------
Net loss................ $(7,721) $ (8,720) $ (6,818) $(22,105) $(20,878) $(45,364)
======= ======== ======== ======== ======== ========
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 77.6 21.9 71.5
Depreciation and
amortization........... 97.8 70.7 46.8 39.5 84.3 54.0
------- -------- -------- -------- -------- --------
Total operating
expenses........... 276.5 % 267.4 % 199.1 % 257.9 % 201.6% 243.5 %
======= ======== ======== ======== ======== ========
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF PRO FORMA RESULTS OF OPERATIONS
The following discussion and analysis of our pro forma results of operations
should be read in conjunction with "Selected Pro Forma 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. For an overview of our historical financial condition and
results of operations, as well as a discussion of our liquidity and capital
resources, recent accounting pronouncements, market risk disclosure and year
2000 impact, please see "Management's Discussion and Analysis of Historical
Financial Condition and Results of Operations." All of the operating results
discussed below are presented on a pro forma basis.
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.
A substantial majority of our pro forma revenues for 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.
16
<PAGE>
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.
17
<PAGE>
Pro Forma Results of Operations
Twelve Months Ended December 31, 1999 Compared to Twelve Months Ended December
31, 1998
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 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.
18
<PAGE>
SELECTED 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 Historical 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 18,464
Depreciation and
amortization.......... 197 340 190 55 56 10,649
------ ------- ------- ------ ------- --------
Total operating
expenses............. 6,885 17,561 8,604 1,182 2,753 59,280
Net income (loss)....... 1,295 (4,194) (5,043) (555) (2,280) (30,496)
Interest income......... 4 -- -- 12 7 44
Interest and other
expense................ (38) (432) (325) (5) (26) (2,297)
Income (loss) from
operations............. 2,654 (3,763) (4,718) (561) (2,262) (34,003)
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>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF HISTORICAL 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 Financial
Data," "Management's Discussion and Analysis of Pro Forma Results of
Operations--Overview" 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.
Historical Results of Operations
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
Period from Our Inception (March 18, 1999) to December 31, 1999 Compared to
Period from Original ZEFER's Inception (March 19, 1998) to December 31, 1998
Revenues. Revenues for the period from our inception to December 31, 1999
increased by $24.7 million to $25.3 million from $0.6 million for the period
from Original ZEFER's inception to December 31, 1998. The increase in 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 our engagements, during 1999.
Operating Expenses. Costs of services increased by $15.3 million to $15.7
million from $0.5 million primarily due to the increase in the number 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 to $5.5 million from zero primarily due to an
increase in our recruiting efforts, including expansion of our human resources
department, an increase in our use of external recruiters and the assimilation
and training of more employees. We initiated our research and innovation
activities during 1999, incurring research and innovation expenses of $1.8
million in 1999. 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 1999 increased by $6.9
million to $7.0 million from $0.1 million as we began to build our sales and
marketing organization during 1999 in order to support rapid growth. General
and administrative expenses for the period increased by $28.6 million to $29.1
million from $0.5 million. This increase was primarily due to increased
amortization of goodwill and other intangibles of approximately $8.1 million
during 1999 related to acquisitions and increased depreciation and
amortization of approximately $2.5 million resulting from increased purchases
of computer equipment, software and furniture and fixtures required to support
the increase in headcount. Additional increases in general and administrative
expenses reflected our investment in the infrastructure required to rapidly
scale our business.
Interest and Other Expense. Interest and other expense increased by $2.3
million from zero primarily due to the 1999 interest expense of approximately
$1.0 million on our class A preferred stock. Additional increases in interest
expense are due to increased indebtedness when the company took on the
additional line of credit and Subordinated Debt payable to GTCR during the
fourth quarter of 1999. The benefit from taxes increased by $5.8 million from
zero primarily due to the application of net operating loss carryforwards
against deferred tax liabilities recorded in connection with acquisitions.
Four Months Ended April 30, 1999 Compared to Period from Inception (March 19,
1998) to April 30, 1998
The four month period ended April 30, 1999 and the forty-day period from
the Original ZEFER's inception to April 30, 1998 are not comparable periods.
The amounts described below for the forty-day period ended April 30, 1998
would have been higher if a comparable four month period were used.
20
<PAGE>
Original ZEFER was organized on March 19, 1998 and did not commence
generating revenues until June 1998. Accordingly, revenues for the four months
ended April 30, 1999 increased to $0.5 million from zero for the period from
inception to April 30, 1998.
Original ZEFER did not begin incurring operating expenses until April 1998.
Accordingly, cost of services for the four months ended April 30, 1999
increased to $0.6 million from zero for the period from inception to April 30,
1998. Sales and marketing expenses for the four months ended April 30, 1999
increased to $0.1 million from zero for the period from inception to April 30,
1998. General and administrative expenses increased by $2.0 million to $2.0
million for the four month period ended April 30, 1999 from $38,000 for the
period from inception to April 30, 1998.
Interest and other expense increased to $19,000 from zero due to the fact
that the Company took on capital lease commitments during the second half of
1998.
Divisions of Renaissance
Period from Our Inception (March 18, 1999) to December 31, 1999 Compared to
the Twelve Months Ended December 31, 1998
The period from our inception to December 31, 1999 and the twelve-month
period ended December 31, 1998 are not comparable periods. The amounts
described below for the period from our inception to December 31, 1999 would
have been higher if a comparable twelve-month period had been used.
Revenues. Revenues for the period from inception to December 31, 1999
increased by $11.5 million to $25.3 million from $13.8 million. The increase in
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.
Operating Expenses. Costs of services increased by $5.6 million to $15.7
million from $10.1 million primarily due to the increase in the number 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 $5.4 million to $5.5 million from $0.1 million primarily due
to an increase in our recruiting efforts, including expansion of our human
resources department, an increase in our use of external recruiters and the
assimilation and training of more employees. We initiated our research and
innovation activities during 1999, incurring research and innovation expenses
of $1.8 million. 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 increased by $2.9
million to $7.0 million from $4.1 million as we replaced the sales and
marketing organization which supported the divisions of Renaissance but which
was not acquired in the acquisition. General and administrative expenses for
the period increased by $25.9 million to $29.1 million from $3.2 million. This
increase was primarily due to increased amortization of goodwill and other
intangibles of approximately $8.1 million during 1999 related to acquisitions
and increased depreciation and amortization of approximately $2.5 million
resulting from increased purchases of computer equipment, software and
furniture and fixtures required to support the increase in headcount.
Additional increases in general and administrative expenses reflected our
investment in the infrastructure required to rapidly scale our business.
Interest and Other Expense. Interest and other expense increased by $1.9
million to $2.3 million from $0.4 million primarily due to the interest expense
of approximately $1.0 million on our class A preferred stock. Additional
increases in interest expense are due to increased indebtedness when the
Company took on the additional line of credit and the Subordinated Debt payable
to GTCR during the fourth quarter of 1999. The benefit from taxes increased by
$5.8 million from zero primarily due to the application of net operating loss
carryforwards against deferred tax liabilities recorded in connection with
acquisitions.
21
<PAGE>
Five Months Ended May 28, 1999 Compared to Five Months Ended May 28, 1998
Revenues. Revenues for the five months ended May 28, 1999 decreased by $0.6
million to $3.9 million from $4.5 million for the five months ended May 28,
1998. This decrease was primarily due to a decrease in the number of
engagements delivered by the web application division, partially offset by the
additional revenues generated by the creation of the customer relationship
management (CRM) division.
Operating Expenses. Cost of services increased by $0.9 million to $4.8
million for the five-month period ended May 28, 1999 from $3.9 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. Hiring
and training costs increased by $0.1 million to $0.2 million for the five-month
period ended May 28, 1999 from $0.1 million for the five-month period ended May
28, 1998 primarily due to increased hiring and training of billable CRM
professionals. Sales and marketing decreased by $0.1 million to $1.0 million
for the five-month period ended May 28, 1999 from $1.1 million for the five-
month period ended May 28, 1998. This decrease was primarily due to the
decrease in commissions due to a decrease in revenues earned by the web
application division, partially offset by increased commissions due to an
increase in revenues in the CRM division. 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 five-month period ended May 28, 1999 from
$33,000 for the five-month period ended May 28, 1998. This increase was
primarily due to the fact that the divisions of Renaissance took additional
indebtedness during the second half of 1998.
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. 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. Our billings for the quarter ended December 31, 1999
totaled $13.6 million. These amounts include billings to clients for out-of-
pocket expenses that are reimbursed by clients which are not included in
recognized revenues. Our gross accounts receivable balance of $10.7 million at
December 31, 1999 represents 72 days of billings for the quarter.
22
<PAGE>
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 revolving line of credit for $0.2
million with Silicon Valley Bank East. Borrowings under this line of credit
bear interest at the prime lending rate plus 0.5% and are collateralized by all
assets, as defined. The agreement establishing this line of credit requires
that we comply with restrictive covenants, including minimum levels of working
capital and tangible net worth. As of December 31, 1999, we were not in
compliance with either of our financial covenants and were in receipt of a
waiver from the bank. On February 16, 2000, we repaid in full the outstanding
balance under this line of credit. We also have a capital equipment line with
TLP Leasing, Inc. pursuant to which we have financed computer equipment and
office furniture. Borrowings under this capital equipment line bear interest at
11.0% per annum. 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.
On November 24, 1999, we entered into a loan agreement with GTCR Capital
Partners, LP, 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. We currently intend to borrow $9.1 million during the first
quarter of 2000. 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 earliest of November 24, 2004, changes in
control specified in the related loan agreement or the completion of our
initial public offering. We currently anticipate amending our loan agreement to
extend the maturity date beyond the completion date of our initial public
offering. 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.
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 $30.5 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.
23
<PAGE>
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. Our ability 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. However, we may require significant additional funds for
possible future acquisitions of businesses, products or technologies
complementary to our business. 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.
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, 8.5% at
December 31, 1999.
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.
24
<PAGE>
BUSINESS
Overview
We provide strategy-led Internet consulting, 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 that 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 leverage 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 applications
and point solutions 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
25
<PAGE>
the same period. We believe the difference between the projected 220% increase
in Internet users and the projected 2,500% increase in e-commerce revenues
reflects the "network effect." According to the network effect, as the Internet
matures and users proliferate, there is the potential for an exponential
increase in e-commerce revenue.
The network effect 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 user experience 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 and point solutions instead of strategy-based
scalable and adaptable business solutions. 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
reevaluate an initial solution.
In addition, we believe 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 or
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. Many traditional IT service
providers also 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.
26
<PAGE>
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, and many of them are
experts in their fields. 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 spent nothing on
research and innovation 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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. 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 stakeholders. 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, 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 functional workflows for the
Internet solution and creating application-level structural and technical
design. 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, soft launches and beta testing. 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, structural design 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, configuration management, change management 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, a
scalable information architecture and open technology requirements.
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, which allows for enhanced functionality without any additional
applications, 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 back-end systems to provide a scalable
platform for future initiatives. The web site functionality permits a faster
flow of information to users by incorporating a mechanism for analyzing data in
a secure fashion. This model 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 premier 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 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 are
representative of the range of strategy-led Internet professional services that
we provide:
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<TABLE>
<S> <C>
Accompany Houston Cellular
Barclays IONA Technologies
Eaton Vance Corp. MoveCentral
ebDirect Neopost Online
enTotal.com Publicaciones Semana
Federated Investors Sachs
foodline.com SimplyHealth.com
Frictionless The Children's Place
Commerce Winebid.com
Gillette Zuellig Pharma
Gordon Brothers
Group
Greenlight.com
</TABLE>
Knowledge Management
Our knowledge management system, which we call ZEFER 360(degrees), is a
comprehensive, integrated infrastructure 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.
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.
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 venture capital fund,
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.
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.
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.
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.
Timothy P. McAdam has been on our board of directors since April 1999. He
has been a vice president at GTCR Goldner Rauner, L.L.C. 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.
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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.
Bruce V. Rauner has served as a member of our board of directors since
February 2000. Mr. Rauner is a managing principal of GTCR Golder Rauner, L.L.C.
and has been a principal of GTCR since 1981. Mr. Rauner is also a director of
AnswerThink Consulting Group, Inc., AppNet, Inc., Lason, Inc., Coinmach Laundry
Corporation, Polymer Group, Inc., Province Healthcare, Inc., Esquire
Communications, Metamor Worldwide, U.S. Aggregates and several private
companies in GTCR's portfolio.
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 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, two representatives of
GTCR and three independent persons chosen jointly by GTCR and the 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. Such options, which have a weighted average
exercise price of $11.00 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.
Board Committees
Our board of directors has an audit committee and a compensation committee.
The audit committee consists of Messrs. Jabbar, McAdam 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.
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<PAGE>
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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<PAGE>
. 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;
39
<PAGE>
. 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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<PAGE>
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 20%
per year, with the first vesting date occurring on March 23, 2000, so as to
vest in full on March 23, 2004. Upon consummation of this offering, this stock
will continue to vest at the same rate, but on a quarterly basis. 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.
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<PAGE>
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;
. establish March 31, 2000 as the first vesting date, so that the
restricted stock will be fully vested on March 31, 2004; 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 Transactions--Original
ZEFER."
42
<PAGE>
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 Transactions
- --Waite & Company, Inc."
Please refer to "Certain 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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<PAGE>
CERTAIN TRANSACTIONS
GTCR Golder Rauner, L.L.C.
Prior to this offering, funds controlled by GTCR Golder Rauner, L.L.C., or
the "GTCR Funds," beneficially own 66.8% of our common stock and 97.5% of our
class A preferred stock. All of the class A preferred stock held by the GTCR
Funds will be exchanged into common stock or redeemed in connection with this
offering. After this offering, the GTCR Funds will beneficially own 63.5% of
our common stock. Two of our directors, Messrs. Canfield and Rauner, are
principals of GTCR, and Mr. McAdam is a Vice President of GTCR.
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, as of December 31, 1999, the GTCR Funds
had purchased an aggregate of 26,640,000 shares of our common stock for a
purchase price of $3.3 million and an aggregate of 24,195 shares of our class A
preferred stock for a purchase price of $24.2 million. 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 of GTCR's
class A preferred stock, 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 "Redemption of Class A Preferred Stock" below.
Loan Agreement. On November 24, 1999, we entered into a loan agreement with
GTCR Capital Partners, LP, 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. It is currently anticipated that we
will incur an additional $9.1 million of indebtedness during the first quarter
of 2000. Borrowings under this loan will remain outstanding after the
consummation of this offering, but we will not be making additional borrowings
under this loan 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, with our first
payment having been made for the quarter ended December 31, 1999. As of March
1, 2000, approximately $296,000 in unpaid interest will have accrued under the
loan. In the event that the net proceeds of this offering exceed $42.8 million,
we will apply the first such additional net proceeds to repay the outstanding
subordinated indebtedness under this loan agreement. 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 an aggregate price of
$206,300 and 1,499 shares of class A preferred stock for an aggregate price of
$1,499,000. We also issued GTCR Capital Partners, LP, 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, LP exercised both warrants in full in November 1999 for
an aggregate purchase price of $16,500. Additionally, we agreed to issue GTCR
Capital Partners, LP warrants to purchase up to an additional 4,720 shares of
class A preferred stock as we make additional borrowings under the loan
agreement.
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 Historical 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 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.
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Additional Equity Purchases by Management
We have entered into agreements with some of our executives whereby the
executives 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
Name Security Shares Price
---- -------- ------ ------------------
<S> <C> <C> <C>
William A. Seibel*................... Common 95,824 $11,978
A Preferred 153 153,000
Gerard E. Dube....................... Common 82,256 23,443
A Preferred 131 131,000
Sean W. Mullaney**................... Common 54,837 6,855
A Preferred 87 87,000
James H. Slamp....................... Common 27,418 7,814
A Preferred 44 44,000
Martha L. Stephens................... Common 27,418 3,427
A Preferred 44 44,000
Francis J. Torbey.................... Common 27,418 3,427
A Preferred 44 44,000
Thomas J. Waite...................... Common 38,160 10,876
A Preferred 61 61,000
David A. Lubin....................... Common 47,771 5,971
A Preferred 76 76,000
Richard L. Nolan..................... Common 27,418 3,427
A Preferred 44 44,000
</TABLE>
- --------
* Carol Boudreau, Mr. Seibel's wife, is the purchaser of record of these
shares. Mr. Seibel beneficially owns a total of 3,135,817 shares of our
common stock, or 7.1%, 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 a total of $1,000,000 in cash.
Mr. Lubin purchased 400,000 shares of common stock from us in May 1999 for
which he paid a total 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.
Redemption 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
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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 47,198 shares of class A preferred stock would be exchanged for an
aggregate of 3,933,166 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 $1,520,988 as of
December 31, 1999. In the event that the net proceeds to us of this offering
exceed $42.8 million and after we have repaid in full the outstanding
indebtedness under the GTCR loan, 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.
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 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
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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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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of December 31, 1999 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 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)........... 26,640,000 66.8% 63.5%
William A. Seibel (2)..... 3,135,817 7.9 6.6
Gerard E. Dube............ 882,256 2.2 1.9
Sean W. Mullaney.......... 474,837 1.2 1.0
James H. Slamp............ 427,418 1.1 *
Martha L. Stephens........ 447,418 1.1 *
Anthony K. Tjan........... 844,800 2.1 1.8
Francis J. Torbey......... 467,418 1.2 1.0
Thomas J. Waite........... 301,360 * *
Philip A. Canfield (1)
(3)...................... 26,640,000 66.8 63.5
Masood Jabbar............. 100,000 * *
Catherine Viscardi
Johnston................. -- -- --
David A. Lubin ........... 447,771 1.1 1.0
Timothy P. McAdam (1)
(3)...................... 26,640,000 66.8 63.5
Richard L. Nolan ......... 27,418 * *
Bruce V. Rauner (1) (3)... 26,640,000 66.8 63.5
All executive officers and
directors as a group
(15 persons) (3)......... 34,196,513 85.8% 79.4%
</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 95,817 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 26,640,000 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
47,995,767 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
49
<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 .
50
<PAGE>
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 47,995,767 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 43,995,767 shares of common stock outstanding after this
offering are deemed "restricted securities" under Rule 144. Of these
securities,
. 4,571,761 shares may be sold 90 days after the effective date of this
offering; and
. 33,832,246 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
4,571,761 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, but subject to the 180-day lock-up agreement described
above, Rule 701 securities may be sold by stockholders other than our
affiliates subject only to the manner of sale provisions of Rule 144 and by
affiliates under 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 approximately 40,000,000 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
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<PAGE>
at any 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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<PAGE>
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.
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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.
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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
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<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.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, 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>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the common stock being offered.
57
<PAGE>
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 any existing 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 shares of common stock for our employees, directors and other
persons associated with us who have expressed an interest in purchasing common
stock in the offering. 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.
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.
58
<PAGE>
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.
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.
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.
59
<PAGE>
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 condensed financial statements for the year ended
December 31, 1998 included in this prospectus has been examined and 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 reports with respect
thereto, and are included herein reliance upon the authority of said firm as
experts in giving such reports.
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.
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.
60
<PAGE>
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.
61
<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.:
Reports of Independent Public Accountants................................ F-57
Review Report of Independent Public Accounts............................. F-58
Overview................................................................. F-59
Pro Forma Combined Condensed Statement of Operations for the Year Ended
December 31, 1998....................................................... F-61
Notes to Pro Forma Combined Condensed Financial Statements............... F-62
Pro Forma Combined Condensed Statement of Operations for the Year Ended
December 31, 1999....................................................... F-64
Notes to Pro Forma Combined Condensed Financial Statements............... F-65
</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
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>
ASSETS
Current Assets:
Cash and cash equivalents.............. $ 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 as-
sets.................................. 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 obli-
gations............................... 83,582 139,792 260,536
---------- ---------- -----------
Total current liabilities............ 281,409 1,714,664 36,550,447
Notes Payable, net of current portion... -- -- 2,050,000
Capital Lease Obligations, net of cur-
rent portion........................... 153,551 148,785 436,937
Subordinated Debt Payable to Majority
Stockholder (Note 9)................... -- -- 11,119,385
Commitments and Contingencies (Note 10)
Redeemable Preferred Stock (Note 11).... -- -- 25,803,156
Redeemable Convertible Preferred Stock
(Note 13).............................. 1,200,000 1,200,000 --
Stockholders' Deficit:
Common stock (Notes 11 and 13)......... 474 571 39,854
Additional paid-in capital............. -- 1,122,659 7,144,281
Subscriptions receivable............... -- -- (1,137,942)
Deferred compensation.................. -- -- (574,055)
Accumulated deficit.................... (608,996) (3,050,829) (30,496,092)
---------- ---------- -----------
Total stockholders' deficit.......... (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 18,464,123
Depreciation and amortization..... 54,706 55,839 10,649,558
--------- ----------- ------------
Total operating expenses........ 1,182,353 2,752,966 59,280,378
--------- ----------- ------------
Loss from operations............ (561,620) (2,261,825) (34,003,443)
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) (36,256,492)
Benefit from Income Taxes.......... -- -- 5,760,400
--------- ----------- ------------
Net loss........................ $(555,176) $(2,280,477) $(30,496,092)
========= =========== ============
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.................... $ (.99)
============
Pro Forma Basic and Diluted
Weighted Average Shares
Outstanding....................... 30,726,436
============
</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 2,344,737 (1,675,524) (148,500) -- 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.. -- -- -- -- 469,580 -- (469,580) -- --
Amortization of
deferred
compensation... -- -- -- -- -- -- 44,025 -- 44,025
Net loss........ -- -- -- -- -- -- -- (30,496,092) (30,496,092)
------ ----------- ---------- ------- ---------- ----------- --------- ------------ ------------
Balance at
December 31,
1999 (the
Company)....... 24,814 $25,803,156 39,854,268 $39,854 $7,144,281 $(1,137,942) $(574,055) $(30,496,092) $(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) $(30,496,092)
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 44,025
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 automatic exchange of all
shares of Class A redeemable convertible preferred stock into common stock
concurrent with the closing of the Company's IPO. 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 redeemable convertible preferred stock into common stock using the
as-converted method 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................................................. $(30,496,092)
<S> <C>
Class A preferred stock dividends........................ 989,156
------------
Pro forma net loss....................................... $(29,506,936)
============
Weighted average shares outstanding...................... 26,793,270
Exchange of Class A preferred stock...................... 3,933,166
------------
Pro forma weighed average shares outstanding............. 30,726,436
============
</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.................... $ -- $ -- $ 618,080
======== ========== ============
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.................................................... (45,364,150)
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.
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
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.
F-19
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
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 1,266,667 shares at a price below the then
current fair market value, resulting in deferred compensation of $148,500 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 a price below the then-current fair market value, resulting in deferred
compensation of $546,000 that will be charged to operations over the vesting
term of the underlying options.
F-20
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
(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 grant date fair value 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. 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>
F-21
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
(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) $(30,496,092)
========= =========== ============
Pro forma........................ $(555,631) $(2,280,931) $(30,755,007)
========= =========== ============
Basic and diluted net loss per
share--
As reported...................... $ (1.14)
============
Pro forma........................ $ (1.15)
============
</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 granted in the
periods indicated above was $2,272, $0 and $4,683,548, 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.
(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,
F-22
<PAGE>
ZEFER CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 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>
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.
F-35
<PAGE>
DIVISIONS OF RENAISSANCE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(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.
(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.
F-36
<PAGE>
DIVISIONS OF RENAISSANCE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(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 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.
F-37
<PAGE>
DIVISIONS OF RENAISSANCE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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.
(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>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ZEFER Corp.:
We have examined 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, 1998. The historical condensed financial statements for the year
ended December 31, 1998 have been derived from the historical financial
statements of ZEFER Corp. (a predecessor entity incorporated in March 1998 and
hereinafter referred to as Original ZEFER), the Divisions of Renaissance,
Spyplane, LLC and Waite & Co., all of which were audited by us. Such financial
statements and our reports thereon appear elsewhere in this registration
statement. These pro forma adjustments are based upon management's assumptions
described in the notes to pro forma combined condensed financial statements.
Our examination was made 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.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above mentioned
transactions described in the pro forma combined condensed financial
statements, the related pro forma adjustments give appropriate effect to those
assumptions, and the pro forma column reflects the proper application of those
adjustments to the historical financial statement amounts in the pro forma
combined condensed statements of operations for the year ended December 31,
1998.
/s/ Arthur Andersen LLP
Boston, Massachusetts
November 30, 1999
F-57
<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-58
<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-59
<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, 1998
combines the historical statements of operations of (i) Original ZEFER for the
period from inception (March 19, 1998) to December 31, 1998, (ii) Spyplane for
the period from inception (May 7, 1998) to December 31, 1998 and (iii) the
Divisions of Renaissance and Waite for the year ended December 31, 1998. 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, 1998 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-60
<PAGE>
ZEFER CORP.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Pro Forma
Original Divisions of Pro Forma Combined
ZEFER Renaissance Spyplane Waite Adjustsments Company
--------- ------------ -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES................ $ 620,733 $13,798,329 $314,675 $3,250,500 $ -- $ 17,984,237
OPERATING EXPENSES:
Cost of services...... 469,147 10,055,996 66,006 1,686,759 262,499(/5/) 12,540,407
Hiring and training... 7,441 195,676 -- 13,605 -- 216,722
Research and
innovation........... -- -- -- -- -- --
Sales and marketing... 140,310 4,125,725 8,437 128,155 -- 4,402,627
General and
administrative....... 510,749 2,843,090 28,657 417,291 133,432(/5/) 3,933,219
Depreciation and
amortization......... 54,706 340,553 4,868 31,783 14,728,264(/1/) 15,160,174
--------- ----------- -------- ---------- ------------ ------------
Total operating
expenses........... 1,182,353 17,561,040 107,968 2,277,593 (15,124,195) 36,253,149
--------- ----------- -------- ---------- ------------ ------------
Income (loss) from
operations......... (561,620) (3,762,711) 206,707 972,907 (15,124,195) (18,268,912)
INTEREST AND OTHER IN-
COME (EXPENSE), NET.... 6,444 (431,534) (76) 20,723 (2,204,720)(/2/)(/3/) (2,609,163)
--------- ----------- -------- ---------- ------------ ------------
Net income (loss)... $(555,176) $(4,194,245) $206,631 $ 993,630 $(17,328,915) $(20,878,075)
========= =========== ======== ========== ============ ============
PRO FORMA NET LOSS PER
SHARE:
Net loss per common
and common equivalent
share................ $ (0.70)
============
Shares used to compute
pro forma net loss
per share (Note 4)... 29,675,200
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
ZEFER CORP.
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
The accompanying pro forma combined condensed statement of operations has
been prepared by combining the historical results of Original ZEFER, Spyplane,
the Divisions of Renaissance and Waite for the year ended December 31, 1998 and
reflects the following pro forma adjustments:
(1) Record annual amortization of goodwill and other identified intangible
assets of $5,321,049 related to the acquisition of Original ZEFER, $1,109,604
related to the acquisition of Spyplane, $3,079,176 related to the acquisition
of the Divisions of Renaissance and $5,218,435 related to the acquisition of
Waite.
(2) Record interest expense of $78,400 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
$148,000 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 $642,720
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 interest expense of $349,600 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 $86,000 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 $900,000 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 shares outstanding for the year ended
December 31, 1998 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, 1998, as follows:
<TABLE>
<S> <C>
Historical weighted average shares outstanding.................... --
Incremental weighted average shares outstanding:
Funding provided by GTCR......................................... 26,640,000
Original ZEFER................................................... 2,611,200
Spyplane......................................................... --
Divisions of Renaissance......................................... 400,000
Waite............................................................ 24,000
----------
Pro forma weighted average shares outstanding..................... 29,675,200
==========
</TABLE>
The calculation of pro forma basic and diluted weighted average shares
outstanding excludes 1,420,800 shares of unvested restricted common stock
issued in connection with the acquisitions made in 1999.
F-62
<PAGE>
ZEFER CORP.
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998--(Continued)
(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, 1998, as
follows:
<TABLE>
<CAPTION>
Cost of General and
Services Administrative Total
-------- -------------- ----------
<S> <C> <C> <C>
Total due under management agreements... $736,667 $465,000 $1,201,667
Less--Salaries included in historical
statements............................. 474,168 331,568 805,736
-------- -------- ----------
Pro forma salaries adjustment........... $262,499 $133,432 $ 395,931
======== ======== ==========
</TABLE>
F-63
<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........ 18,464,123 1,973,489 2,461,115 118,502 584,600 60,123 (/5/) 23,661,952
Depreciation and
amortization.......... 10,649,558 55,839 189,665 11,728 43,163 6,925,927 (/1/) 17,875,880
------------ ----------- ----------- -------- ---------- ----------- ------------
Total operating
expenses............. 59,280,378 2,752,966 8,604,613 579,821 2,306,336 7,070,987 80,595,101
------------ ----------- ----------- -------- ---------- ----------- ------------
Income (loss) from
operations........... (34,003,443) (2,261,825) (4,718,189) (56,168) 599,553 (7,070,988) (47,511,059)
INTEREST AND OTHER
INCOME (EXPENSE), NET.. (2,253,049) (18,652) (324,528) (431) 18,082 (1,034,913)(/2/)(/3/) (3,613,491)
------------ ----------- ----------- -------- ---------- ----------- ------------
Income (loss) before
taxes................ (36,256,492) (2,280,477) (5,042,717) (56,599) 617,635 (8,105,900) (51,124,550)
BENEFIT FROM INCOME
TAXES.................. 5,760,400 -- -- -- -- -- 5,760,400
------------ ----------- ----------- -------- ---------- ----------- ------------
Net income (loss)..... $(30,496,092) $(2,280,477) $(5,042,717) $(56,599) $ 617,635 $(8,105,900) $(45,364,150)
============ =========== =========== ======== ========== =========== ============
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>
The accompanying notes are an integral part of this financial statement.
F-64
<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-65
<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-66
<PAGE>
Advisory Board
Clayton Christensen
Harvard Business School
Bob Johansen
President,
Institute for the Future
Rolf Jensen
Director,
Copenhagen Institute for
Future Studies
Peter Block
Author, Flawless Consulting;
The Empowered Manager:
Positive Political Skills at Work;
Stewardship: Choosing Service
Over Self-Interest
[ZEFER LOGO APPEARS HERE]
Advisory Network
Arnold Wasserman
Jeremy Siegel
Professor of Finance,
The Wharton School
Michael Shamos
Co-Director,
Carnegie Mellon Institute
for E-Commerce
Hal Varian
Dean of the School of
Information Management and
Systems, University of
California at Berkeley
Moshe Rubenstein
UCLA
Pam Alexander
Alexander Ogilvy
Jason Pontin
Editor, Red Herring
Jay Chiat
SCREAMINGMEDIA
Jeffrey Dunn
Chief Operating Officer,
Nickelodeon
<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 November 1999, 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
24,195 shares of our class A preferred stock at a price of $1,000 per
share for an aggregate purchase price of $24,195,000 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 3,456,000 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 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 November 1999, we issued an aggregate of
749 shares of our class A preferred stock at a price per share of
$1,000 for an aggregate purchase price of $749,000 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 shareto members of our management team for an
aggregate purchase price of $440,750.
8. In May 1999, we issued an aggregate of 494,256 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 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.
16. 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.
(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.
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.
II-3
<PAGE>
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.
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.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
Exhibit
No. Description
------- -----------
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.
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.
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
Exhibit
No. Description
------- -----------
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.
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.
(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.
II-6
<PAGE>
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. 1 to the Registration Statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in Boston, Massachusetts,
on this 17th day of February, 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. 1 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, February 17, 2000
______________________________________ President, Chief
William A. Seibel Executive Officer and
Director
* Executive Vice President, February 17, 2000
______________________________________ Chief Financial Officer
James H. Slamp and Treasurer (Principal
Financial and Accounting
Officer)
* Director February 17, 2000
______________________________________
Philip A. Canfield
* Director February 17, 2000
______________________________________
Masood Jabbar
* Director February 17, 2000
______________________________________
David A. Lubin
* Director February 17, 2000
______________________________________
Timothy P. McAdam
* Director February 17, 2000
______________________________________
Richard L. Nolan
* Director February 17, 2000
______________________________________
Anthony K. Tjan
</TABLE>
<TABLE>
<S> <C> <C>
/s/ Catherine Viscardi Johnston Director February 17, 2000
______________________________________
Catherine Viscardi Johnston
/s/ Bruce V. Rauner Director February 17, 2000
______________________________________
Bruce V. Rauner
*By: /s/ William A. Seibel
______________________________________
Attorney-in-Fact
</TABLE>
II-9
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors of ZEFER Corp., hereby severally constitute
and appoint William A. Seibel, Sean W. Mullaney and David E. Redlick, and each
of them singly, our true and lawful attorneys with full power to them and each
of them singly, to sign for us and in our names in the capacities indicated
below, the Amendment No. 1 to the Registration Statement on Form S-1 filed
herewith and any and all pre-effective and post-effective amendments to said
Registration Statement and any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b) and generally to do all such
things in our names and on our behalf in our capacities as directors to enable
ZEFER Corp. to comply with the provisions of the Securities Act of 1933, and
all requirements of the Securities and Exchange Commission, hereby ratifying
and confirming our signatures as they may be signed by our said attorneys, or
any of them, to said Registration Statement and any and all amendments thereto
or to any subsequent Registration Statement for the same offering which may be
filed under Rule 462(b).
<TABLE>
<S> <C> <C>
/s/ Catherine Viscardi Johnston Director February 17, 2000
______________________________________
Catherine Viscardi Johnston
/s/ Bruce V. Rauner Director February 17, 2000
______________________________________
Bruce V. Rauner
</TABLE>
II-10
<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.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
Exhibit
No. Description
------- -----------
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.
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.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
Exhibit
No. Description
------- -----------
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* Nonqualifed Stock Option Agreement between the Registrant and
Catherine Viscardi Johnston dated February 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 2.6
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is entered into as of the 19th day of May,
1999, among ZEFER Corp., a Delaware corporation (the "Buyer"), Renaissance
Worldwide, Inc., a Massachusetts corporation ("Renaissance"), and Neoglyphics
Media Corporation, an Illinois corporation and a wholly owned subsidiary of
Renaissance ("NMC"). Renaissance and NMC are sometimes referred to herein
individually as a "Seller" and together as the "Sellers."
Preliminary Statement
---------------------
Subject to the terms and conditions of this Agreement, the Buyer desires to
purchase (or cause one or more of its wholly-owned subsidiaries to purchase),
and the Sellers desire to sell (or cause an Affiliate to sell), (i) certain of
the assets and business of NMC (the "NMC Business") and (ii) the business and
assets of the Sellers used in connection with the customer management solutions
practice of Renaissance (the "CMS Business," and together with the NMC Business,
the "Businesses"), for the consideration set forth below and the assumption by
the Buyer of certain of the Sellers' liabilities set forth below relating to the
Businesses.
The Buyer may designate one or more Designated Transferees (as defined in
Section 10.4 of this Agreement) to purchase the NMC Business and/or the CMS
Business, provided that the Buyer shall guaranty the obligations of any such
Designated Transferee, as provided below.
NOW, THEREFORE, in consideration of the representations, warranties and
covenants herein contained, the parties agree as follows.
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the meanings
ascribed to them below.
1.1 "Accounts Receivable" means all trade and other accounts receivable
and notes and loans receivable relating to or generated by the NMC
Business and/or the CMS Business.
1.2 "Acquired Assets" means all right, title and interest in and to the
following:
(a) all Accounts Receivable and all unbilled amounts for Contracts in
Progress;
<PAGE>
(b) all Intellectual Property and all associated goodwill;
(c) all rights under the contracts, agreements and instruments set
forth on Schedule 1.2(c) attached hereto (collectively, the "Assigned
-------- ------
Contracts");
(d) all claims, security deposits, prepayments, refunds, causes of
action, choses in action, rights of recovery, rights of setoff and rights of
recoupment relating to the NMC Business or the CMS Business listed on Schedule
--------
1.2(d) attached hereto, and all rights under warranties;
- ------
(e) all Permits issued by or obtained from any Governmental Entity
and relating to the NMC Business or the CMS Business, to the extent such Permits
are transferable;
(f) all books, records, accounts, ledgers, files, documents,
correspondence, lists (customer or otherwise), drawings or specifications,
product and sales literature, employment records, manufacturing, technical and
procedural manuals, advertising and promotional materials, studies, reports and
other printed or written materials relating to the NMC Business or the CMS
Business, other than stock record books and minute books of NMC;
(g) all real property, leaseholds and subleaseholds in real property,
and easements, rights-of-way and other appurtenants thereto relating to the NMC
Business or the CMS Business;
(h) all rights to enforce any confidentiality, invention assignment
and/or noncompetition agreements between either Seller and its employees to the
extent that such agreements relate to the NMC Business and/or the CMS Business;
(i) all claims and defenses to the extent relating to any of the
foregoing or to the Assumed Liabilities; and
(j) the assets listed on Section 3.8(c) of the Disclosure Schedule.
1.3 "Affiliate" shall have the meaning set forth in Rule 12b-2 under the
Exchange Act.
1.4 "Agreement" shall mean this Asset Purchase Agreement, together with
the exhibits and schedules (including the Disclosure Schedule) hereto,
as such agreement, exhibits and schedules may be amended from time to
time in accordance with the terms hereof.
-2-
<PAGE>
1.5 "Ancillary Agreements" means the agreements and instruments attached
as exhibits to this Agreement or contemplated to be entered into in
connection herewith.
1.6 "Assigned Contracts" shall have the meaning set forth in Section
1.2(c) of this Agreement.
1.7 "Assumed Liabilities" means the following liabilities of the Sellers
and no other liabilities:
(a) the liabilities of NMC incurred in connection with the NMC
Business as set forth on the face of Exhibit A-1 to the extent
------- ---
they have not been paid or discharged prior to the Closing;
(b) the liabilities of Renaissance incurred in connection with the
CMS Business as set forth on the face of Exhibit A-2 to the
------- ---
extent they have not been paid or discharged prior to the
Closing;
(c) all liabilities of NMC incurred in connection with the NMC
Business, which have arisen after the date set forth on Exhibit
-------
A-1 in the Ordinary Course of Business and which are of the same
---
type as those set forth on Exhibit A-1, to the extent such
------- ---
liabilities have not been paid or discharged prior to the
Closing;
(d) all liabilities of Renaissance incurred in connection with the
CMS Business, which have arisen after the date set forth on
Exhibit A-2 in the Ordinary Course of Business and which are of
-----------
the same type as those set forth on Exhibit A-2, to the extent
-----------
such liabilities have not been paid or discharged prior to the
Closing; and
(e) all obligations of either Seller arising after the Closing under
the Assigned Contracts, other than obligations arising from a
breach of an Assigned Contract by either Seller prior to the
Closing Date.
1.8 "Businesses" shall have the meaning set forth in the Preliminary
Statement.
1.9 "Buyer" means ZEFER Corp., a Delaware corporation.
1.10 "Buyer Financial Statements" shall have the meaning set forth in
Section 4.7 of this Agreement.
-3-
<PAGE>
1.11 "Cash Payment" shall have the meaning set forth in Section 2.3(b)(i)
of this Agreement.
1.12 "CERCLA" means the federal Comprehensive Environmental Compensation,
Liability and Response Act of 1980.
1.13 "Closing" means the closing of the transactions contemplated by this
Agreement.
1.14 "Closing Date" shall have the meaning set forth in Section 2.4(a) of
this Agreement.
1.15 "Closing Statement" shall have the meaning set forth in Section 2.6(b)
of this Agreement.
1.16 "Code" means the Internal Revenue Code of 1986, as amended.
1.17 "Continuing Employee" means each employee employed in the Business by
either Seller who accepts employment with the Buyer pursuant to
Section 7.7 of this Agreement.
1.18 "Contracts in Progress" means all contracts in progress relating to
the Business.
1.19 "Damages" means claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including, specifically,
but without limitation, reasonable attorneys' fees and expenses of
investigation). For purposes of Section 8.1, the amount of Damages
shall be decreased by the Tax benefit realized by the Indemnified
Party as a result of or in connection with the events giving rise to
indemnification. To the extent Damages are incurred in a currency
other than U.S. Dollars, Damages shall be paid in U.S. Dollars based
on the applicable exchange rate in effect on the date on which such
Damages are finally determined in accordance with Article VIII of this
Agreement.
1.20 "Designated Transferee" shall have the meaning set forth in Section
10.4 of this Agreement.
1.21 "Disclosure Schedule" shall have the meaning set forth in the
introduction to Article III of this Agreement.
-4-
<PAGE>
1.22 "Employee Benefit Plan" means any "employee pension benefit plan" (as
defined in Section 3(2) of ERISA), any "employee welfare benefit plan"
(as defined in Section 3(1) of ERISA), and any other written or oral
plan, agreement or arrangement involving compensation, including
without limitation insurance coverage, severance benefits, disability
benefits, deferred compensation, bonuses, stock options, stock
purchase, phantom stock, stock appreciation or other forms of
incentive compensation or post-retirement compensation relating to any
employee of the NMC Business or the CMS Business.
1.23 "Environmental Law" means any Law or Regulation or the common law
relating to the environment or occupational health and safety,
including without limitation any statute, regulation or order
pertaining to (a) treatment, storage, disposal, generation and
transportation of industrial, toxic or hazardous substances or solid
or hazardous waste; (b) air, water and noise pollution; (c)
groundwater and soil contamination; (d) the release or threatened
release into the environment of industrial, toxic or hazardous
substances, or solid or hazardous waste, including without limitation
emissions, discharges, injections, spills, escapes or dumping of
pollutants, contaminants, pesticides or chemicals; (e) the protection
of wildlife, marine sanctuaries and wetlands, including without
limitation all endangered and threatened species; (f) underground and
other storage tanks or vessels, abandoned, disposed or discarded
barrels, containers and other receptacles; (g) health and safety of
employees and other persons; and (h) manufacture, processing, use,
distribution, treatment, storage, disposal, transportation or handling
of pollutants, contaminants, pesticides, chemicals or industrial,
toxic or hazardous substances or oil or petroleum products or solid or
hazardous waste. As used herein, the terms "release" and "environment"
shall have the meaning set forth in CERCLA.
1.24 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
1.25 "ERISA Affiliate" means any entity which is a member of (a) a
controlled group of corporations (as defined in Section 414(b) of the
Code, (b) a group of trades or businesses under common control (as
defined in Section 414(c) of the Code), or (c) an affiliated service
group (as defined under Section 414(m) of the Code or the regulations
under Section 414(o) of the Code), any of which includes or included
either of the Sellers.
-5-
<PAGE>
1.26 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
1.27 "Excluded Assets" means any assets of NMC or Renaissance that are not
identified as Acquired Assets under Section 1.2.
1.28 "Financial Statements" means the statements attached hereto as Exhibit
-------
B.
-
1.29 "GAAP" means United States generally accepted accounting principles.
1.30 "Governmental Entity" means any foreign, federal, state or local
governmental, regulatory or administrative authority or agency, court
or arbitrational tribunal.
1.31 "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
1.32 "Indemnified Party" means any party or parties seeking indemnification
under Article VIII of this Agreement.
1.33 "Indemnifying Party" means any party or parties from whom
indemnification is sought under Article VIII of this Agreement.
1.34 "Initial Closing Statement" shall have the meaning set forth in
Section 2.6(a) of this Agreement.
1.35 "Intellectual Property" means any and all (a) patents, patent
applications, patent disclosures and all related continuation,
continuation-in-part, divisional, reissue, re-examination, utility
model, certificate of invention and design patents, patent
applications, registrations and applications for registrations, (b)
trademarks, service marks, trade dress, logos, trade names and
corporate names and registrations and applications for registration
thereof, (c) copyrights and registrations and applications for
registration thereof, (d) mask works and registrations and
applications for registration thereof, (e) computer software, data and
documentation, (f) trade secrets and confidential business
information, whether patentable or nonpatentable and whether or not
reduced to practice, know-how, manufacturing and product processes and
techniques, research and development information, copyrightable works,
financial, marketing and business data, pricing and cost information,
business and marketing plans and customer and supplier lists and
information,
-6-
<PAGE>
(g) other proprietary rights relating to any of the foregoing
(including without limitation remedies against infringements thereof
and rights of protection of interest therein under the Laws and
Regulations of all jurisdictions), and (h) copies and tangible
embodiments thereof used in either the CMS Business or the NMC
Business.
1.36 "Knowledge" means: (a) if with respect to the Buyer, the actual
knowledge or awareness, after due inquiry, of any individual listed on
Schedule 1.36(a) or (b) if with respect to either Seller, the actual
-------- -------
knowledge or awareness, after due inquiry, of any individual listed on
Schedule 1.36(b).
-------- -------
1.37 "Laws and Regulations" means all federal, state, regional, county,
local or foreign laws, statutes, codes, rules, decrees, regulations,
ordinances and orders.
1.38 "Material Adverse Effect" means Damages to the NMC Business, the CMS
Business and/or the Buyer of more than $150,000.
1.39 "Materials of Environmental Concern" means any chemicals, pollutants
or contaminants, hazardous substances (as such term is defined under
CERCLA), solid wastes and hazardous wastes (as such terms are defined
under the federal Resources Conservation and Recovery Act),
pesticides, toxic materials, oil or petroleum and petroleum products
or any other material subject to regulation under any Environmental
Law.
1.40 "Net Assets" means the sum of (a) the difference between assets and
liabilities shown on Exhibit A-1 and (b) the difference between assets
------- ---
and liabilities shown on Exhibit A-2.
------- ---
1.41 "Neutral Accountants" shall have the meaning set forth in Section
2.6(b) of this Agreement.
1.42 "Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to
frequency and amount).
1.43 "PBGC" means the Pension Benefit Guarantee Corporation.
1.44 "Permits" means all material permits, licenses, registrations,
certificates, orders, approvals, franchises, variances and similar
rights used in connection with the NMC Business or the CMS Business.
-7-
<PAGE>
1.45 "Purchase Price" shall have the meaning set forth in Section 2.3(a) of
this Agreement.
1.46 "Restricted Assets" means each Assigned Contract that cannot be
validly assigned, transferred, subleased or sublicensed without the
consent or waiver of the issuer thereof or the other party thereto or
a third person (including a Governmental Entity), or with respect to
which such assignment, transfer, sublease or sublicense or attempted
assignment, transfer, sublease or sublicense constitutes a breach
thereof or a violation of any Law or Regulation or entitles the other
party thereto to terminate such contract, agreement or instrument or
receive any additional payment thereunder.
1.47 "Restricted Employee" means any person who was employed by either
Seller in connection with the NMC Business or the CMS Business on
either the date of this Agreement or the Closing Date and received an
employment offer from the Buyer within five business days following
the Closing Date.
1.48 "Retained Liabilities" shall have the meaning set forth in Section
2.2(b) of this Agreement.
1.49 "Retirement Plans" shall have the meaning set forth in Section 3.13(b)
of this Agreement.
1.50 "Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge or other lien (whether arising by contract or by
operation of law).
1.51 "Sellers" means Renaissance and NMC.
1.52 "Shares" shall have the meaning set forth in Section 2.3(c)(ii) of
this Agreement.
1.53 "Subsidiary" means (a) any corporation with respect to which another
corporation or entity, directly or indirectly, has the power to vote
or direct the voting of sufficient securities to elect a majority of
the directors or (b) any corporation or other entity with respect to
which another corporation or entity, directly or indirectly, owns 50%
or more of the aggregate equity interest.
-8-
<PAGE>
1.54 "Taxes" means all taxes or similar assessments or liabilities,
including without limitation income, gross receipts, ad valorem,
premium, value-added, excise, real property, personal property, sales,
use, transfer, withholding, employment, payroll and franchise taxes
imposed by the United States of America or any state, local or foreign
government, or any agency thereof, or other political subdivision of
the United States or any such government, and any interest, fines,
penalties, assessments or additions to tax resulting from,
attributable to or incurred in connection with any tax or any contest
or dispute thereof and any obligation to pay or reimburse any other
parties for any such liabilities of such other party.
1.55 "Tax Returns" means all reports, returns, declarations, statements or
other information required to be supplied to a taxing authority in
connection with Taxes.
ARTICLE II
THE PURCHASE
2.1 Purchase and Sale of the Acquired Assets. Upon and subject to the
----------------------------------------
terms and conditions of this Agreement, the Buyer (or any Designed Transferee,
as defined in Section 10.4) shall purchase from the Sellers, and the Sellers
shall, or shall cause their respective Affiliates to, sell, transfer, convey,
assign and deliver to the Buyer (or any Designated Transferee), at the Closing,
for the consideration specified below in this Article II, all of the Acquired
Assets. Notwithstanding the foregoing, the Acquired Assets shall not include any
of the Excluded Assets.
-9-
<PAGE>
2.2 Assumption of Liabilities.
-------------------------
(a) Subject to the terms and conditions of this Agreement, the Buyer
or any Designated Transferee shall assume and become responsible for, from and
after the Closing, the Assumed Liabilities.
(b) Notwithstanding anything to the contrary set forth herein, the
Buyer shall not assume or become responsible for, and each Seller shall remain
solely liable for, any and all liabilities or obligations (whether known or
unknown, whether absolute or contingent, whether liquidated or unliquidated,
whether accrued or unaccrued, whether due or to become due, and whether claims
with respect thereto are asserted before or after the Closing) of such Seller
which are not Assumed Liabilities (collectively, the "Retained Liabilities").
The Retained Liabilities shall include, without limitation, the following:
(i) all liabilities and obligations of either Seller for costs
and expenses incurred in connection with this Agreement or the consummation of
the transactions contemplated by this Agreement;
(ii) all liabilities and obligations of either Seller under
this Agreement or any of the Ancillary Agreements;
(iii) all liabilities and obligations of either Seller for any
Taxes (except of the type listed on the Closing Statement as defined in Section
2.6(b));
(iv) all liabilities and obligations of either Seller under any
agreements, contracts, leases or licenses that are not Assigned Contracts;
(v) all obligations of either Seller arising prior to the
Closing under the Assigned Contracts, and all liabilities for any breach, act or
omission by either Seller prior to the Closing under any Assigned Contract;
(vi) all liabilities and obligations of either Seller arising
out of events, conduct or conditions existing or occurring prior to the Closing
that constitute a violation of or noncompliance with any Law or Regulation, any
judgment, decree or order of any Governmental Entity, or any Permit;
(vii) all liabilities and obligations of either Seller
(including without limitation costs of cleanup and remediation) resulting from
(A) any releases of any Materials of Environmental Concern into the environment
in connection with the operation of either the NMC Business or the CMS Business
or any other business by either Seller or any predecessor business or company
prior to the Closing Date or for
-10-
<PAGE>
which either Seller is liable pursuant to any indemnity or otherwise; (B) the
existence of any Materials of Environmental Concern at any site on which the
business or operations of the NMC Business or the CMS Business or any
predecessor business or company was conducted prior to the Closing Date or to
which any such Materials of Environmental Concern were transported; (C) any
release of any Materials of Environmental Concern at any such location if such
release could give rise under any Environmental Law to liability on the part of
either Seller or any predecessor business or company; or (D) any violation of
any Environmental Law by either Seller or any predecessor business or company
which occurred prior to the Closing; provided, however, that the liabilities and
obligations referred to in this clause (ix) shall constitute Retained
Liabilities only to the extent asserted by the Buyer prior to the fifth
anniversary of the Closing Date; provided, further however, that Retained
Liabilities shall include all Damages which result from an event, condition,
release or violation asserted by the Buyer prior to such date whether or not
they are known or asserted before such fifth anniversary;
(viii) all liabilities and obligations of either Seller for injury to
or death of persons or damage to or destruction of property occurring prior to
the Closing (including without limitation any workers compensation claim);
(ix) all intercompany liabilities of either Seller and its
Affiliates;
(x) any claims against, or liabilities or obligations of or in
connection with, any Employee Benefit Plans, including without limitation any
excise Taxes, penalties or other liabilities imposed under ERISA or the Code;
(xi) all liabilities and obligations of either Seller to pay
severance, termination pay, redundancy pay, pay in lieu of notice or other
benefits to any current or former employee of either Seller whose employment is
terminated (or treated as terminated) by either Seller in connection with the
consummation of the transactions contemplated by this Agreement, and all
liabilities resulting from the termination of employment of employees of either
Seller prior to the Closing that arose under any Law or Regulation or under any
Employee Benefit Plan established or maintained by such Seller, including
without limitation any liabilities of such Seller pursuant to agreements and
plans listed in Section 3.13(e) of the Disclosure Schedule;
(xii) all liabilities and obligations of either Seller for all
compensation and benefits accrued by employees of either Seller employed in the
NMC Business or the CMS Business prior to the Closing other than those of the
nature and type included on Exhibit A-1 and Exhibit A-2;
------- --- ------- ---
-11-
<PAGE>
(xiii) all liabilities and obligations of either Seller arising out
of any claim, suit, action, arbitration, proceeding, investigation or other
similar matter which commenced or relates to the ownership of the Acquired
Assets or the operation of the NMC Business or the CMS Business on or prior to
the Closing;
(xiv) all liabilities and obligations of either Seller for income,
transfer, sales, use or other Taxes arising in connection with the consummation
of the transactions contemplated by this Agreement;
(xv) all liabilities and obligations under foreign currency
contracts to which either Seller is a party;
(xvi) all liabilities and obligations of either Seller with
respect to any overdraft facility, bank credit line or indebtedness for borrowed
money;
(xvii) all liabilities and obligations of either Seller relating
to any of the Excluded Assets;
(xviii) all liabilities and obligations under Restricted Assets to
the extent either Seller does not obtain the consents and waivers necessary to
assign, transfer, sublease or sublicense such Restricted Assets to the Buyer and
such Seller does not provide to the Buyer the benefits of such Restricted Assets
pursuant to Section 2.9(b);
(xix) all liabilities and obligations with respect to the matters
for which any provision of this Agreement provides that the Buyer shall assume
no liability;
(xx) all liabilities and obligations of either Seller not related
primarily to either the NMC Business or the CMS Business;
(xxi) all liabilities and obligations of either Seller under any
agreements relating to the disposition of significant assets, businesses or
companies (whether by sale of assets, sale of stock, merger or otherwise)
entered into at any time prior to the Closing; and
(xxii) all liabilities and obligations of either Seller arising out
of events, conduct or conditions existing or occurring prior to the Closing that
do or allegedly constitute an infringement or violation of, or do or allegedly
constitute a misappropriation of, any Intellectual Property rights of any other
person or entity.
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2.3 Purchase Price.
--------------
(a) The purchase price ("Purchase Price") of the Acquired Assets
shall be $12,000,000 and shall be payable in the manner described in paragraph
(b) of this Section 2.3.
(b) At the Closing, the Buyer shall deliver:
(i) the sum of $10,000,000 (the "Cash Payment"), by wire
transfer or other delivery of immediately available funds to an account
designated by the Sellers at least one business day prior to the Closing less
the amount to pay off the aggregate amount of principal and interest as of the
Closing Date owed by NMC to American National Bank & Trust Company of Chicago;
(ii) a convertible subordinated promissory note of the Buyer in
the principal amount of $2,000,000 (the "Note") substantially in the form
attached hereto as Exhibit C. The Cash Payment is subject to adjustment pursuant
to Section 2.6 below.
(c) In addition to payment of the Cash Payment and delivery of the
Note, the Buyer agrees to issue to Renaissance at the Closing an aggregate of
100,000 shares of Buyer Common Stock (the "Shares").
2.4 The Closing.
-----------
(a) The Closing shall take place at the offices of Hale and Dorr LLP,
60 State Street, Boston, Massachusetts commencing at 9:00 a.m. local time on May
26, 1999, or, if all of the conditions to the obligations of the parties to
consummate the transactions contemplated hereby have not been satisfied or
waived by such date, on such mutually agreeable later date as soon as
practicable after the satisfaction or waiver of all conditions to the
obligations of the parties to consummate the transactions contemplated hereby,
but in no event more than five business days after such satisfaction or waiver
(the "Closing Date").
(b) At the Closing:
(i) Sellers shall deliver to the Buyer the various
certificates, instruments, agreements and other documents referred to in Section
6.1;
(ii) the Buyer shall deliver to the Sellers the various
certificates, instruments, agreements and other documents referred to in Section
6.2;
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(iii) the Sellers shall execute and deliver to the Buyer a bill
of sale substantially in the form attached hereto as Exhibit D and execute and
------- -
deliver or obtain, as appropriate, such other instruments of conveyance
(including without limitation deeds, trademark assignments, patent assignments,
copyright and other intellectual property licenses and assignments, of leasehold
interests) as the Buyer may reasonably request in order to effect the sale,
transfer, conveyance and assignment to the Buyer of valid ownership of the
Acquired Assets, including any required consents, approvals or permits;
(iv) the Buyer shall execute and deliver to each of the Sellers
an instrument of assumption of liabilities in the form attached hereto as
Exhibit E and such other instruments as the Sellers may reasonably request in
- ------- -
order to effect the assumption by the Buyer of the Assumed Liabilities;
(v) the Sellers shall execute and deliver to the Buyer a
Trademark Assignment in the form attached hereto as Exhibit F;
------- -
(vi) the Buyer shall pay the Cash Payment as specified in
Section 2.3(b)(i);
(vii) the Buyer shall issue the Note as specified in Section
23(b)(ii);
(viii) the Sellers shall deliver to the Buyer, or otherwise put
the Buyer in possession and control of, all of the Acquired Assets of a tangible
nature; and
(ix) the Buyer and the Sellers shall execute and deliver to
each other a cross-receipt evidencing the transactions referred to above.
(c) All transactions at the Closing shall be deemed to take place
at 12:01 a.m. Boston, Massachusetts time on the Closing Date, and no transaction
shall be deemed to have been completed and no documents or certificate shall be
deemed to have been delivered until all other transactions are completed and all
other documents and certificates are delivered.
2.5 Allocation of Purchase Price. The Buyer and the Sellers agree to
----------------------------
allocate the Purchase Price and the value of the Shares (and all other
capitalizable costs) among the Acquired Assets in the manner required by Section
1060 of the Code. The parties agree to file all Tax Returns in a manner
consistent with such allocation.
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2.6 Post-Closing Adjustments. The Purchase Price set forth in Section 2.3
------------------------
shall be subject to adjustment after the Closing Date as follows:
(a) As promptly as possible after the Closing Date (but in any event
not later than 45 days thereafter), the Buyer shall prepare and deliver to
Renaissance a statement of Net Assets (the "Initial Closing Statement") as of
the close of business on the Closing Date (without giving effect to the
transactions contemplated by this Agreement). The accounting principles used in
preparing Exhibit A-1 and Exhibit A-2 are set forth in those Exhibits. The
------- --- ------- ---
Buyer shall prepare the Initial Closing Statement in accordance with GAAP and on
a basis consistent with the accounting principles used in preparing Exhibit A-1
------- ---
and Exhibit A-2 (to the extent such accounting principles are consistent with
------- ---
GAAP). The Initial Closing Statement shall also set forth the determination of
the Purchase Price, as adjusted pursuant to this Section 2.6.
(b) Renaissance shall deliver to the Buyer within 30 days after
receiving the Initial Closing Statement a detailed statement describing any
objections thereto. Failure of Renaissance to so object to the Initial Closing
Statement shall constitute acceptance thereof by Renaissance, whereupon the
Initial Closing Statement shall be deemed to be the Closing Statement. The
Buyer and Renaissance shall use reasonable efforts to resolve any such
objections, but if they do not reach a final resolution within 45 days after the
Buyer has received Renaissance's statement of objections, the Buyer and
Renaissance shall engage the Boston, Massachusetts office of KPMG (or if such
accountants are unable or refuse to serve in such capacity, such other
nationally recognized accounting firm that is not the primary independent
accounting firm for either of the parties as may be designated by the Boston
office of the American Arbitration Association) (the "Neutral Accountants") to
resolve any remaining objections. The Neutral Accountants promptly shall
determine whether the objections raised by Renaissance are appropriate in light
of the requirements of Section 2.6(a). The Initial Closing Statement shall be
adjusted to the extent such objections are determined by the Neutral Accountants
to be appropriate and, as so adjusted, shall be the "Closing Statement." Such
determination by the Neutral Accountants shall be conclusive and binding upon
the parties, absent fraud or manifest error. Nothing herein shall be construed
to authorize or permit the Neutral Accountants to determine (i) any questions or
matter whatever under or in connection with this Agreement except the
determination of what adjustments, if any, must be made in the items reflected
in the Initial Closing Statement that are the subject of objections by
Renaissance, or (ii) an adjustment to an item on the Initial Closing Statement
that is outside of the range defined by amounts as finally proposed by
Renaissance and the Buyer, respectively.
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<PAGE>
(c) If the Net Assets as shown on the Closing Statement are equal to
or greater than $5,886,891 and less than or equal to $6,886,891, the Purchase
Price shall equal $12,000,000.
(d) If the Net Assets as shown on the Closing Statement are less than
$5,886,891, the Purchase Price shall equal $12,000,000 less the amount of such
deficiency, and Renaissance shall pay promptly to the Buyer an amount equal to
such deficiency.
(e) If the Net Assets as shown on the Closing Statement are more than
$6,886,891, the Purchase Price shall equal $12,000,000 plus the amount of such
excess, and the Buyer shall pay promptly to Renaissance, an amount equal to such
excess.
(f) Any payments required to be made by Renaissance to the Buyer, or
by the Buyer to Renaissance, pursuant to this Section 2.6 shall be made by wire
transfer or other delivery of immediately available funds, within three business
days after the date on which the Closing Statement is finally determined
pursuant to this Section 2.6.
(g) If the Purchase Price is adjusted pursuant to this Section 2.6,
the allocation of the Purchase Price among the Acquired Assets shall be
appropriately modified to reflect increases or decreases in the various asset
categories that give rise to such adjustments to the maximum extent allowable
under Section 1060 of the Code.
(h) The Buyer, on the one hand, and Renaissance, on the other hand,
shall share equally the fees and expenses of the Neutral Accountants in
connection with the resolution of any dispute pursuant to Section 2.6(b) above.
2.7 Further Assurances. At the Closing and at any time and from time to
------------------
time thereafter, at the request of the Buyer and without further consideration,
the Sellers shall promptly execute and deliver such instruments of sale,
transfer, conveyance and assignment and take all such other action as the Buyer
may determine is necessary to more effectively transfer, convey and assign to
the Buyer, and to evidence and confirm the Buyer's rights to, title in and
ownership of, the Business and the Acquired Assets, to place the Buyer (through
its ownership of the Acquired Assets) in actual possession and operating control
of the assets, properties and business of the Business, to assist the Buyer in
exercising all rights with respect thereto and to carry out the purpose and
intent of this Agreement.
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<PAGE>
2.8 Transaction Taxes. Any and all federal, state, county, local or
-----------------
foreignsales, use, value added, excise, stamp, transfer and other Taxes not in
the nature of income taxes, fees and duties (including any interest, additions
to tax and penalties with respect thereto) and any and all transfer, recording
or similar fees and charges imposed in connection with the consummation of the
transactions contemplated by this Agreement shall be borne by the Sellers.
2.9 Restricted Assets.
-----------------
(a) The Sellers shall use all reasonable efforts, and the Buyer shall
cooperate reasonably with the Sellers, (i) to promptly obtain the consents and
waivers necessary to convey or cause to be conveyed to the Buyer all of the
Restricted Assets, and (ii) as of and subject to the occurrence of the Closing,
to promptly convey or cause to be conveyed to the Buyer the Restricted Assets
for which the Sellers have received the necessary consents and waivers;
provided, however, that the Sellers shall not amend or change any Restricted
Asset without the prior written consent of the Buyer unless the Sellers
reasonably deem it necessary to preserve the value of the Restricted Asset. The
Sellers shall cooperate with the Buyer in making applications and filings or
taking any other action necessary for the Buyer to obtain such franchises,
licenses, permits or other instruments or agreements, if any, as are
substantially equivalent to any Restricted Assets that are not assignable to
Buyer as a matter of law. In no event shall the Buyer's cooperation hereunder
require the Buyer to make any payments or incur any out-of-pocket expenses,
except that the Buyer shall reimburse the Sellers on an equitable basis for any
consideration paid, with the prior approval of the Buyer, to any person from
whom a consent or waiver is requested. In no event shall either Seller be
required to make any payments or incur any out-of-pocket expenses in connection
with performing its obligations under this Section 2.9 relating to any client
services agreement.
(b) To the extent that the consents and waivers necessary to assign,
transfer sublease or sublicense any of the Restricted Assets are not obtained,
the Sellers shall, commencing on the Closing Date and continuing for the
duration of each such Restricted Asset, use reasonable efforts to (i) provide to
the Buyer the benefits of any such Restricted Asset not assigned, transferred or
subleased due to the failure or inability of either Seller to obtain such
consent or waiver, (ii) cooperate with the Buyer to reach a reasonable and
lawful arrangement designed to provide such benefits to the Buyer during such
period, and (iii) enforce at the request of the Buyer, or allow the Buyer to
enforce (and, for such purpose, each Seller hereby constitutes and appoints the
Buyer as its true and lawful attorney-in-fact), any rights of either Seller
under any such Restricted Asset against the issuer thereof or the other party or
parties thereto (including the right to elect to terminate such of the foregoing
in accordance with the terms thereof upon the request of the Buyer); provided,
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however, that the reasonable costs and expenses of either Seller incurred at the
Buyer's request with respect to any of the actions contemplated under clause
(iii) above shall be promptly paid or reimbursed by the Buyer to Renaissance.
At the end of each such period, neither Seller shall have any further duties or
obligations under this Section 2.9 with respect to such Restricted Asset and the
failure or inability to obtain any necessary consent or waiver with respect
thereto shall not be a breach of this Agreement so long as such Seller has
carried out its obligations under this Section 2.9.
(c) To the extent that the Buyer is provided the benefits of any
Restricted Asset pursuant to clause (b) of this Section 2.9, the Buyer shall
perform for the benefit of the issuer thereof, or the other party or parties
thereto, the obligations of either Seller thereunder or in connection therewith,
but only to the extent that (i) such action by the Buyer would not result in any
default thereunder or in connection therewith and (ii) such obligation would
have been an Assumed Liability but for the non-assignability or non-
transferability thereof; provided, however, that if the Buyer shall fail to
perform to the extent required herein, the applicable Seller shall thereafter
cease to be obligated under this Section 2.9 to provide the Buyer with any
benefits in respect of the Restricted Asset which is the subject of such failure
to perform unless and until such situation is remedied or, at the sole option of
the applicable Seller, the Buyer shall promptly pay or reimburse such Seller for
all costs reasonably incurred by such Seller to remedy such failure to perform
during such period of failure of performance.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Sellers jointly and severally represent and warrant to the Buyer that
the statements contained in this Article III are true and correct, except as set
forth in the disclosure schedule attached hereto (the "Disclosure Schedule").
The Disclosure Schedule shall be arranged in Sections corresponding to the
numbered and lettered Sections contained in this Article III, and the disclosure
in any Section of the Disclosure Schedule shall qualify the corresponding
Section in this Article III and any Section as to which its applicability is
reasonably apparent based solely on the information disclosed.
3.1 Organization, Qualification and Corporate Power. Each Seller is a
-----------------------------------------------
corporation duly organized, validly existing and in corporate good standing
under the laws of the jurisdiction of its incorporation or organization. Each
Seller is in good standing as a foreign corporation and is licensed or qualified
to transact business in
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the jurisdictions in which the nature of the properties owned or leased by it or
the business transacted by it requires it to be so licensed or qualified, except
where the failure to be so licensed or qualified and in good standing would not
have a Material Adverse Effect. Each Seller has all requisite corporate power
and authority to carry on the businesses in which it is engaged and to own and
use the properties owned and used by it.
3.2 Authority. Each Seller has all requisite power and authority to
---------
execute and deliver this Agreement and the Ancillary Agreements to which it is a
party and to perform its obligations hereunder and thereunder. The execution
and delivery by each Seller of this Agreement and the Ancillary Agreements and
the performance by each Seller of this Agreement and the Ancillary Agreements to
which it is a party and the consummation by each Seller of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate and stockholder action on the part of each Seller. This
Agreement has been duly and validly executed and delivered by each Seller and
constitutes, and each of the Ancillary Agreements to which each Seller is a
party, upon its execution and delivery by each Seller, will constitute, a valid
and binding obligation of each Seller, enforceable against each Seller in
accordance with their respective terms.
3.3 Noncontravention.
----------------
(a) Neither the execution and delivery of this Agreement or the
Ancillary Agreements by each Seller, nor the consummation by each Seller of the
transactions contemplated hereby or thereby, will, directly or indirectly (with
or without notice or lapse of time), (i) conflict with or violate any provision
of the charter or By-laws or similar organizational documents of either Seller
or any resolution adopted by the board of directors or the stockholders of
either Seller, (ii) require on the part of either Seller any filing with, or any
permit, authorization, consent or approval of, any Governmental Entity, except
for (A) applicable requirements, if any, of the Securities Act of 1933, as
amended, and the regulations thereunder, state securities laws and the Nasdaq
National Market and (B) where the failure to obtain such permits,
authorizations, consents or approvals, or to make such filings, would not
prevent the Sellers from performing their respective obligations under this
Agreement and would not have a Material Adverse Effect or give any governmental
entity the right to challenge any of the transactions contemplated by this
Agreement or the Ancillary Agreements, except for any consent or approval rights
of any Governmental Entity outside the United States under applicable antitrust
laws which do not provide for pre-closing filing or notification or any consent
or approval right under the HSR Act, (iii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or require any notice,
consent or waiver
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under, any contract, lease, sublease, license, sublicense, franchise, permit,
indenture, agreement or mortgage for borrowed money, instrument of indebtedness,
Security Interest or other arrangement to which either Seller is a party or by
which either Seller is bound or to which any of the assets of either Seller is
subject, except for (A) such breaches or defaults which would not have a
Material Adverse Effect and (B) as set forth in Section 3.10 or Section 3.18 of
the Disclosure Schedule, (iv) result in the imposition of any Security Interest
upon any of the Acquired Assets, or (v) violate any order, writ, injunction,
decree, Law or Regulation applicable to either Seller or any of its properties
or assets.
(b) There are no Restricted Assets as to which the failure to obtain
all necessary consents and waivers for the assignment, transfer, sublease or
sublicense thereof as of the Closing would, individually or in the aggregate,
result in a Material Adverse Effect.
3.4 Financial Statements. The Financial Statements have been prepared
--------------------
from the books and records of the NMC Business and the CMS Business in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby (except for the lack of statements of cash flows and stockholder
equity), and fairly present in all material respects the financial condition and
results of operations of the Businesses as of the respective dates thereof and
for the periods referred to therein; provided, however, that the Financial
Statements are subject to normal year-end adjustments and lack footnotes and
other presentation items.
3.5 Absence of Certain Changes. Since the date of Exhibit A-1 and Exhibit
-------------------------- ------- --- -------
A-2, there has not been any change in the assets or liabilities of the NMC
- ---
Business or the CMS Business that has had a Material Adverse Effect.
3.6 Undisclosed Liabilities. To the Knowledge of either Seller, since the
-----------------------
date of Exhibit A-1 and Exhibit A-2, neither Seller has incurred any liability
------- --- ------- ---
(whether known or unknown, whether absolute or contingent, whether liquidated or
unliquidated, whether accrued or unaccrued, and whether due or to become due, or
otherwise) that will be an Assumed Liability, except for (a) liabilities which
(i) have arisen after the date of Exhibit A-1 and Exhibit A-2 in the Ordinary
------- ---- ------ ---
Course of Business, (ii) are similar in nature and amount to the liabilities
which are set forth on Exhibit A-1 and Exhibit A-2, and (iii) have not been
------- --- ------- ---
subsequently discharged and
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(b) contractual liabilities incurred in the Ordinary Course of Business that are
not in the aggregate material.
3.7 Tax Matters.
-----------
(a) Each Seller has filed all Tax Returns that it was required to file
and, except where the failure to file Tax Returns or to pay Taxes would not have
a material adverse effect on the financial condition of the NMC Business, taken
as a whole, or the CMS Business, taken as a whole, each Seller has paid all
Taxes that are shown to be due on any such Tax Returns.
(b) There are no liens for Taxes (other than for current Taxes not yet
due and payable) on the Acquired Assets.
3.8 Ownership and Condition of Assets.
---------------------------------
(a) Except as set forth in Section 3.8(a) of the Disclosure Schedule,
the Sellers are the true and lawful owners of, and have good and marketable
title to, all of the Acquired Assets, free and clear of all Security Interests.
Upon execution and delivery by the Sellers to the Buyer of the instruments of
conveyance referred to in Sections 2.4(b)(iii) and 2.4(b)(v), the Buyer will
become the true and lawful owner of, and will receive good and marketable title
to, the Acquired Assets, free and clear of all Security Interests.
(b) The tangible Acquired Assets have been maintained in accordance
with normal industry practice, are in good operating condition and repair
(subject to normal wear and tear) and are suitable for the purposes for which
they presently are used.
(c) Section 3.8(c) of the Disclosure Schedule lists (i) all Acquired
Assets owned by either Seller which are fixed assets (within the meaning of
GAAP), indicating the cost, accumulated book depreciation (if any) and the net
book value of each such fixed asset as of the date of Exhibit A-1 and Exhibit A-
------- --- ------- -
2 and (ii) all other Acquired Assets owned by either Seller of a tangible nature
- -
(other than inventories) whose book value exceeds $10,000.
3.9 Intellectual Property.
---------------------
(a) The Sellers own or have the right to use all Intellectual Property
used in the operation of the NMC Business or the CMS Business or necessary for
the operation of the NMC Business or the CMS Business as presently conducted.
Upon execution and delivery by the Sellers to the Buyer of the instruments of
conveyance
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referred to in Sections 2.4(b)(iii) and 2.4(b)(v), each such item of
Intellectual Property owned by either Seller will be owned by the Buyer
immediately following the Closing, and each such item of Intellectual Property
available for use by either Seller will be available for use by the Buyer on
identical terms and conditions immediately following the Closing. Each Seller
has taken reasonable measures to protect the proprietary nature of each item of
Intellectual Property, and to maintain in confidence all trade secrets and
confidential information, that it owns or uses in connection with the NMC
Business or the CMS Business. No other person or entity has any rights to any of
the Intellectual Property used in the NMC Business or the CMS Business (except
pursuant to agreements or licenses specified in Section 3.9(c) or 3.9(d) of the
Disclosure Schedule or not required to be listed in such sections of the
Disclosure Schedule), and, to the Knowledge of either Seller, no other person or
entity is infringing, violating or misappropriating any of the Intellectual
Property used in the NMC Business or the CMS Business.
(b) To the Knowledge of either Seller, the business, operations and
activities of the NMC Business and the CMS Business do not infringe or violate,
or constitute a misappropriation of, any Intellectual Property rights of any,
other person or entity (including, without limitation, either Seller or any
Affiliate of either Seller). Neither Seller has received since April 1, 1998
any complaint, claim or notice alleging any such infringement, violation or
misappropriation.
(c) Section 3.9(c) of the Disclosure Schedule identifies each patent
or trademark registration which has been issued to or is owned by either Seller
with respect to any Intellectual Property used in, relating to or arising out of
the NMC Business or the CMS Business, identifies each pending patent or
trademark application or application for registration which either Seller has
made or which either Seller owns with respect to any Intellectual Property used
in, relating to or arising out of the NMC Business or the CMS Business and
identifies each license or other agreement pursuant to which either Seller has
granted any rights to any third party with respect to any such Intellectual
Property. Each Seller has delivered to the Buyer correct and complete copies of
all such licenses and agreements (as amended to date) and have made available to
the Buyer correct and complete copies of all other written documentation
evidencing ownership of, and any claims or disputes relating to, each such item,
as well as all patents and trademark registrations and applications. With
respect to each item of Intellectual Property that either Seller owns:
(i) such Seller possesses all right, title and interest in and to
such item;
(ii) such item is not subject to any outstanding judgment, order,
decree, stipulation or injunction; and
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(iii) neither Seller has agreed to indemnify any person or
entity for or against any infringement, misappropriation or other conflict with
respect to such item.
(d) Section 3.9(d) of the Disclosure Schedule identifies each item of
Intellectual Property (other than commercially available software generally
available to the public and Intellectual Property owned by any customer of
either Seller that is used solely in connection with providing services to such
customers, which is not listed in Section 3.9(d) of the Disclosure Schedule but
with respect to which the representations set forth below in this Section 3.9(d)
are true) used by either Seller in the operation of the NMC Business or the CMS
Business or that either Seller plans to use in connection therewith in the
future, that is owned by a party other than the party using it. The Sellers
have supplied the Buyer with correct and complete copies of all licenses,
sublicenses or other agreements (as amended to date) pursuant to which the
Sellers use such Intellectual Property, all of which are listed on Section
3.9(d) of the Disclosure Schedule. With respect to each such item of
Intellectual Property:
(i) to the Knowledge of each Seller, the license, sublicense or
other agreement covering such item is legal, valid, binding, enforceable and in
full force and effect;
(ii) such license, sublicense or other agreement is assignable by
the appropriate Seller to the Buyer without the consent or approval of, or any
payment to, any party, and such license, sublicense or other agreement will
continue to be legal, valid, binding, enforceable and in full force and effect
without acceleration immediately following the Closing in accordance with the
terms thereof as in effect prior to the Closing;
(iii) neither Seller, nor to the Knowledge of either Seller, any
other party is in material breach or default thereunder, and no event has
occurred which with notice or lapse of time would constitute a material breach
or default or permit termination, modification or acceleration thereunder;
(iv) to the Knowledge of either Seller, the underlying item of
Intellectual Property is not subject to any outstanding judgment, order, decree,
stipulation or injunction; and
(v) neither Seller has agreed to indemnify any person or entity
for or against any interference, infringement, misappropriation or other
conflict with respect to such item .
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3.10 Contracts. The Sellers have delivered to the Buyer a correct and
---------
complete copy of each written Assigned Contract listed on Schedule 1.2(c) (each
-------- ------
as amended to date) and a description of each oral Assigned Contract listed on
Schedule 1.2(c). With respect to each written arrangement so listed, except as
- -------- ------
set forth in Section 3.10 of the Disclosure Schedule: (i) the written
arrangement is legal, valid, binding and enforceable and in full force and
effect with respect to the appropriate Seller and, to the Knowledge of such
Seller, with respect to each other party thereto; (ii) the written arrangement
is assignable by the appropriate Seller to the Buyer (or such Seller may enter
into a subcontracting arrangement with the Buyer with regard to such written
arrangement) without the consent or approval of any party; and (iii) neither
Seller, nor to the Knowledge of either Seller, any other party thereto is in
material breach or default, and no event has occurred which with notice or lapse
of time would constitute a material breach or default or permit termination,
modification or acceleration, under the written arrangement, nor is there any
dispute between the parties thereto.
3.11 Accounts Receivable; Contracts in Progress. All Accounts Receivable
------------------------------------------
reflected on the Financial Statements are valid receivables arising from
services rendered in the Ordinary Course of Business. A report showing the
aging of all Accounts Receivable is attached as Section 3.11 of the Disclosure
Schedule. All Accounts Receivable reflected in the financial or accounting
records of the NMC Business or the CMS Business that have arisen since the date
of the Financial Statements are valid receivables arising from services rendered
in the Ordinary Course of Business. For purposes of this Section 3.11, a "valid
receivable" is a receivable in respect of which the amounts so billed are
consistent with the Sellers' billing policies. As to each Contract in Progress
as of the date of this Agreement which contemplates the payment of amounts in
excess of $50,000, Section 3.11 of the Disclosure Schedule sets forth a
reasonable description of such Contracts in Progress.
3.12 Employees.
---------
(a) The Sellers have previously provided to the Buyer a list of all
employees of the NMC Business or the CMS Business as of April 30, 1999 and their
rates of compensation. To the Knowledge of either Seller, no employee of either
Seller involved in the NMC Business or the CMS Business intends not to accept
employment with the Buyer. Except as set forth in Section 3.12(a) of the
Disclosure Schedule, neither Seller has any employment or consulting agreements
that are not terminable at will without penalty. Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will trigger or otherwise result in any obligation of either Seller to
pay severance or related costs under any employment or consulting agreement.
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(b) For purposes of this Agreement, the term "employee" shall be
construed to include sales agents and other independent contractors who spend a
majority of their working time in connection with the NMC Business or the CMS
Business.
3.13 Employee Benefits.
-----------------
(a) Section 3.13(a) of the Disclosure Schedule contains a complete and
accurate list of all Employee Benefit Plans maintained or contributed to by or
on behalf of either Seller or any ERISA Affiliate. Complete and accurate copies
of all Employee Benefit Plans which have been reduced to writing have been made
available to the Buyer, and the Sellers have made available to the Buyer written
summaries of any such plans which have not been reduced to writing.
(b) The Internal Revenue Service has issued a favorable determination
letter with respect to the qualification of each of the Employee Benefit Plans
which is an "employee pension benefit plan" as such term is defined in Section
3(2) of ERISA (collectively, the "Retirement Plans") and any corresponding trust
intended to qualify under Sections 401(a) and 501(a) of the Code. No such
determination letter has been revoked and no such revocation has been
threatened, and nothing has occurred since the date of each such most recent
determination letter that could reasonably be expected to cause the relevant
Retirement Plan or trust to lose such qualification or exemption.
(c) No Employee Benefit Plan is subject to Title IV of ERISA and
neither Seller is subject to any liability to the PBGC for any termination of
any Employee Benefit Plan. Neither Seller nor any ERISA Affiliate contributes
to or has an obligation to contribute to, or has at any time within six years
prior to the Closing Date contributed to or had an obligation to contribute to,
a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA and neither
Seller reasonably expects to incur any liability with respect to any such
multiemployer plan.
(d) No Employee Benefit Plan provides benefits after termination of
employment to any current or former employee of either Seller involved in the
NMC Business or the CMS Business (or to any beneficiary of any such current or
former employee), including but not limited to retiree health coverage and
deferred compensation, but excluding continuation of health coverage required to
be continued under Section 4980B of the Code and insurance conversion privileges
under state law.
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(e) Section 3.13(e) of the Disclosure Schedule discloses each: (i)
agreement with any director, executive officer or other employee of either
Seller involved in the NMC Business or the CMS Business with an annual salary
including bonus in excess of $75,000 (A) the benefits of which are contingent,
or the terms of which are materially altered, upon the occurrence of a
transaction involving the NMC Business or the CMS Business of the nature of any
of the transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guaranty, or (C) providing severance benefits or
other benefits after the termination of employment of such director, executive
officer or employee; (ii) agreement, plan or arrangement under which any person
may receive payments from either Seller that may be subject to the tax imposed
by Section 4999 of the Code or included in the determination of such person's
"parachute payment" under Section 280G of the Code; and (iii) agreement or plan
binding either Seller, including without limitation any Employee Benefit Plan,
any of the benefits of which will be increased, or the vesting of the benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement.
3.14 Environmental Matters.
---------------------
(a) Each Seller has complied in all material respects with all
Environmental Laws. There is no pending or, to the Knowledge of either Seller,
threatened civil or criminal litigation, written notice of violation, formal
administrative proceeding, or investigation, inquiry or information request by
any Governmental Entity, relating to any Environmental Law applicable to either
Seller, the Acquired Assets, the NMC Business or the CMS Business.
(b) There have been no material releases of any Materials of
Environmental Concern into the environment at (i) any parcel of real property or
any facility formerly or currently owned, leased, operated or controlled by
either Seller or (ii) to the Knowledge of either Seller, any facility to which
either Seller has delivered products for manufacturing, processing, packaging or
distribution. Neither Seller is aware of any releases of Materials of
Environmental Concern at parcels of real property or facilities other than those
owned, leased, operated or controlled by either Seller that could reasonably be
expected to have a material impact on such real property or facilities resulting
in any liability to either Seller.
(c) Set forth in Section 3.14(c) of the Disclosure Schedule is a list
of all environmental reports, site surveys, subsurface studies, investigations
and audits (whether conducted by or on behalf of either Seller or a third party,
and whether done at the initiative of either Seller or, if known to either
Seller, directed by a
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Governmental Entity or other third party) relating to premises currently or
previously owned, leased or operated by either Seller at which the NMC Business
or the CMS Business has been or is currently conducted. Complete and accurate
copies of each such report, or the results of each such investigation or audit,
have been provided to the Buyer.
(d) Set forth in Section 3.14(d) of the Disclosure Schedule is a list
of all of the solid and hazardous waste transporters and treatment, storage and
disposal facilities that have been utilized by either Seller. Neither Seller is
aware of any environmental liability of any such transporter or facility.
3.15 Certain Business Relationships With Affiliates. Neither Seller (with
----------------------------------------------
respect to its operations other than the NMC Business or the CMS Business) nor
any Affiliate of either Seller (a) has any claim or cause of action against the
Acquired Assets, or (b) owes any money in connection with the NMC Business or
the CMS Business to either Seller. Section 3.15 of the Disclosure Schedule
describes any transaction or relationships between either Seller (with respect
to its operations other than the NMC Business or the CMS Business) and its
Affiliates, on the one hand, and the NMC Business or the CMS Business, on the
other hand.
3.16 Brokers' Fees. Neither Seller has any liability or obligation to pay
-------------
any fees or commissions to any broker or finder with respect to the transactions
contemplated by this Agreement.
3.17 Customers and Suppliers. Section 3.17 of the Disclosure Schedule sets
-----------------------
forth a list of each customer that accounted for more than 2% of the revenues of
either the CMS Business or the NMC Business during the last full fiscal year and
the amount of revenues accounted for by such customer during each such period.
Except as set forth on Section 3.17 of the Disclosure Schedule, no such customer
of the NMC Business or the CMS Business has indicated since January 1, 1998 that
it will, nor does either Seller have any reason to believe that any such
customer will terminate any of the Assigned Contracts. There are no suppliers
to the Business of significant goods or services with respect to which practical
alternative sources of supply, or comparable products, are not available on
comparable terms and conditions.
3.18 Real Property Leases. Section 3.18 of the Disclosure Schedule lists
--------------------
all real property leased or subleased to either Seller in connection with the
NMC
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Business or the CMS Business. The Sellers have delivered to the Buyer correct
and complete copies of the leases and subleases (as amended to date) listed
therein. With respect to each such lease and sublease that is being assigned to
the Buyer:
(a) the lease or sublease is legal, valid, binding, enforceable
against the appropriate Seller and in full force and effect;
(b) except as set forth on Section 3.18(b) of the Disclosure Schedule,
each lease or sublease is assignable by the appropriate Seller to the Buyer
without the consent or approval of, or any payment to, any party; assuming the
Buyer complies with all of the provisions of each lease and sublease and
performs all of lessee's obligations thereunder, all such leases or subleases
will continue to be legal, valid, binding, enforceable and in full force and
effect immediately following the Closing in accordance with the terms thereof as
in effect immediately prior to the Closing; and the consummation of the
transactions contemplated herein will not conflict with, result in a violation
or breach of, or constitute a default under (or would result in a violation,
breach or default with the giving of notice or the passage of time or both) any
such lease or sublease;
(c) neither Seller nor, to the Knowledge of either Seller, any other
party to the lease or sublease is in breach or default, and no event has
occurred which, with notice or lapse of time, would constitute a breach or
default or permit termination, modification or acceleration thereunder;
(d) there are no material disputes, oral agreements or forbearance
programs to which either Seller is a party in effect as to the lease or
sublease;
(e) neither Seller has assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in the leasehold or subleasehold;
(f) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said facilities; and
(g) none of such leases or subleases has been capitalized on the
Financial Statements.
3.19 Owned Real Property. Neither Seller owns any real property that is
-------------------
used in connection with the NMC Business or the CMS Business.
3.20 Disclosure. No representation or warranty by either Seller contained
----------
in this Agreement, and no statement contained in the Disclosure Schedule or any
other document, certificate or other instrument delivered to or to be delivered
by or on
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<PAGE>
behalf of the Sellers pursuant to this Agreement contains any untrue statement
of a material fact or omits to state any material fact necessary, in light of
the circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading. The Sellers have disclosed to the
Buyer all material information relating to the NMC Business or the CMS Business
and the transactions contemplated by this Agreement.
3.21 Investment Representation. Renaissance is acquiring the Shares and
-------------------------
the Note from the Buyer for its own account for investment and not with a view
to, or for sale in connection with, any distribution thereof, nor with any
present intention of distributing or selling the same; and, except as
contemplated by this Agreement and the agreements contemplated herein,
Renaissance has no present or contemplated agreement, undertaking, arrangement,
obligation, indebtedness or commitment providing for the disposition thereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Sellers as follows:
4.1 Organization. The Buyer is a corporation duly organized, validly
------------
existing and in corporate and tax good standing under the laws of the State of
Delaware.
4.2 Capitalization. As of the date hereof, the authorized capital stock
--------------
of the Buyer consists of 9,684,060 shares of Buyer Common Stock, of which
8,338,411 shares are issued and outstanding, and 96,632 shares of preferred
stock, $0.01 par value per share, of which 96,632 shares have been designated as
Class A Preferred, of which 5,445 shares are issued or outstanding. All of the
issued and outstanding shares of Buyer Common Stock have been duly authorized
and validly issued and are fully paid and nonassessable. Except as set forth in
Section 4.2 of the Disclosure Schedule, (i) no subscription, warrant, option,
convertible security or other right (contingent or otherwise) to purchase or
acquire any shares of capital stock of the Buyer is authorized or outstanding,
(ii) the Buyer has no obligation (contingent or otherwise) to issue any
subscription, warrant, option, convertible security or other such right or to
issue or distribute to holders of any shares of its capital stock any evidences
of indebtedness or assets of the Buyer, (iii) the Buyer has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any shares of
its capital stock or any interest therein or to pay any dividend or make any
other distribution in respect thereof, and (iv) there are no outstanding or
authorized stock appreciation, phantom
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stock or similar rights with respect to the Buyer. All of the issued and
outstanding shares of capital stock of the Buyer have been offered, issued and
sold by the Buyer in compliance with applicable federal and state securities
laws.
4.3 Authority. The Buyer has all requisite power and authority to execute
---------
and deliver this Agreement and the Ancillary Agreements to which it is a party
and to perform its obligations hereunder and thereunder. The execution and
delivery of this Agreement and the Ancillary Agreements and the performance by
the Buyer of this Agreement and the Ancillary Agreements to which it is a party
and the consummation by the Buyer of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate action
on the part of the Buyer. This Agreement has been duly and validly executed and
delivered by the Buyer and constitutes, and each of the Ancillary Agreements to
which the Buyer is a party, upon its execution and delivery by the Buyer, will
constitute, a valid and binding obligation of the Buyer, enforceable against the
Buyer in accordance with its terms.
4.4 Noncontravention. Neither the execution and delivery by the Buyer of
----------------
this Agreement or the Ancillary Agreements, nor the consummation by the Buyer of
the transactions contemplated hereby or thereby, will, directly or indirectly
(with or without notice or lapse of time), (a) conflict with or violate any
provision of the charter or By-laws of the Buyer or any resolution adopted by
the board of directors or stockholders of the Buyer, (b) other than as required
to be disclosed by the Seller on the Disclosure Schedule, require on the part of
the Buyer any filing with, or permit, authorization, consent or approval of, any
Governmental Entity or give any Governmental Entity the right to challenge any
of the transactions contemplated by this Agreement or the Ancillary Agreements,
(c) conflict with, result in breach of, constitute a default under, result in
the acceleration of, create in any party any right to accelerate, terminate,
modify or cancel, or require any notice, consent or waiver under, any contract,
lease, sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest or
other arrangement to which the Buyer is a party or by which it is bound or to
which any of its assets is subject, or (d) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to the Buyer or any of its
properties or assets.
4.5 Brokers' Fees. The Buyer has no liability or obligation to pay any
-------------
fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
4.6 Issuance of Securities. The issuance, sale and delivery of the Note
----------------------
and the Shares in accordance with this Agreement, and the issuance of shares of
Buyer
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<PAGE>
Common Stock issuable upon conversion of the Note have been, or will be on
or prior to the Closing, duly authorized by all necessary corporate action on
the part of the Buyer, and all shares of Buyer Common Stock have been duly
reserved for issuance. The Shares when so issued, sold and delivered against
payment therefor in accordance with the provisions of this Agreement and the
shares of Buyer Common Stock issuable upon conversion of the Note when issued
upon such conversion will be duly and validly issued, fully paid and
nonassessable.
4.7 Buyer Financial Statements. Attached as Schedule 4.7 are the
-------------------------- -------- ---
unaudited Balance Sheet, Statement of Operations and Statement of Cash Flows of
the Buyer dated as of December 31, 1998 (the "Buyer Financial Statements"). The
Buyer Financial Statements have been prepared from the books and records of the
Buyer in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby and fairly present in all material respects the
financial condition, results of operations and cash flows of the Buyer as of the
respective dates thereof and for the periods referred to therein.
4.8 Undisclosed Liabilities. To the Knowledge of the Buyer, the Buyer has
-----------------------
no liability (whether known or unknown, whether absolute or contingent, whether
liquidated or unliquidated, whether accrued or unaccrued, and whether due or to
become due, or otherwise), except for liabilities reflected on the Buyer
Financial Statements or liabilities that have arisen after the date of the Buyer
Financial Statements in the Ordinary Course of Business.
ARTICLE V
PRE-CLOSING COVENANTS
5.1 Reasonable Efforts. Each party shall use its reasonable efforts to
------------------
take all actions and to do all things necessary, proper or advisable to
consummate the transactions contemplated by this Agreement.
5.2 Notices and Consents. The Sellers shall obtain, at their expense, all
--------------------
such waivers, permits, consents, approvals or other authorizations from third
parties and Governmental Entities, and effect all such registrations, filings
and notices with or to third parties and Governmental Entities, as may be
necessary or desirable in connection with the transactions contemplated by this
Agreement and the Ancillary Agreements.
5.3 HSR Act. Each party has, prior to the date hereof, filed any
-------
Notification and Report Forms and related material that it may be required to
file with the
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Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the HSR Act. Each party shall use its best efforts
to obtain an early termination of the applicable waiting period, and shall make
any further filings or submissions of information pursuant thereto that may be
necessary, proper or advisable. Notwithstanding any other provision in this
Agreement, the Buyer shall not be obligated to respond to formal requests for
additional information or documentary material pursuant to 16 C.F.R. 803.20
under the HSR Act except to the extent it elects to do so in its sole
discretion.
5.4 Operation of the Businesses. Except as contemplated by this
---------------------------
Agreement, during the period from the date of this Agreement to the Closing, the
Sellers shall conduct the operations of the NMC Business and the CMS Business
only in the Ordinary Course of Business and in compliance with all applicable
Laws and Regulations and, to the extent consistent therewith, use all reasonable
efforts to preserve intact the current business organization of the NMC Business
and the CMS Business, keep the physical assets of the NMC Business and the CMS
Business in good working condition, keep available the services of the current
officers and employees of the NMC Business or the CMS Business and preserve the
relationships of each Seller with its customers, suppliers and others having
business dealings with the NMC Business or the CMS Business. Without limiting
the generality of the foregoing, prior to the Closing, neither Seller shall take
any of the following actions with respect to the NMC Business or the CMS
Business without the prior written consent of the Buyer:
(a) acquire, sell, lease, encumber or dispose of any assets or any
shares or other equity interests in or securities of any corporation,
partnership, association or other business organization or division thereof,
other than purchases and sales of assets in the Ordinary Course of Business;
(b) create, incur or assume any debt not currently outstanding
(including obligations in respect of capital leases), other than in the Ordinary
Course of Business;
(c) assume, guaranty, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person;
(d) make any loans, advances or capital contributions to, or
investments in, any other person;
(e) enter into, adopt or amend any Employee Benefit Plan or any
employment or severance agreement or arrangement of the type described in
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Section 3.16 or increase in any manner the compensation or fringe benefits of,
or materially modify the employment terms of, its directors, officers or
employees, generally or individually, or pay any benefit not required by the
terms in effect on, the date hereof of any existing Employee Benefit Plan or,
except in the Ordinary Course of Business, hire any new employees or
consultants;
(f) change its accounting methods, principles or practices, except
insofar as may be required by a generally applicable change in GAAP, or make any
new elections with respect to Taxes affecting the Acquired Assets or any changes
in current elections with respect to Taxes affecting the Acquired Assets after
the date hereof;
(g) discharge or satisfy any Security Interest or pay any obligation
or liability other than in the Ordinary Course of Business;
(h) mortgage or pledge any property or assets or subject any such
assets to any Security Interest;
(i) sell, assign, transfer, license or sublicense any Intellectual
Property, other than in the Ordinary Course of Business;
(j) enter into, amend, terminate, take or omit to take any action that
would constitute a violation of or default under, or waive any rights under, any
contract or agreement listed in Section 3.10 of the Disclosure Schedule;
(k) enter into any written arrangement (including written agreements)
which creates a liability on the part of either Seller in excess of $25,000;
(l) make or commit to make any capital expenditure in excess of
$10,000 per item or total capital expenditures in excess of $50,000 in the
aggregate;
(m) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in (i) any of the representations and warranties of either Seller set
forth in this Agreement becoming untrue or (ii) any of the conditions to the
Closing set forth in Article VI not being satisfied;
(n) fail to take any action reasonably necessary to preserve the
validity of any Intellectual Property or Permit; or
(o) agree in writing or otherwise to take any of the foregoing
actions.
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<PAGE>
In addition, during the period from the date of this Agreement to the
Closing, each Seller shall (i) accept customer orders in the Ordinary Course of
Business and (ii) cooperate with the Buyer in communicating with suppliers and
customers to accomplish the transfer of the Acquired Assets to, and the purchase
of the NMC Business and the CMS Business by, the Buyer on the Closing Date.
5.5 Full Access. Each Seller shall permit representatives of the Buyer to
-----------
have full access to all premises, properties, financial, Tax and accounting
records, contracts, other records and documents and personnel of or pertaining
to the NMC Business or the CMS Business and to conduct such tests and
inspections as may be reasonable or appropriate; provided, however, that such
access shall be allowed only during normal business hours and with reasonable
advance notice and in such manner as not to interfere unreasonably with the
normal business operations of the NMC Business or the CMS Business. Prior to
the Closing, the Sellers shall also furnish to the Buyer or its representatives
such information as the Buyer may request in connection with any review,
investigation or examination of the books and records, accounts, contracts,
properties, assets, operations and facilities of or relating to the NMC Business
or the CMS Business. In connection therewith, the Sellers shall direct and
authorize their independent public accountants to make available to the Buyer
and to the independent public accountants representing the Buyer all working
papers pertaining to the examination and audit by such accountants of the NMC
Business or the CMS Business.
5.6 Notice of Breaches; Updates.
---------------------------
(a) The Sellers shall promptly deliver to the Buyer written notice of
any event or development that would (i) render any statement, representation or
warranty of either Seller in this Agreement (including exceptions set forth in
the Disclosure Schedule) inaccurate or incomplete in any material respect, or
(ii) constitute or result in a breach by either Seller of, or a failure by
either Seller to comply with, any agreement or covenant in this Agreement
applicable to either Seller. No such disclosure shall be deemed to avoid or
cure any such misrepresentation or breach; provided, however, that the Buyer's
only remedy with respect thereto shall be to exercise its right, if any, to
terminate this Agreement pursuant to Section 9.1.
(b) The Buyer shall promptly deliver to the Sellers written notice of
any event or development that would (i) render any statement, representation or
warranty of the Buyer in this Agreement inaccurate or incomplete in any material
respect, or (ii) constitute or result in a breach by the Buyer of, or a failure
by the Buyer to comply with, any agreement or covenant in this Agreement
applicable to the
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Buyer. No such disclosure shall be deemed to avoid or cure any such
misrepresentation or breach.
(c) The Sellers shall promptly notify the Buyer of any lawsuits,
claims, proceedings, investigations or inquiries against the NMC Business or the
CMS Business, the Sellers or any of the directors or officers of the Sellers,
between the date of this Agreement and the Closing Date, which (i) are commenced
or, to the Knowledge of either Seller, threatened and may affect the
transactions contemplated by this Agreement, or (ii) are commenced or, to the
Knowledge of either Seller, threatened and may have a Material Adverse Effect.
5.7 Exclusivity. The Sellers shall not, and shall cause their respective
-----------
Affiliates and each of their respective officers, directors, employees,
representatives and agents not to, directly or indirectly, (a) encourage,
solicit, initiate, engage or participate in discussions or negotiations with any
person or entity (other than the Buyer) concerning any merger, consolidation,
sale of assets, recapitalization or other business combination including the NMC
Business, the CMS Business or the Acquired Assets or any material portion
thereof, or (b) provide any, non-public information concerning the NMC Business
or the CMS Business to any person or entity (other than the Buyer). The Sellers
shall immediately notify the Buyer of any inquiries, discussions or negotiations
of the nature described in the first sentence of this Section 5.7.
5.8 Bulk Transfers Law. The Buyer and each of the Sellers hereby waives
------------------
compliance with the provisions of the bulk transfers statute in each of the
jurisdictions, if any, where such compliance would be required in connection
with the transactions contemplated by this Agreement (subject to the indemnity
provided for in Article VIII).
ARTICLE VI
CONDITIONS TO CLOSING
6.1 Conditions to Obligations of the Buyer. The obligation of the Buyer
--------------------------------------
to consummate the transactions to be performed by it in connection with the
Closing is subject to the satisfaction, or waiver by the Buyer, of the following
conditions:
(a) the Sellers shall have, at their expense, (i) except as
contemplated by Section 2.9. obtained all of the waivers, permits, consents,
approvals or other authorizations from third parties and Governmental Entities,
and effected all of the registrations, filings and notices with or to
Governmental Entities, as may be
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necessary to permit the Sellers to consummate the transactions contemplated by
this Agreement, and (ii) obtained all other waivers, permits, consents,
approvals or other authorizations and effected all other registrations, filings
and notices necessary or desirable in connection with the transactions
contemplated by this Agreement, except in case of clause (ii) for any which if
not obtained or effected would not have a material adverse effect on the right
of the Buyer to own, operate or control the Acquired Assets or conduct the NMC
Business or the CMS Business following the Closing or on the ability of the
parties to consummate the transactions contemplated by this Agreement,
(b) the representations and warranties of the Sellers set forth in
Article III shall be true and correct in all material respects, except for
representations and warranties already qualified by materiality, which shall be
true and correct as stated, as of the Closing as if made as of the Closing,
except for representations and warranties made as of a date, which shall be true
and correct in all material respects, except for representations and warranties
already qualified by materiality, which shall be true and correct as stated, as
of such date;
(c) the Sellers shall have performed or complied in all material
respects with their respective agreements and covenants required to be performed
or complied with under this Agreement as of or prior to the Closing;
(d) no action, suit or proceeding shall be pending before any
Governmental Entity wherein an unfavorable judgment, order, decree, stipulation
or injunction would (i) prevent consummation of any of the transactions
contemplated by this Agreement, (ii) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation, or (iii) affect
adversely the right of the Buyer to own, operate or control any of the Acquired
Assets or to conduct the NMC Business or the CMS Business as currently conducted
and as presently proposed to be conducted following the Closing, and no such
judgment, order, decree, stipulation or injunction shall be in effect;
(e) the Sellers shall have delivered to the Buyer a certificate
(without qualification as to knowledge or materiality or otherwise) to the
effect that each of the conditions specified in clauses (a) through (d) of this
Section 6.1 is satisfied in all respects;
(f) the Buyer shall have received from Ropes & Gray, counsel to the
Sellers, an opinion dated as of the Closing Date substantially in a form
attached hereto as Exhibit G;
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(g) the Buyer and the Sellers shall have entered into a Services and
Facilities Agreement in a form mutually agreeable to the parties hereto;
(h) all waiting periods applicable to this Agreement and the
transactions contemplated hereby under the HSR Act shall have expired or been
earlier terminated;
(i) the Buyer shall have received any and all waivers, permits,
consents, approvals or other authorizations from third parties and Governmental
Entities, including all registrations, filings and notices with or to
Governmental Entities, as may be necessary to permit the Buyer to consummate the
transactions contemplated by this Agreement;
(j) the Buyer shall have received from the Sellers and their
respective officers all customary closing certificates as it shall have
requested;
(k) all actions to be taken by the Sellers in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments and other documents required to effect the transactions
contemplated hereby shall be reasonably satisfactory in form and substance to
the Buyer;
(l) NMC shall have received the consent of NationsBank/Bank of America
to consummate the transactions contemplated hereby and the release of American
National Bank & Trust Company of Chicago relating to the Acquired Assets; and
(m) Renaissance shall have executed and delivered (i) the Agreement to
be Bound by Registration Agreement among Renaissance, GTCR Fund VI, L.P., ZC
Corp., GTCR VI Executive Fund, L.P. and certain other parties thereto
(collectively, the "GTCR Parties") (the "Registration Joinder") and (ii) the
Agreement to be Bound by Stockholders Agreement among Renaissance and the GTCR
Parties (the "Stockholder Joinder").
6.2 Conditions to Obligations of the Sellers. The obligations of the
----------------------------------------
Sellers to consummate the transactions to be performed by them connection with
the Closing is subject to the satisfaction, or waiver by the Sellers, of the
following conditions:
(a) the Buyer shall have, at its expense, (i) obtained all of the
waivers, permits, consents, approvals or other authorizations from third parties
and Governmental Entities, and effected all of the registrations, filings and
notices with or to Governmental Entities, as may be necessary to permit the
Buyer to consummate the transactions contemplated by this Agreement, and (ii)
obtained all other waivers,
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permits, consents, approvals or other authorizations and effected all other
registrations, filings and notices necessary or desirable in connection with the
transactions contemplated by this Agreement, except in the case of clause (ii)
for any waivers, permits, consents, approvals or authorizations in whose absence
the Closing could be consummated without materially adversely affecting the
Sellers;
(b) the representations and warranties of the Buyer set forth in
Article IV shall be true and correct in all material respects, except for
representations and warranties already qualified by materiality, which shall be
true and correct as stated, as of the Closing as if made as of the Closing,
except for representations and warranties made as of a specific date, which
shall be true and correct in all material respects, except for representations
and warranties already qualified by materiality, which shall be true and correct
as stated, as of such date;
(c) the Buyer shall have performed or complied with its agreements and
covenants required to be performed or complied with under this Agreement as of
or prior to the Closing;
(d) no action, suit or proceeding shall be pending before any
Governmental Entity wherein an unfavorable judgment, order, decree, stipulation
or injunction would (i) prevent consummation of any of the transactions
contemplated by this Agreement or (ii) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, and no
such judgment, order, decree, stipulation or injunction shall be in effect;
(e) the Buyer shall have delivered to the Sellers a certificate
(without qualification as to knowledge or materiality or otherwise) to the
effect that each of the conditions specified in clauses (a) through (c) of this
Section 6.2 is satisfied in all respects;
(f) the Sellers shall have received from Hale and Dorr LLP, special
counsel to the Buyer, an opinion dated as of the Closing Date substantially in
the form attached hereto as Exhibit H;
------- -
(g) the Buyer and the Sellers shall have entered into a Services and
Facilities Agreement in a form mutually agreeable to the parties hereto;
(h) all waiting periods applicable to this Agreement and the
transactions contemplated hereby under the HSR Act shall have expired or been
earlier terminated;
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(i) the Sellers shall have received from the Buyer and the Buyer's
officers all customary closing certificates as it shall have requested;
(j) the GTCR Parties shall have executed and delivered (i) the
Registration Joinder and (ii) the Stockholder Joinder; and
(k) all actions to be taken by the Buyer in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments and other documents required to effect the transactions
contemplated hereby shall be reasonably satisfactory in form and substance to
the Sellers.
ARTICLE VII
POST-CLOSING COVENANTS
7.1 Proprietary Information. From and after the Closing, each Seller
-----------------------
shall hold in confidence, and shall cause all of its Affiliates to hold in
confidence, all knowledge, information and documents of a confidential nature or
not generally known to the public with respect to the NMC Business or the CMS
Business, the Buyer or the Buyer's business (including without limitation the
financial information, Intellectual Property, technical information or data
relating to the materials, products or components sold, or the services offered,
in connection with the NMC Business or the CMS Business and names of customers
of the NMC Business or the CMS Business) and shall not disclose or make use of
the same without the written consent of the Buyer, except to the extent that
such knowledge, information or documents shall have become public knowledge
other than through a breach of this Agreement by either Seller or any of its
officers, employees, agents or representatives.
7.2 Solicitation and Hiring. For a period of one year after the Closing
-----------------------
Date, each Seller shall not and shall cause its Affiliates not to, either
directly or indirectly as a stockholder, investor, partner, director, officer,
employee or otherwise, (a) solicit or attempt to induce any Restricted Employee
to terminate his employment with the Buyer or any Affiliate of the Buyer or (b)
hire or attempt to hire any Restricted Employee.
7.3 Non-Competition; Referral of Customers.
--------------------------------------
(a) For a period of one year after the Closing Date, each Seller shall
not, and shall cause its Affiliates not to, directly or indirectly, (i) perform
any implementations of Vantive customer management relationship prepackaged
software, or (ii) for any business or entity that has been a customer of NMC at
a
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time since January 1, 1998, perform services that are substantially similar to
those performed by NMC for that customer.
(b) Each Seller, on its own behalf and on behalf of its Affiliates,
agrees that the duration and geographic scope of the noncompetition provision
set forth in this Section 7.3 are reasonable. In the event that any court
determines that the duration or the geographic scope, or both, are unreasonable
and that such provision is to that extent unenforceable, the parties agree that
the provision shall remain in full force and effect for the greatest time period
and in the greatest area that would not render it unenforceable. The parties
intend that this noncompetition provision shall be deemed to be a series of
separate covenants, one for each and every county of each and every state of the
United States of America and each and every political subdivision of each and
every country outside the United States of America where this provision is
intended to be effective.
(c) Each Seller shall notify its Affiliates in writing promptly after
the Closing that the NMC Business and the CMS Business have been sold to the
Buyer, and such notice shall inform such Affiliates of their obligations under
this Section 7.3.
7.4 Sharing of Data.
---------------
(a) Each Seller shall have the right for a period of seven years
following the Closing Date to have reasonable access to such books, records and
accounts, including financial and Tax information, correspondence, production
records, employment records and other records that are transferred to the Buyer
pursuant to the terms of this Agreement for the limited purposes of concluding
their involvement in the NMC Business or the CMS Business, as conducted by such
Seller prior to the Closing Date and for complying with their respective
obligations under applicable securities, Tax, environmental, employment or other
Laws and Regulations. The Buyer shall have the right for a period of seven
years following the Closing Date to have reasonable access to (i) those books,
records and accounts, including financial and Tax information, correspondence,
production records, employment records and other records that are retained by
either Seller pursuant to the terms of this Agreement, and (ii) the workpapers
of Renaissance's accountants relating to the operation of the NMC Business or
the CMS Business prior to the Closing Date, in each case to the extent that any
of the foregoing is needed by the Buyer in order to comply with its obligations
under applicable securities, Tax, environmental, employment or other Laws and
Regulations. Neither the Buyer nor either of the Sellers shall destroy any such
books, records or accounts retained by it without first providing the other
party with the opportunity to obtain or copy such books, records or accounts.
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(b) Without limiting the generality of the provisions of paragraph (a)
above, the Sellers shall make available to the Buyer such financial information
and reasonable assistance with respect to the NMC Business and the CMS Business,
including without limitation providing to the Buyer and its authorized
representatives reasonable access to the workpapers of Renaissance's accountants
relating to the operation of the NMC Business or the CMS Business prior to the
Closing Date, as is reasonably necessary for the Buyer to prepare on a timely
basis the financial statements required in connection with the preparation of a
registration statement under the Securities Act of 1933, as amended.
(c) In addition to all files and documents required to be provided
pursuant to this Agreement or the Ancillary Agreements, promptly upon request by
the Buyer made at any time following the Closing Date, the appropriate Seller
shall authorize the release to the Buyer of all files pertaining to the Acquired
Assets or the Business held by any federal, state, county or local authorities,
agencies or instrumentalities.
7.5 Cooperation in Litigation. From and after the Closing Date, each
-------------------------
party shall fully cooperate with the other in the defense or prosecution of any
litigation or proceeding already instituted or which may be instituted hereafter
against or by such other party relating to or arising out of the conduct of the
NMC Business or the CMS Business prior to or after the Closing Date (other than
litigation among the Sellers, the Buyer and/or their respective Subsidiaries or
Affiliates arising out of the transactions contemplated by this Agreement or the
Ancillary Agreements). The party requesting such cooperation shall pay the
reasonable out-of-pocket expenses incurred in providing such cooperation
(including legal fees and disbursements) by the party providing such cooperation
and by its officers, directors, employees and agents, but shall not be
responsible for reimbursing such party or its officers, directors, employees and
agent for their time spent in such cooperation.
7.6 Collection of Accounts Receivable and Contracts in Progress.
-----------------------------------------------------------
(a) The Sellers shall forward promptly to the Buyer any monies, checks
or instruments received by either of them after the Closing Date with respect to
the Accounts Receivable and the Contracts in Progress. The Sellers hereby
authorize the Buyer to open any and all mail addressed to either Seller (if
delivered to the Buyer) received on or after the Closing Date and hereby grants
to the Buyer a power of attorney to endorse and cash any checks or instruments
payable or endorsed to either Seller or its respective order and received by the
Buyer with respect to the Acquired Assets, the NMC Business or the CMS Business.
The Sellers shall provide to the Buyer such reasonable assistance as the Buyer
may request with respect to the collection of any such Accounts Receivable and
Contracts in Progress, provided the
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Buyer pays the reasonable out-of-pocket expenses of the Sellers and their
respective officers, directors and employees incurred in providing such
assistance. From and after the Closing, the Sellers shall refer all customer
inquiries relating to Accounts Receivable or Contracts in Progress to the Buyer.
(b) Any Account Receivable existing as of the Closing Date which does
not appear in the Initial Closing Statement pursuant to Section 2.6(a) or as to
which either Seller pays the Buyer Damages in an amount equal to the face amount
of such Account Receivable pursuant to Section 8.1 because of a breach of
Section 3.11 shall promptly be assigned by the Buyer to the appropriate Seller
(without recourse) and any funds thereafter collected by the Buyer with respect
to such Accounts Receivable shall be paid by the Buyer to the appropriate
Seller.
7.7 Employees. Effective as of the Closing, the Buyer shall offer
---------
employment to each employee employed primarily in the conduct of the NMC
Business or the CMS Business (except for those designated on Schedule 7.7) who
----
is actively at work as of the Closing, terminable at the will of the Buyer or as
otherwise agreed to between the Buyer and such employee. Except as otherwise
specifically required by applicable law, the Buyer shall not have any obligation
to employ or offer employment to any employee of the NMC Business or the CMS
Business other than as provided in the preceding sentence. The Buyer shall have
complete discretion to change any of the terms or conditions of employment,
compensation or benefits relating to any such employee at any time. The parties
hereto do not intend to create any third-party beneficiary rights respecting any
employee as a result of the provisions herein and specifically hereby negate any
such intention. Each Seller hereby consents to the hiring of such employees by
the Buyer and waives, to the extent necessary to allow the employment by the
Buyer of such employees, any claims or rights such Seller may have against the
Buyer or any such employee under any noncompetition, confidentiality or
employment agreement.
7.8 Employee Notices. The Sellers shall make such notices to employees as
----------------
shall be required by any applicable Laws and Regulations or by any agreements
(including any notices required to be given to any union, works council or
similar representative body).
7.9 Use of Name. Each Seller agrees, on its own behalf and on behalf of
-----------
its Subsidiaries and Affiliates, from and after the Closing, not to use any
trademark or name previously or currently used in the NMC Business or the CMS
Business, or any derivation thereof.
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ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by the Sellers. The Sellers shall jointly and
------------------------------
severally indemnify the Buyer in respect of, and hold the Buyer harmless
against, any and all Damages incurred or suffered by the Buyer or any Affiliate
thereof resulting from, relating to, constituting or arising out of:
(a) any misrepresentation or breach of warranty by either Seller
contained in this Agreement or any of the Ancillary Agreements;
(b) any failure to perform any covenant or agreement of either Seller
contained in this Agreement or any of the Ancillary Agreements; or
(c) any Retained Liabilities (including all reasonable fees and
expenses incurred by the Buyer in determining that the underlying claim or
liability is a Retained Liability).
8.2 Indemnification by the Buyer. The Buyer shall indemnify the Sellers
----------------------------
in respect of, and hold the Sellers harmless against, any and all Damages
incurred or suffered by any of the Sellers or any Affiliate thereof resulting
from, relating to, constituting or arising out of:
(a) any misrepresentation or breach of warranty by the Buyer contained
in this Agreement or any of the Ancillary Agreements;
(b) any failure to perform any covenant or agreement of the Buyer
contained in this Agreement or any of the Ancillary Agreements; or
(c) any Assumed Liabilities (including all reasonable fees and
expenses incurred by the Seller in determining that the underlying claim or
liability is an Assumed Liability).
8.3 Claims for Indemnification. Whenever any claim shall arise for
--------------------------
indemnification hereunder, the Indemnified Party shall promptly notify (in
accordance with Section 10.7) the Indemnifying Party of the claim and, when
known, the facts constituting the basis for such claim; provided, however, that
no delay on the part of the Indemnified Party in notifying the Indemnifying
Party shall relieve the Indemnifying Party from any liability or obligation
hereunder except to the extent of any damage or liability caused by or arising
out of such failure. In the event of any such claim for indemnification
hereunder resulting from or in connection with any
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claim or legal proceedings by a third party, the notice to the Indemnifying
Party shall specify, if known, the amount or an estimate of the amount of the
liability arising therefrom. The Indemnified Party shall not settle or
compromise any claim by a third party for which it is seeking indemnification
hereunder without the prior written consent of the Indemnifying Party (which
consent shall not be unreasonably withheld), unless the Indemnifying Party shall
not have taken control of the defense of such claim as provided in Section 8.4
of this Agreement, after notification thereof pursuant to this Section 8.3, in
which case the Indemnified Party may settle or compromise such claim without the
Indemnifying Party's consent.
8.4 Defense by the Indemnifying Party.
---------------------------------
(a) Subject to Section 8.4(b), in connection with any claim for
indemnification hereunder resulting from or arising out of any claim or legal
proceeding by a third party, the Indemnifying Party at its sole cost and expense
may, upon written notice to the Indemnified Party given within 10 days after the
date of the notice of the claim from the Indemnified Party pursuant to Section
8.3, assume the defense of such claim or legal proceeding with counsel approved
by the Indemnified Party, which approval shall not be unreasonably withheld, if
(i) the Indemnifying Party acknowledges to the Indemnified Party in writing the
Indemnifying Party's obligations to indemnify the Indemnified Party with respect
to all elements of such claim, (ii) the third party seeks monetary damages only,
and (iii) an adverse resolution of the third party's claim would not have a
Material Adverse Effect on the goodwill or the reputation of the Indemnified
Party, the NMC Business or the CMS Business or the future conduct of the
business of the Indemnified Party, the NMC Business or the CMS Business. If the
Indemnifying Party so assumes such defense, the Indemnified Party shall be
entitled to participate in (but not control) such defense, with its counsel and
at its own expense. In addition, if the Indemnifying Party so assumes such
defense, it shall take all steps necessary in the defense or settlement thereof.
If the Indemnifying Party does not (or is not permitted under the terms hereof
to) assume the defense of any such claim or legal proceeding, (A) the
Indemnified Party may defend against such claim or legal proceeding (with the
Indemnifying Party responsible for the reasonable fees and expenses of counsel
for the Indemnified Party) in such manner as it may deem appropriate, including
but not limited to settling such claim or legal proceeding on such terms as the
Indemnified Party may deem appropriate, and (B) the Indemnifying Party shall be
entitled to participate in (but not control) the defense of such action, with
its counsel and at its own expense. The party controlling the defense of a
third party claim pursuant to this Section 8.4 shall keep the other party
advised of the status of such action, suit or proceeding and the defense thereof
and shall consider in good faith recommendations made by the other party with
respect thereto.
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(b) If a customer or supplier of the NMC Business or the CMS Business
asserts that the NMC Business, the CMS Business or the Buyer is liable to such
party for a monetary or other obligation which may constitute or result in
Damages for which the Buyer may be entitled to indemnification pursuant to this
Article VIII, and the Buyer reasonably determines that it has a valid business
reason to fulfill such obligation, then (i) the Buyer shall be entitled to
satisfy such obligation, without prior notice to or consent from either of the
Sellers, (ii) the Buyer may make a claim for indemnification pursuant to this
Article VIII in accordance with the provisions hereof, and (iii) the Buyer shall
be reimbursed, in accordance with the provisions hereof, for any such Damages
for which it is entitled to indemnification pursuant to this Article VIII.
8.5 Payment of Indemnification Obligation. All indemnification by the
-------------------------------------
Indemnifying Party hereunder shall be effected promptly as Damages are incurred
by payment of cash, delivery of a cashier's or certified check or wire transfer
of immediately available funds to an account designated by the Indemnified Party
in the amount of the indemnification liability; provided, however, that if the
Indemnifying Party is a Seller, the Buyer, as the Indemnified Party, may, at the
Buyer's election, recover all or any portion of such Damages that are not paid
in cash or by check or wire transfer by setting off against amounts otherwise
due and payable under the Note.
8.6 Survival.
--------
(a) All representations, warranties, covenants and obligations in this
Agreement, the Ancillary Agreements, the Disclosure Schedule, any supplements to
the Disclosure Schedule and any other certificate or documents delivered
pursuant to this Agreement will survive the Closing, and the right to
indemnification, reimbursement or other remedy based on such representations,
warranties, covenants and obligations will not be affected by any investigation
conducted with respect to, or any knowledge acquired (or capable of being
acquired) about the accuracy or inaccuracy of or compliance with, any such
representations, warranty, covenants or obligations. If the Closing occurs, an
Indemnifying Party will have no liability for indemnification with respect to
any representation or warranty, other than those in Sections 3.1, 3.2, 3.7,
3.14, 4.1 or 4.3 (subject, in the case of Sections 3.7 and 3.14, to applicable
statutes of limitations), unless on or before the first anniversary of the
Closing Date the Indemnifying Party is given notice of a claim pursuant to
Section 8.3 hereof. However, the preceding sentence of this Section 8.6 will
not apply in any situation in which the Indemnifying Party knew at the time the
representation and warranty was made that it was false. A claim with respect to
Section 3.7 or Section 3.14 may be made at any time on or before the expiration
date of the
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applicable statute of limitations. A claim with respect to Sections 3.1, 3.2,
4.1 or 4.3, or a claim for indemnification or reimbursement not based upon any
representation or warranty in Article III or Article IV, may be made at any
time.
(b) If a notice is given in accordance with Section 8.3 before the
expiration of the applicable survival period (if any) specified in Section
8.6(a), then (notwithstanding the expiration of such time period) the
representation or warranty applicable to such claim shall survive until, but
only for purposes of, the resolution of such claim.
8.7 Limitations on Amount. An Indemnifying Party will have no liability
---------------------
for indemnification pursuant to Section 8.1(a) or 8.2(a) (or, in the case of
either Seller, as a result of any alleged breach of the obligations set forth in
Section 5.2) until the aggregate Damages to the Indemnified Party exceed
$150,000 (at which point the Indemnified Party shall become liable for only
those aggregate Damages in excess of $150,000). However, the preceding sentence
of this Section 8.7 will not apply to indemnification arising from any fraud on
the part of the Indemnifying Party and will not apply to any breach of the
representations and warranties set forth in Sections 3.1, 3.2, 3.3(a)(i), 3.7,
4.1, 4.3 or 4.4(a). For purposes of this Article VIII, all representations and
warranties of the Sellers contained in Article III (other than Section 3.20)
shall be construed as if the term "Material" and any, reference to "Material
Adverse Effect" (and variations thereof) were omitted from such representations
and warranties.
8.8 Buyer Guaranty. In the event the Buyer designates a Designated
--------------
Transferee to buy the Acquired Assets, the Buyer hereby unconditionally
guaranties the due and punctual payment and performance of all of the
obligations of Designated Transferee set forth in this Agreement. This guaranty
is an irrevocable guaranty of payment (and not just of collection) and shall
continue in effect notwithstanding any extension or modification of the terms of
this Agreement, any assumption of any such guaranteed obligation by any other
party or any other act or event that might otherwise operate as a legal or
equitable discharge of Buyer under this Section 8.8. This guaranty is in no way
conditioned upon any requirement that either Seller first attempt to collect or
enforce any guaranteed obligation from or against any Designated Transferee. So
long as any obligation of any Designated Transferee to either Seller under this
Agreement remains unpaid or undischarged, the Buyer hereby waives (but only with
respect to the Sellers and their respective Affiliates and not as to any other
parties) all rights to subrogation arising out of any payment by the Buyer under
this Section 8.8.
The obligations of the Buyer hereunder shall be absolute and unconditional
irrespective of the validity, legality or enforceability of this Agreement or
any other
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document related hereto, and shall not be affected by or contingent upon (i) the
liquidation or dissolution of, or the merger or consolidation of any Designated
Transferee with of into any corporation, or any sale or transfer by any
Designated Transferee or all or any part of its property or assets, (ii) the
bankruptcy, receivership, insolvency, reorganization or similar proceedings
involving or affecting any Designated Transferee, (iii) any modification,
alteration, amendment or addition of or to this Agreement, or (iv) any
disability or any other defense of any Designated Transferee or any other person
and any other circumstance whatsoever (with or without notice to or Knowledge of
the Buyer) which may or might in any manner or to any extent vary the risks of
the Buyer or might otherwise constitute a legal or equitable discharge of a
surety or a guarantor or otherwise.
The Buyer hereby waives all special suretyship defenses and protest, notice
of protest, demand for performance, diligence, notice of any other action at any
time taken or omitted by either Seller and, generally, all demands and notices
of every kind in connection with this Section 8.8 and the obligations of any
Designated Transferee hereby guaranteed, and which Buyer may otherwise assert
against either Seller.
This Section 8.8 shall continue to be effective or shall be reinstated, as
the case may be, if at any time payment or performance of any of the obligations
of any Designated Transferee under this Agreement is rescinded or must otherwise
be restored any Designated Transferee or returned by the Sellers upon the
insolvency, bankruptcy or reorganization of any Designated Transferee or
otherwise.
The Buyer acknowledges that each of the waivers set forth above is made
with full knowledge of its significance and consequences and under the
circumstances the waivers are reasonable and not contrary to public policy. If
any of said waivers is determined to be contrary to any applicable law or public
policy, such waivers shall be effective only to the extent permitted by law.
ARTICLE IX
TERMINATION
9.1 Termination of Agreement. The parties may terminate this Agreement
------------------------
prior to the Closing as provided below:
(a) the parties may terminate this Agreement by mutual written
consent;
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(b) the Buyer may terminate this Agreement by giving written notice to
the Sellers in the event either Seller is in breach, and either Seller may
terminate this Agreement by giving written notice to the Buyer in the event the
Buyer is in breach, of any material representation, warranty or covenant
contained in this Agreement, which breach is not cured within 15 days of the
receipt of notice by the breaching Party delivered in accordance with the
provisions, of Section 10.7 of this Agreement;
(c) the Buyer may terminate this Agreement by giving written notice to
the Sellers if the Closing shall not have occurred on or before June 30, 1999 by
reason of the failure of any condition precedent under Section 6.1 hereof
(unless the failure results primarily from a breach by the Buyer of any
representation, warranty or covenant contained in this Agreement); or
(d) the Sellers may terminate this Agreement by giving written notice
to the Buyer if the Closing shall not have occurred on or before June 30, 1999
by reason of any failure of any condition precedent under Section 6.2 hereof
(unless the failure results primarily from a breach by either Seller of any
representation, warranty or covenant contained in this Agreement).
9.2 Effect of Termination. If any party terminates this Agreement
---------------------
pursuant to Section 9.1, all obligations of the parties hereunder shall
terminate without any liability of any party to any other party (except for any
liability of any party for breaches of this Agreement, including without
limitation breaches of the covenants set forth in Article V, occurring prior to
such termination).
ARTICLE X
MISCELLANEOUS
10.1 Press Releases and Announcements. Prior to the Closing, no party
--------------------------------
shall issue any press release or announcement relating to the subject matter of
this Agreement without the prior written approval of the other party; provided,
however, that any party may make any public disclosure it believes in good faith
is required by Law or Regulation or the applicable rules of a stock exchange;
and provided, further, that the Buyer may issue press releases or make other
public announcements concerning the execution of this Agreement and the terms
thereof with the prior written approval of Renaissance, which approval shall not
be unreasonably withheld or delayed.
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10.2 No Third Party Beneficiaries. This Agreement (including without
----------------------------
limitation Section 7.7 hereof) shall not confer any rights or remedies upon any
person other than the parties and their respective successors and permitted
assigns.
10.3 Entire Agreement. This Agreement (including the documents referred to
----------------
herein) constitutes the entire agreement between the parties and supersedes any
prior understandings, agreements or representations by or between the parties,
written or oral, that may have related in any way to the subject matter hereof.
Notwithstanding the foregoing, the provisions of the Mutual Non-Disclosure
Agreement, dated April 13, 1999, between the Buyer and Renaissance shall survive
until the Closing, whereupon it shall terminate.
10.4 Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of its
rights, interests or obligations hereunder, whether by operation of law or
otherwise, without the prior written approval of the other party, except that
the Buyer may assign some or all of its rights, interests and/or obligations
hereunder to one or more Affiliates of the Buyer (each, a "Designated
Transferee"); provided, however, that such assignment shall be conditioned upon
the guaranty provided in Section 8.8 hereof. If the Buyer assigns any of its
rights, interests and/or obligations hereunder to one or more Designated
Transferees, then, unless the contract otherwise requires, all references herein
to the Buyer shall mean and include any and all such Designated Transferees.
10.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
10.6 Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 Notices. All notices, requests, demands, claims and other
-------
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly delivered three days after
it is sent by U.S. registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent via a reputable nationwide
overnight courier service, in each case to the intended recipient as set forth
below:
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If to the Sellers: Copy to:
- ----------------- -------
Renaissance Worldwide, Inc. Ropes & Gray
189 Wells Avenue One International Place
Newton, MA 02159 Boston, MA 02110
Telecopy: Telecopy: (617) 951-7050
Attention: Richard L. Bugley Attention: Keith F. Higgins, Esq.
Vice President, General
Counsel and Clerk
If to the Buyer: Copies to:
- --------------- ---------
ZEFER Corp. Hale and Dorr LLP
105 South Street 60 State Street
Boston, MA 02111 Boston, MA 02109
Telecopy: (617) Telecopy: (617) 526-5000
Attention: Sean W. Mullaney, Attention: David E. Redlick, Esq.
Executive Vice President
and General Counsel
Any party may also give any notice, request, demand, claim or other
communication hereunder by personal delivery or telecopy, but no such notice,
request, demand, claim or other communication shall be deemed to have been duly
given unless and until it actually is received by the individual for whom it is
intended. Any notice sent by telecopy shall be followed by a confirmation copy
sent by reputable overnight business courier service. Any Party may change the
address to which notices, requests, demands, claims and other communications
hereunder are to be delivered by giving the other Parties notice in the manner
herein set forth.
10.8 Governing, Law; Time of the Essence. This Agreement shall be governed
-----------------------------------
by and construed in accordance with the internal laws (and not the law of
conflicts) of the Commonwealth of Massachusetts. Time is of the essence in the
performance of this Agreement.
10.9 Amendments and Waivers. The parties may amend any provision of this
----------------------
Agreement at any time prior to the Closing by a written instrument signed by
each of the parties. No waiver by either party of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent such
occurrence.
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<PAGE>
10.10 Severability. Any term or provision of this Agreement that is
------------
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
10.11 Expenses. Except as specifically set forth in this Agreement, each
--------
party shall bear its own costs and expenses (including legal and accounting fees
and expenses) incurred in connection with this Agreement and the transactions
contemplated hereby. In the event of any litigation, claim, proceeding or
arbitration with respect to this Agreement or the Ancillary Agreements, the
prevailing party shall be paid its reasonable legal fees and expenses by the
opposing party.
10.12 Specific Performance. Each party acknowledges and agrees that the
--------------------
other party would be damaged irreparably in the event any of the provisions of
this Agreement (including without limitation Sections 7.1, 7.2 and 7.3 hereof)
are not performed in accordance with their specific terms or otherwise are
breached. Accordingly, each party agrees that the other party shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court of the United States or
any foreign jurisdiction or any state or province thereof having jurisdiction
over the parties and the matter, in addition to any other remedy to which it may
be entitled, at law or in equity.
10.13 Construction. The language used in this Agreement shall be deemed
------------
to be the language chosen by the parties hereto to express their mutual intent,
and no rule of strict construction shall be applied against any party. Any
reference to any federal, state, local or foreign Law or Regulation shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise.
10.14 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
---------------------------------------
identified in this Agreement are incorporated herein by reference and made a
part hereof.
[Remainder of page intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
BUYER:
ZEFER CORP.
By:/s/ Sean W. Mullaney
----------------------------
Title:_________________________
SELLERS:
RENAISSANCE WORLDWIDE, INC.
By:____________________________
Title:_________________________
NEOGLYPHICS MEDIA
CORPORATION
By:____________________________
Title:_________________________
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
BUYER:
ZEFER CORP.
By:_______________________________
Title:____________________________
SELLERS:
RENAISSANCE WORLDWIDE, INC.
By:
Title:
By: /s/ G. Drew Conway
--------------------------------
TITLE:_____________________________
NEOGLYPHICS MEDIA
CORPORATION
BY: /s/ G. Drew Conway
--------------------------------
Title:_____________________________
<PAGE>
Exhibit 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ZEFER CORP.
ZEFER Corp. (the "Corporation"), a corporation organized and existing under
and by virtue of the General Corporation Law of Delaware, does hereby certify as
follows:
1. The Corporation filed its original Certificate of Incorporation with the
Secretary of State of the State of Delaware (the "Delaware Secretary") on March
10, 1999 under the name ZC Acquisition Corp. The Corporation's original
Certificate of Incorporation was amended and restated as follows: (i) by a
Certificate of Restated Certificate of Incorporation before Payment of Capital
filed with the Delaware Secretary on March 23, 1999; (ii) by a Certificate of
Amendment to Restated Certificate of Incorporation filed with the Delaware
Secretary on April 29, 1999; (iii) by a Certificate of Amendment of Certificate
of Incorporation filed with the Delaware Secretary on May 5, 1999; (iv) by a
Certificate of Amendment of Certificate of Incorporation filed with the Delaware
Secretary on June 15, 1999; (v) by a Certificate of Amendment of Certificate of
Incorporation filed with the Delaware Secretary on December 1, 1999 and (vi) by
a Certificate of Merger filed with the Delaware Secretary on December 28, 1999.
2. By a unanimous written action of the Board of Directors of the
Corporation, a resolution was duly adopted, pursuant to Sections 141(f), 242 and
245 of the General Corporation Law of Delaware, setting forth an Amended and
Restated Certificate of Incorporation of the Corporation and declaring said
Amended and Restated Certificate of Incorporation advisable. The stockholders of
the Corporation duly approved said proposed Amended and Restated Certificate of
Incorporation by written consent in accordance with Sections 228, 242 and 245 of
the General Corporation Law of Delaware. The resolution setting forth the
Amended and Restated Certificate of Incorporation is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation, as amended
- -------- to date, be and hereby is amended and restated in its entirety so
that the same shall read as follows:
FIRST. The name of the Corporation is:
ZEFER Corp.
SECOND. The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
<PAGE>
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 155,000,000 shares, consisting of
(i) 150,000,000 shares of Common Stock, $.001 par value per share ("Common
Stock"), and (ii) 5,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
------------
1. General. The voting, dividend and liquidation rights of the holders of
-------
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock shall have voting rights at all
------
meetings of stockholders, each such holder being entitled to one vote for each
share thereof held by such holder. There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock from
---------
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
-----------
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
---------------
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different
-2-
<PAGE>
series of Preferred Stock shall not be construed to constitute different classes
of shares for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issuance of the shares thereof, to determine and fix such voting powers,
full or limited, or no voting powers, and such designations, preferences and
relative participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, including without limitation thereof,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be stated and expressed in such resolutions, all to the
full extent now or hereafter permitted by the General Corporation Law of
Delaware. Without limiting the generality of the foregoing, the resolutions
providing for issuance of any series of Preferred Stock may provide that such
series shall be superior or rank equally or be junior to the Preferred Stock of
any other series to the extent permitted by law. Except as otherwise provided in
this Certificate of Incorporation, no vote of the holders of the Preferred Stock
or Common Stock shall be a prerequisite to the designation or issuance of any
shares of any series of the Preferred Stock authorized by and complying with the
conditions of this Certificate of Incorporation, the right to have such vote
being expressly waived by all present and future holders of the capital stock of
the Corporation.
FIFTH. Except as otherwise provided herein, the Corporation reserves the
right to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute and this Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation.
SIXTH. In furtherance and not in limitation of the powers conferred upon it
by the laws of the State of Delaware, the Board of Directors shall have the
power to adopt, amend, alter or repeal the Corporation's By-Laws. The
affirmative vote of a majority of the directors present at any regular or
special meeting of the Board of Directors at which a quorum is present shall be
required to adopt, amend, alter or repeal the Corporation's By-Laws. The
Corporation's By-Laws also may be adopted, amended, altered or repealed by the
affirmative vote of the holders of at least sixty-six and two-thirds percent (66
2/3%) of the votes which all the stockholders would be entitled to cast in any
annual election of directors or class of directors. Notwithstanding any other
provisions of law, this Certificate of Incorporation or the By-Laws of the
Corporation, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the votes which all the stockholders would be
entitled to cast in any annual election of directors or class of directors shall
be required to amend or repeal, or to adopt any provision inconsistent with,
this Article SIXTH.
SEVENTH. Except to the extent that the General Corporation Law of Delaware
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any
-3-
<PAGE>
effect on the liability or alleged liability of any director of the Corporation
for or with respect to any acts or omissions of such director occurring prior to
such amendment or repeal.
EIGHTH. 1. Actions, Suits and Proceedings Other than by or in the Right of
---------------------------------------------------------------
the Corporation. The Corporation shall indemnify each 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 he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer, partner, employee or trustee
of, or in a similar capacity with, another corporation, partnership, joint
venture, trust or other enterprise (including any employee benefit plan) (all
such persons being referred to hereafter as an "Indemnitee"), or by reason of
any action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
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, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. 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 he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
2. Actions or Suits by or in the Right of the Corporation. The Corporation
------------------------------------------------------
shall indemnify any Indemnitee 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 he is or was, or has agreed to become, a director or officer of the
Corporation, or is or was serving, or has agreed to serve, at the request of the
Corporation, as a director, officer, partner, employee or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, except that no
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 shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware shall deem proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding the
------------------------------------------------
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or
-4-
<PAGE>
otherwise, in defense of any action, suit or proceeding referred to in Sections
1 and 2 of this Article EIGHTH, or in defense of any claim, issue or matter
therein, or on appeal from any such action, suit or proceeding, he shall be
indemnified against all expenses (including attorneys' fees) actually and
reasonably incurred by him or on his behalf in connection therewith. Without
limiting the foregoing, if any action, suit or proceeding is disposed of, on the
merits or otherwise (including a disposition without prejudice), without (i) the
disposition being adverse to the Indemnitee, (ii) an adjudication that the
Indemnitee was liable to the Corporation, (iii) a plea of guilty or nolo
----
contendere by the Indemnitee, (iv) an adjudication that the Indemnitee did not
- ----------
act in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Corporation, and (v) with respect to any criminal
proceeding, an adjudication that the Indemnitee had reasonable cause to believe
his conduct was unlawful, the Indemnitee shall be considered for the purposes
hereof to have been wholly successful with respect thereto.
4. Notification and Defense of Claim. As a condition precedent to his
---------------------------------
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such action,
suit, proceeding or investigation, other than as provided below in this Section
4. The Indemnitee shall have the right to employ his own counsel in connection
with such action, suit, proceeding or investigation, but the fees and expenses
of such counsel incurred after notice from the Corporation of its assumption of
the defense thereof shall be at the expense of the Indemnitee unless (i) the
employment of counsel by the Indemnitee has been authorized by the Corporation,
(ii) counsel to the Indemnitee shall have reasonably concluded that there may be
a conflict of interest or position on any significant issue between the
Corporation and the Indemnitee in the conduct of the defense of such action,
suit, proceeding or investigation or (iii) the Corporation shall not in fact
have employed counsel to assume the defense of such action, suit, proceeding or
investigation, in each of which cases the fees and expenses of counsel for the
Indemnitee shall be at the expense of the Corporation, except as otherwise
expressly provided by this Article. The Corporation shall not be entitled,
without the consent of the Indemnitee, to assume the defense of any claim
brought by or in the right of the Corporation or as to which counsel for the
Indemnitee shall have reasonably made the conclusion provided for in clause (ii)
above. The Corporation shall not be required to indemnify the Indemnitee under
this Article for any amounts paid in settlement of any action, suit, proceeding
or investigation effected without its written consent. The Corporation shall not
settle any action, suit, proceeding or investigation in any manner which would
impose any penalty or limitation on the Indemnitee without the Indemnitee's
written consent. Neither the Corporation nor the Indemnitee will unreasonably
withhold or delay its consent to any proposed settlement.
5. Advance of Expenses. Subject to the provisions of Section 6 of this
-------------------
Article EIGHTH, in the event that the Corporation does not assume the defense
pursuant to Section 4 of
-5-
<PAGE>
this Article EIGHTH of any action, suit, proceeding or investigation of which
the Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the Corporation in advance of the final disposition of such matter; provided,
--------
however, that the payment of such expenses incurred by the Indemnitee in advance
- -------
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Article; and
further provided that no such advancement of expenses shall be made if it is
determined (in the manner described in Section 6) that (i) the Indemnitee did
not act in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, or (ii) with respect to any
criminal action or proceeding, the Indemnitee had reasonable cause to believe
his conduct was unlawful. Such undertaking shall be accepted without reference
to the financial ability of the Indemnitee to make such repayment.
6. Procedure for Indemnification. In order to obtain indemnification or
-----------------------------
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article EIGHTH,
the Indemnitee shall submit to the Corporation a written request, including in
such request such documentation and information as is reasonably available to
the Indemnitee and is reasonably necessary to determine whether and to what
extent the Indemnitee is entitled to indemnification or advancement of expenses.
Any such advancement of expenses shall be made promptly, and in any event within
60 days after receipt by the Corporation of the written request of the
Indemnitee, unless with respect to requests under Section 1, 2 or 5 of this
Article EIGHTH the Corporation determines within such 60-day period that the
Indemnitee did not meet the applicable standard of conduct set forth in Section
1, 2 or 5 of this Article EIGHTH, as the case may be. Any such indemnification,
unless ordered by a court, shall be made with respect to requests under Section
1 or 2 only as authorized in the specific case upon a determination by the
Corporation that the indemnification of the Indemnitee is proper because the
Indemnitee has met the applicable standard of conduct set forth in Section 1 or
2, as the case may be. Such determination shall be made in each instance (a) by
a majority vote of the directors of the Corporation consisting of persons who
are not at that time parties to the action, suit or proceeding in question
("disinterested directors"), whether or not a quorum, (b) by a majority vote of
a committee of disinterested directors designated by majority vote of
disinterested directors, whether or not a quorum, (c), if there are no
disinterested directors, or if disinterested directors so direct, by independent
legal counsel (who may, to the extent permitted by law, be regular legal counsel
to the Corporation) in a written opinion, or (d) by the stockholders of the
Corporation.
7. Remedies. The right to indemnification or advances as granted by this
--------
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction. Neither the failure of the Corporation to have made a
determination prior to the commencement of such action that indemnification is
proper in the circumstances because the Indemnitee has met the applicable
standard of conduct, nor an actual determination by the Corporation pursuant to
Section 6 of this Article EIGHTH that the Indemnitee has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the Indemnitee has not met the applicable
-6-
<PAGE>
standard of conduct. The Indemnitee's expenses (including attorneys' fees)
incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the Corporation.
8. Limitations. Notwithstanding anything to the contrary in this Article,
-----------
except as set forth in Section 7 of the Article EIGHTH, the Corporation shall
not indemnify an Indemnitee in connection with a proceeding (or part thereof)
initiated by the Indemnitee unless the initiation thereof was approved by the
Board of Directors of the Corporation. Notwithstanding anything to the contrary
in this Article, the Corporation shall not indemnify an Indemnitee to the extent
such Indemnitee is reimbursed from the proceeds of insurance, and in the event
the Corporation makes any indemnification payments to an Indemnitee and such
Indemnitee is subsequently reimbursed from the proceeds of insurance, such
Indemnitee shall promptly refund such indemnification payments to the
Corporation to the extent of such insurance reimbursement.
9. Subsequent Amendment. No amendment, termination or repeal of this
--------------------
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
10. Other Rights. The indemnification and advancement of expenses provided
------------
by this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in any other capacity while holding office for the Corporation,
and shall continue as to an Indemnitee who has ceased to be a director or
officer, and shall inure to the benefit of the estate, heirs, executors and
administrators of the Indemnitee. Nothing contained in this Article shall be
deemed to prohibit, and the Corporation is specifically authorized to enter
into, agreements with officers and directors providing indemnification rights
and procedures different from those set forth in this Article. In addition, the
Corporation may, to the extent authorized from time to time by its Board of
Directors, grant indemnification rights to other employees or agents of the
Corporation or other persons serving the Corporation and such rights may be
equivalent to, or greater or less than, those set forth in this Article.
11. Partial Indemnification. If an Indemnitee is entitled under any
-----------------------
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
12. Insurance. The Corporation may purchase and maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another
-7-
<PAGE>
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan) against any expense, liability or loss incurred by
him in any such capacity, or arising out of his status as such, whether or not
the Corporation would have the power to indemnify such person against such
expense, liability or loss under the General Corporation Law of Delaware.
13. Merger or Consolidation. If the Corporation is merged into or
-----------------------
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
14. Savings Clause. If this Article or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
15. Definitions. Terms used herein and defined in Section 145(h) and
-----------
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
16. Subsequent Legislation. If the General Corporation Law of Delaware is
----------------------
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
NINTH. This Article is inserted for the management of the business and for
the conduct of the affairs of the Corporation.
1. Number of Directors; Election of Directors. The number of directors of
------------------------------------------
the Corporation shall not be less than three. The exact number of directors
within the limitations specified in the preceding sentence shall be determined
from time to time by, or in the manner provided in, the By-Laws of the
Corporation. Election of directors need not be by written ballot, except as and
to the extent provided in the By-Laws of the Corporation.
2. Classes of Directors. The Board of Directors shall be and is divided
--------------------
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the authorized number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided by resolution of the Board of Directors.
-8-
<PAGE>
3. Terms of Office. Each director shall serve for a term ending on the
---------------
date of the third annual meeting following the 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 of stockholders
held in 2001; each initial director in Class II shall serve for a term expiring
at the Corporation's annual meeting of stockholders held in 2002; and each
initial director in Class III shall serve for a term expiring at the
Corporation's annual meeting of stockholders held in 2003; provided further,
that the term of each director shall continue until the election and
qualification of his successor and be subject to his earlier death, resignation
or removal.
4. Allocation of Directors Among Classes in the Event of Increases or
------------------------------------------------------------------
Decreases in the Authorized Number of Directors. In the event of any increase or
- -----------------------------------------------
decrease in the authorized number of directors, (i) each director then serving
as such shall nevertheless continue as a director of the class of which he is a
member until the expiration of his current term, subject to his earlier death,
resignation or removal and (ii) the newly created or eliminated directorships
resulting from such increase or decrease shall be apportioned by the Board of
Directors among the three classes of directors in accordance with the provisions
of Section 2 of this Article NINTH. To the extent possible, consistent with the
provisions of Section 2 of this Article NINTH, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation, and any newly eliminated directorships
shall be subtracted from those classes whose terms of offices are to expire at
the earliest dates following such allocation, unless otherwise provided from
time to time by resolution of the Board of Directors.
5. Quorum. A majority of the directors at any time in office shall
------
constitute a quorum for the transaction of business. In the event one or more of
the directors shall be disqualified to vote at any meeting, then the required
quorum shall be reduced by one for each director so disqualified, provided that
in no case shall less than one-third of the number of directors fixed pursuant
to Section 1 of this Article NINTH constitute a quorum. If at any meeting of the
Board of Directors there shall be less than such a quorum, a majority of the
directors present may adjourn the meeting from time to time without further
notice other than announcement at the meeting, until a quorum shall be present.
6. Action at Meeting. Every act or decision done or made by a majority of
-----------------
the directors present at a meeting duly held at which a quorum is present shall
be regarded as the act of the Board of Directors unless a greater number is
required by law, by this Certificate of Incorporation, or by the By-Laws of the
Corporation.
7. Removal. Directors of the Corporation may be removed only for cause by
-------
the affirmative vote of the holders of at least a majority of the votes which
all the stockholders would be entitled to cast in any annual election of
directors or class of directors.
8. Vacancies. Any vacancy in the Board of Directors, however occurring,
---------
including a vacancy resulting from an enlargement of the Board, shall be filled
only by vote of a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. A
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<PAGE>
director elected to fill a vacancy shall be elected to hold office until the
next election of the class for which such director shall have been chosen,
subject to the election and qualification of his successor and to his earlier
death, resignation or removal.
9. Stockholder Nominations and Introduction of Business, Etc. Advance
---------------------------------------------------------
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-Laws of the Corporation.
10. Amendments to Article. Notwithstanding any other provisions of law,
---------------------
this Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least sixty-six and two-thirds percent (66
2/3%) of the votes which all the stockholders would be entitled to cast in any
annual election of directors or class of directors shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Article NINTH.
TENTH. Special meetings of stockholders for any purpose or purposes may be
called at any time by the Board of Directors, the Chairman of the Board or the
President, but such special meetings may not be called by any other person or
persons. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting. Notwithstanding any other provision of law, this Certificate of
Incorporation or the By-Laws of the Corporation, and notwithstanding the fact
that a lesser percentage may be specified by law, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the votes
which all the stockholders would be entitled to cast in any annual election of
directors or class of directors shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article TENTH.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by its duly authorized officer this
_____ day of ___________, 2000.
ZEFER CORP.
By:___________________________________
Name: William A. Seibel
Title: President
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<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED BY-LAWS
OF
ZEFER CORP.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I STOCKHOLDERS..................................................... 1
1.1 Place of Meetings................................................ 1
1.2 Annual Meeting................................................... 1
1.3 Special Meetings................................................. 1
1.4 Notice of Meetings............................................... 1
1.5 Voting List...................................................... 1
1.6 Quorum........................................................... 2
1.7 Adjournments..................................................... 2
1.8 Voting and Proxies............................................... 2
1.9 Action at Meeting................................................ 2
1.10 Nomination of Directors.......................................... 2
1.11 Notice of Business at Annual Meetings............................ 4
1.12 Conduct of Meetings.............................................. 5
1.13 Action by Written Consent in Lieu of a Meeting................... 6
ARTICLE II DIRECTORS........................................................ 7
2.1 General Powers................................................... 7
2.2 Number, Election and Qualification............................... 7
2.3 Classes of Directors............................................. 7
2.4 Terms of Office.................................................. 7
2.5 Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Authorized Number of Directors.................. 7
2.6 Quorum........................................................... 8
2.7 Action at Meeting................................................ 8
2.8 Removal.......................................................... 8
2.9 Vacancies........................................................ 8
2.10 Resignation...................................................... 8
2.11 Regular Meetings................................................. 8
2.12 Special Meetings................................................. 9
2.13 Notice of Special Meetings....................................... 9
2.14 Meetings by Telephone Conference Calls........................... 9
2.15 Action by Written Consent........................................ 9
2.16 Committees....................................................... 9
2.17 Compensation of Directors........................................ 9
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ARTICLE III OFFICERS..........................................................10
3.1 Titles............................................................10
3.2 Election..........................................................10
3.3 Qualification.....................................................10
3.4 Tenure............................................................10
3.5 Resignation and Removal...........................................10
3.6 Vacancies.........................................................10
3.7 Chairman of the Board.............................................11
3.8 President.........................................................11
3.9 Vice Presidents...................................................11
3.10 Secretary and Assistant Secretaries...............................11
3.11 Treasurer and Assistant Treasurers................................12
3.12 Salaries..........................................................12
ARTICLE IV CAPITAL STOCK.....................................................12
4.1 Issuance of Stock.................................................12
4.2 Certificates of Stock.............................................12
4.3 Transfers.........................................................13
4.4 Lost, Stolen or Destroyed Certificates............................13
4.5 Record Date.......................................................13
ARTICLE V GENERAL PROVISIONS................................................14
5.1 Fiscal Year.......................................................14
5.2 Corporate Seal....................................................14
5.3 Execution of Instruments..........................................14
5.4 Waiver of Notice..................................................14
5.5 Voting of Securities..............................................14
5.6 Evidence of Authority.............................................14
5.7 Certificate of Incorporation......................................14
5.8 Transactions with Interested Parties..............................14
5.9 Severability......................................................15
5.10 Pronouns..........................................................15
ARTICLE VI AMENDMENTS........................................................15
ii
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ARTICLE I
STOCKHOLDERS
1.1 Place of Meetings. All meetings of stockholders shall be held at such
-----------------
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors, the Chairman of the Board or the President or,
if not so designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election
--------------
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors, the Chairman of the Board or the President (which date shall not be a
legal holiday in the place where the meeting is to be held) at the time and
place to be fixed by the Board of Directors, the Chairman of the Board or the
President and stated in the notice of the meeting. If no annual meeting is held
in accordance with the foregoing provisions, the Board of Directors shall cause
the meeting to be held as soon thereafter as is convenient. If no annual
meeting is held in accordance with the foregoing provisions, a special meeting
may be held in lieu of the annual meeting, and any action taken at that special
meeting shall have the same effect as if it had been taken at the annual
meeting, and in such case all references in these By-Laws to the annual meeting
of the stockholders shall be deemed to refer to such special meeting.
1.3 Special Meetings. Special meetings of stockholders for any purpose or
----------------
purposes may be called at any time by the Board of Directors, the Chairman of
the Board or the President, but such special meetings may not be called by any
other person or persons. Business transacted at any special meeting of
stockholders shall be limited to matters relating to the purpose or purposes
stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
------------------
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice shall be deemed given when deposited in the United
States mail, postage prepaid, directed to the stockholder at such stockholder's
address as it appears on the records of the corporation.
1.5 Voting List. The Secretary shall prepare, at least 10 days before
-----------
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and 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 meeting, at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and
<PAGE>
place of the meeting during the whole time of the meeting, and may be inspected
by any stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
------
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business. A quorum, once established at a
meeting, shall not be broken by the withdrawal of enough votes to leave less
than a quorum.
1.7 Adjournments. Any meeting of stockholders may be adjourned from time
------------
to time to any other time and to any other place at which a meeting of
stockholders may be held under these By-Laws by the stockholders present or
represented at the meeting and entitled to vote, although less than a quorum,
or, if no stockholder is present, by any officer entitled to preside at or to
act as secretary of such meeting. It shall not be necessary to notify any
stockholder of any adjournment of less than 30 days if the time and place of the
adjourned meeting are announced at the meeting at which adjournment is taken,
unless after the adjournment a new record date is fixed for the adjourned
meeting. At the adjourned meeting, the corporation may transact any business
which might have been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
------------------
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by law or the Certificate of Incorporation. Each stockholder of record entitled
to vote at a meeting of stockholders may vote in person or may authorize another
person or persons to vote for him by a proxy executed in writing (or in such
other manner permitted by the General Corporation Law of Delaware) by the
stockholder or his authorized agent and delivered (including by electronic
transmission) to the Secretary of the corporation. No such proxy shall be voted
upon after three years from the date of its execution, unless the proxy
expressly provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, any
-----------------
matter to be voted upon by the stockholders at such meeting shall be decided by
the affirmative vote of the holders of a majority of the stock present or
represented and voting on such matter (or if there are two or more classes of
stock entitled to vote as separate classes, then in the case of each such class,
the holders of a majority of the stock of that class present or represented and
voting on such matter), except when a different vote is required by law, the
Certificate of Incorporation or these By-Laws. When a quorum is present at any
meeting, any election by stockholders shall be determined by a plurality of the
votes cast by the stockholders entitled to vote on the election.
1.10 Nomination of Directors.
-----------------------
(a) Except for (i) any directors entitled to be elected by the
holders of preferred stock or any other securities of the corporation (other
than common stock) and (ii) any directors elected in accordance with Section 2.9
hereof by the Board of Directors to fill a vacancy, only persons who are
nominated in accordance with the procedures in this Section 1.10 shall be
eligible for election as directors. Nomination for election to the Board of
Directors of
2
<PAGE>
the corporation at a meeting of stockholders may be made (i) by or
at the direction of the Board of Directors or (ii) by any stockholder of the
corporation who (x) complies with the notice procedures set forth in Section
1.10(b) and (y) is a stockholder of record on the date of the giving of such
notice and on the record date for the determination of stockholders entitled to
vote at such meeting.
(b) To be timely, a stockholder's notice must be received by the Secretary
at the principal executive offices of the corporation as follows: (a) in the
case of an election of directors at an annual meeting of stockholders, not less
than 60 days nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that (i) in the case of the
-------- -------
annual meeting of stockholders of the corporation to be held in 2001 and in the
event that the date of the annual meeting in any other year is advanced by more
than 20 days, or delayed by more than 60 days, from such anniversary date, a
stockholder's notice must be so received not earlier than the ninetieth day
prior to such annual meeting and not later than the close of business on the
later of (A) the sixtieth day prior to such annual meeting and (B) the tenth day
following the day on which notice of the date of such annual meeting was mailed
or public disclosure of the date of such annual meeting was made, whichever
first occurs; or (b) in the case of an election of directors at a special
meeting of stockholders, not earlier than the ninetieth day prior to such
special meeting and not later than the close of business on the later of (i) the
sixtieth day prior to such special meeting and (ii) the tenth day following the
day on which notice of the date of such special meeting was mailed or public
disclosure of the date of such special meeting was made, whichever first occurs.
The stockholder's notice to the Secretary shall set forth: (a) as to each
proposed nominee (i) such person's name, age, business address and, if known,
residence address, (ii) such person's principal occupation or employment, (iii)
the class and number of shares of stock of the corporation which are
beneficially owned by such person and (iv) any other information concerning such
person that must be disclosed as to nominees in proxy solicitations pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended; (b) as to
the stockholder giving the notice (i) such stockholder's name and address, as
they appear on the corporation's books, (ii) the class and number of shares of
stock of the corporation which are owned, beneficially and of record, by such
stockholder, (iii) a description of all arrangements or understandings between
such stockholder and each proposed nominee and any other person or persons
(including their names) pursuant to which the nomination(s) are to be made by
such stockholder and (iv) a representation that such stockholder intends to
appear in person or by proxy at the meeting to nominate the person(s) named in
its notice; and (c) as to the beneficial owner, if any, on whose behalf the
nomination is being made (i) such beneficial owner's name and address, (ii) the
class and number of shares of stock of the corporation which are beneficially
owned by such beneficial owner and (iii) a description of all arrangements or
understandings between such beneficial owner and each proposed nominee and any
other person or persons (including their names) pursuant to which the
nomination(s) are to be made. In addition, to be effective, the stockholder's
notice must be accompanied by the written consent of the proposed nominee to
serve as a director if elected. The corporation may require any proposed
nominee to
3
<PAGE>
furnish such other information as may reasonably be required to determine the
eligibility of such proposed nominee to serve as a director of the corporation.
(c) The chairman of any meeting shall, if the facts warrant, determine that
a nomination was not made in accordance with the provisions of this Section
1.10, and if he should so determine, he shall so declare to the meeting and the
defective nomination shall be disregarded.
(d) Except as otherwise required by law, nothing in this Section 1.10 shall
obligate the corporation or the Board of Directors to include in any proxy
statement or other stockholder communication distributed on behalf of the
corporation or the Board of Directors information with respect to any nominee
for director submitted by a stockholder.
1.11 Notice of Business at Annual Meetings.
-------------------------------------
(a) At any annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be (i) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (ii) otherwise properly brought before the meeting by or at the
direction of the Board of Directors or (iii) properly brought before the meeting
by a stockholder. For business to be properly brought before an annual meeting
by a stockholder, (i) if such business relates to the election of directors of
the corporation, the procedures in Section 1.10 must be complied with and (ii)
if such business relates to any other matter, the stockholder must (x) have
given timely notice thereof in writing to the Secretary in accordance with the
procedures set forth in Section 1.11(b) and (y) be a stockholder of record on
the date of the giving of such notice and on the record date for the
determination of stockholders entitled to vote at such annual meeting.
(b) To be timely, a stockholder's notice must be received by the Secretary
at the principal executive offices of the corporation not less than 60 days nor
more than 90 days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the case of the annual meeting of
-------- -------
stockholders of the corporation to be held in 2001 and in the event that the
date of the annual meeting in any other year is advanced by more than 20 days,
or delayed by more than 60 days, from such anniversary date, a stockholder's
notice must be so received not earlier than the ninetieth day prior to such
annual meeting and not later than the close of business on the later of (A) the
sixtieth day prior to such annual meeting and (B) the tenth day following the
day on which notice of the date of such annual meeting was mailed or public
disclosure of the date of such annual meeting was made, whichever first occurs.
The stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, and the name and address of the beneficial owner, if
any, on whose behalf the proposal is made, (iii) the class and number of shares
of stock of the corporation
4
<PAGE>
which are owned, of record and beneficially, by the stockholder and beneficial
owner, if any, (iv) a description of all arrangements or understandings between
such stockholder or such beneficial owner, if any, and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of the stockholder or such
beneficial owner, if any, in such business and (v) a representation that such
stockholder intends to appear in person or by proxy at the annual meeting to
bring such business before the meeting. Notwithstanding anything in these By-
Laws to the contrary, no business shall be conducted at any annual meeting of
stockholders except in accordance with the procedures set forth in this Section
1.11; provided that any stockholder proposal which complies with Rule 14a-8 of
the proxy rules (or any successor provision) promulgated under the Securities
Exchange Act of 1934, as amended, and is to be included in the corporation's
proxy statement for an annual meeting of stockholders shall be deemed to comply
with the requirements of this Section 1.11.
(c) The chairman of any meeting shall, if the facts warrant, determine that
business was not properly brought before the meeting in accordance with the
provisions of this Section 1.11, and if he should so determine, he shall so
declare to the meeting and such business shall not be brought before the
meeting.
1.12 Conduct of Meetings.
-------------------
(a) Chairman of Meeting. Meetings of stockholders shall be presided over by
-------------------
the Chairman of the Board, if any, or in his absence by the Vice Chairman of the
Board, if any, or in his absence by the President, or in his absence by a Vice
President, or in the absence of all of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such designation by a
chairman chosen by vote of the stockholders at the meeting. The Secretary shall
act as secretary of the meeting, but in his absence the chairman of the meeting
may appoint any person to act as secretary of the meeting.
(b) Rules, Regulations and Procedures. The Board of Directors of the
---------------------------------
corporation may adopt by resolution such rules, regulations and procedures for
the conduct of any meeting of stockholders of the corporation as it shall deem
appropriate. Except to the extent inconsistent with such rules, regulations and
procedures as adopted by the Board of Directors, the chairman of any meeting of
stockholders shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are appropriate for the proper conduct of the meeting. Such rules,
regulations or procedures, whether adopted by the Board of Directors or
prescribed by the chairman of the meeting, may include, without limitation, the
following: (i) the establishment of an agenda or order of business for the
meeting; (ii) rules and procedures for maintaining order at the meeting and the
safety of those present; (iii) limitations on attendance at or participation in
the meeting to stockholders of record of the corporation, their duly authorized
and constituted proxies or such other persons as shall be determined; (iv)
restrictions on entry to the meeting after the time fixed for the commencement
thereof and (v) limitations on the time allotted to questions or comments by
participants. Unless and to the extent determined by the Board of Directors or
the chairman of
5
<PAGE>
the meeting, meetings of stockholders shall not be required to be held in
accordance with the rules of parliamentary procedure.
(c) Closing of Polls. The chairman of the meeting shall announce at the
----------------
meeting when the polls for each matter to be voted upon at the meeting will be
opened and closed. If no announcement is made, the polls shall be deemed to have
opened when the meeting is convened and closed upon the final adjournment of the
meeting. After the polls close, no ballots, proxies or votes or any revocations
or changes thereto may be accepted.
(d) Inspectors of Election. In advance of any meeting of stockholders, the
----------------------
Board of Directors, the Chairman of the Board or the President shall appoint one
or more inspectors or election to act at the meeting and make a written report
thereof. One or more other persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is present,
ready and willing to act at a meeting of stockholders, the chairman of the
meeting shall appoint one or more inspectors to act at the meeting. Unless
otherwise required by law, inspectors may be officers, employees or agents of
the corporation. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his ability. The
inspector shall have the duties prescribed by law and shall take charge of the
polls and, when the vote in completed, shall make a certificate of the result of
the vote taken and of such other facts as may be required by law.
1.13 Action by Written Consent in Lieu of a Meeting. Unless otherwise
----------------------------------------------
provided in the Certificate of Incorporation, any action required or permitted
to be taken by stockholders for or in connection with any corporate action 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, 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
Delaware by hand or certified or registered mail, return receipt requested, to
its principal place of business or to an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Each such written consent shall bear the date of signature of each
stockholder who signs the consent. No written consent shall be effective to
take the corporate action referred to therein unless written consents signed by
a number of stockholders sufficient to take such action are delivered to the
corporation in the manner specified in this paragraph within sixty days of the
earliest dated consent so delivered.
If action is taken by consent of stockholders and in accordance with
the foregoing, there shall be filed with the records of the meetings of
stockholders the writing or writings comprising such consent.
If action is taken by less than unanimous consent of stockholders,
prompt notice of the taking of such action without a meeting shall be given to
those who have not consented in writing and a certificate signed and attested to
by the Secretary of the corporation that such notice was given shall be filed
with the records of the meetings of stockholders.
6
<PAGE>
In the event that the action which is consented to is such as would
have required the filing of a certificate under any provision of the General
Corporation Law of the State of Delaware, if such action had been voted upon by
the stockholders at a meeting thereof, the certificate filed under such
provision shall state, in lieu of any statement required by such provision
concerning a vote of stockholders, that written consent has been given under
Section 228 of said General Corporation Law.
ARTICLE II
DIRECTORS
2.1 General Powers. The business and affairs of the corporation shall be
--------------
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2.2 Number, Election and Qualification. The number of directors which
----------------------------------
shall constitute the whole Board of Directors shall be determined from time to
time by resolution of the Board of Directors, but in no event shall be less than
three. 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.
2.3 Classes of Directors. The Board of Directors shall be and is divided
--------------------
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the authorized number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided by resolution of the Board of Directors.
2.4 Terms of Office. Each director shall serve for a term ending on the
---------------
date of the third annual meeting following the 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 of stockholders
held in 2001; each initial director in Class II shall serve for a term expiring
at the corporation's annual meeting of stockholders held in 2002; and each
initial director in Class III shall serve for a term expiring at the
corporation's annual meeting of stockholders held in 2003; provided further,
-------- -------
that the term of each director shall continue until the election and
qualification of his successor and be subject to his earlier death, resignation
or removal.
2.5 Allocation of Directors Among Classes in the Event of Increases or
------------------------------------------------------------------
Decreases in the Authorized Number of Directors. In the event of any increase
- -----------------------------------------------
or decrease in the authorized number of directors, (i) each director then
serving as such shall nevertheless continue as a director of the class of which
he is a member until the expiration of his current term, subject to
7
<PAGE>
his earlier death, resignation or removal and (ii) the newly created or
eliminated directorships resulting from such increase or decrease shall be
apportioned by the Board of Directors among the three classes of directors in
accordance with the provisions of Section 2.3. To the extent possible,
consistent with the provisions of Section 2.3, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation, and any newly eliminated directorships
shall be subtracted from those classes whose terms of offices are to expire at
the earliest dates following such allocation, unless otherwise provided from
time to time by resolution of the Board of Directors.
2.6 Quorum. A majority of the directors at any time in office shall
------
constitute a quorum for the transaction of business. In the event one or more
of the directors shall be disqualified to vote at any meeting, then the required
quorum shall be reduced by one for each director so disqualified, provided that
in no case shall less than one-third of the number of directors fixed pursuant
to Section 2.2 constitute a quorum. If at any meeting of the Board of Directors
there shall be less than such a quorum, a majority of the directors present may
adjourn the meeting from time to time without further notice other than
announcement at the meeting, until a quorum shall be present.
2.7 Action at Meeting. Every act or decision done or made by a majority
-----------------
of the directors present at a meeting duly held at which a quorum is present
shall be regarded as the act of the Board of Directors unless a greater number
is required by law, by the Certificate of Incorporation or by these By-Laws.
2.8 Removal. Directors of the corporation may be removed only for cause
-------
by the affirmative vote of the holders of at least a majority of the votes which
all the stockholders would be entitled to cast in any annual election of
directors.
2.9 Vacancies. Any vacancy in the Board of Directors, however occurring,
---------
including a vacancy resulting from an enlargement of the Board, shall be filled
only by vote of a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
2.10 Resignation. Any director may resign by delivering his written
-----------
resignation to the corporation at its principal office or to the Chairman of the
Board, the President or the Secretary. Such resignation shall be effective upon
receipt unless it is specified to be effective at some later time or upon the
happening of some later event.
2.11 Regular Meetings. Regular meetings of the Board of Directors may be
----------------
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
8
<PAGE>
2.12 Special Meetings. Special meetings of the Board of Directors may be
----------------
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, the President, two or more directors, or
by one director in the event that there is only a single director in office.
2.13 Notice of Special Meetings. Notice of any special meeting of
--------------------------
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 24 hours in advance of the meeting, (ii) by sending a telegram, telecopy,
telex or electronic mail, or delivering written notice by hand, to his last
known business, home or electronic mail address at least 48 hours in advance of
the meeting, or (iii) by sending written notice, via first-class mail or
reputable overnight courier, to his last known business or home address at least
72 hours in advance of the meeting. A notice or waiver of notice of a meeting
of the Board of Directors need not specify the purposes of the meeting.
2.14 Meetings by Telephone Conference Calls. Directors may participate in
--------------------------------------
meetings of the Board of Directors or any committee thereof by means of
conference telephone or other communications equipment by means of which all
persons participating in the meeting can hear each other, and participation by
such means shall constitute presence in person at such meeting.
2.15 Action by Written Consent. 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 of the Board or committee, as the
case may be, consent to the action in writing, and the written consents are
filed with the minutes of proceedings of the Board or committee.
2.16 Committees. The Board of Directors may designate one or more
----------
committees, each committee to consist of one or more of the directors of the
corporation. The Board 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. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of law, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation and may authorize the seal of the corporation to be
affixed to all papers which may require it. Each such committee shall keep
minutes and make such reports as the Board of Directors may from time to time
request. Except as the Board of Directors may otherwise determine, any
committee may make rules for the conduct of its business, but unless otherwise
provided by the directors or in such rules, its business shall be conducted as
nearly as possible in the same manner as is provided in these By-Laws for the
Board of Directors.
2.17 Compensation of Directors. Directors may be paid such compensation
-------------------------
for their services and such reimbursement for expenses of attendance at meetings
as the Board of
9
<PAGE>
Directors may from time to time determine. No such payment shall preclude any
director from serving the corporation or any of its parent or subsidiary
corporations in any other capacity and receiving compensation for such service.
ARTICLE III
OFFICERS
3.1 Titles. The officers of the corporation shall consist of a
------
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice Presidents,
Assistant Treasurers, and Assistant Secretaries. The Board of Directors may
appoint such other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
--------
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
-------------
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
------
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
resolution electing or appointing him, or until his earlier death, resignation
or removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
-----------------------
written resignation to the corporation at its principal office or to the Chief
Executive Officer or the Secretary. Such resignation shall be effective upon
receipt unless it is specified to be effective at some later time or upon the
happening of some later event.
Any officer may be removed at any time, with or without cause, by vote of a
majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
---------
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
10
<PAGE>
3.7 Chairman of the Board. The Board of Directors may appoint from its
---------------------
members a Chairman of the Board. If the Board of Directors appoints a Chairman
of the Board, he shall perform such duties and possess such powers as are
assigned to him by the Board of Directors and, if the Chairman of the Board is
also designated as the corporation's Chief Executive Officer, he shall have the
powers and duties of the Chief Executive Officer prescribed in Section 3.8 of
these By-Laws. Unless otherwise provided by the Board of Directors, the
Chairman of the Board shall preside at all meetings of the Board of Directors
and stockholders.
3.8 President. Unless the Board of Directors has designated the Chairman
---------
of the Board as the corporation's Chief Executive Officer, the President shall
be the Chief Executive Officer of the corporation and, as such, shall have
general charge and supervision of the business of the Corporation subject to the
direction of the Board of Directors. The President shall perform such other
duties and shall have such other powers as the Board of Directors and the Chief
Executive Officer (if the Chairman of the Board is serving in such position) may
from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
---------------
possess such powers as the Board of Directors or the Chief Executive Officer may
from time to time prescribe. In the event of the absence, inability or refusal
to act of the Chief Executive Officer, the President (if he is not the Chief
Executive Officer), and then the Vice President (or if there shall be more than
one, the Vice Presidents in the order determined by the Board of Directors),
shall perform the duties of the Chief Executive Officer and when so performing
shall have all the powers of and be subject to all the restrictions upon the
Chief Executive Officer. The Board of Directors may assign to any Vice
President the title of Executive Vice President, Senior Vice President or any
other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform such
-----------------------------------
duties and shall have such powers as the Board of Directors or the Chief
Executive Officer may from time to time prescribe. In addition, the Secretary
shall perform such duties and have such powers as are incident to the office of
the secretary, including without limitation the duty and power to give notices
of all meetings of stockholders and special meetings of the Board of Directors,
to attend all meetings of stockholders and the Board of Directors and keep a
record of the proceedings, to maintain a stock ledger and prepare lists of
stockholders and their addresses as required, to be custodian of corporate
records and the corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the Chief Executive Officer or the Secretary may from
time to time prescribe. In the event of the absence, inability or refusal to
act of the Secretary, the Assistant Secretary (or if there shall be more than
one, the Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the chairman of the meeting shall designate a
temporary secretary to keep a record of the meeting.
11
<PAGE>
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform such
----------------------------------
duties and shall have such powers as may from time to time be assigned to him by
the Board of Directors or the Chief Executive Officer. In addition, the
Treasurer shall perform such duties and have such powers as are incident to the
office of treasurer, including without limitation the duty and power to keep and
be responsible for all funds and securities of the corporation, to deposit funds
of the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the Chief Executive Officer or the Treasurer may from
time to time prescribe. In the event of the absence, inability or refusal to
act of the Treasurer, the Assistant Treasurer (or if there shall be more than
one, the Assistant Treasurers in the order determined by the Board of Directors)
shall perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
--------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE IV
CAPITAL STOCK
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
-----------------
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation shall
---------------------
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the name
of the corporation by, the Chairman or Vice Chairman, if any, of the Board of
Directors, or the President or a Vice President, and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, these By-Laws,
applicable securities laws or any agreement among any number of stockholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
12
<PAGE>
4.3 Transfers. Except as otherwise established by rules and regulations
---------
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
--------------------------------------
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, includingthe presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
-----------
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. If no record date is fixed, the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating to
such purpose.
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.
13
<PAGE>
ARTICLE V
GENERAL PROVISIONS
5.1 Fiscal Year. Except as from time to time otherwise designated by the
-----------
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January of each year and end on the last day of December in each year.
5.2 Corporate Seal. The corporate seal shall be in such form as shall be
--------------
approved by the Board of Directors.
5.3 Execution of Instruments. The Chief Executive Officer and the
------------------------
President shall each, acting singly, have power and authority to execute and
deliver on behalf and in the name of the corporation any instrument requiring
the signature of an officer of the corporation which may be authorized by the
Board of Directors, except where the execution and delivery of such an
instrument shall be expressly delegated by the Board of Directors to some other
officer or agent of the corporation. The other officers of the corporation may
execute and deliver on behalf and in the name of the corporation any instrument
requiring the signature of an officer of the corporation when so authorized by
the Board of Directors.
5.4 Waiver of Notice. Whenever any notice whatsoever is required to be
----------------
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telecopy or any other available
method, whether before, at or after the time stated in such waiver, or the
appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.5 Voting of Securities. Except as the Board of Directors may otherwise
--------------------
designate, the President or the Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.6 Evidence of Authority. A certificate by the Secretary, or an
---------------------
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.7 Certificate of Incorporation. All references in these By-Laws to the
----------------------------
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.8 Transactions with Interested Parties. No contract or transaction
------------------------------------
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the
14
<PAGE>
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board of
Directors or a committee of the Board of Directors at which the contract or
transaction is authorized or solely because his or their votes are counted for
such purpose, if:
(a) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of Directors
or the committee, and the Board or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum;
(b) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
5.9 Severability. Any determination that any provision of these By-Laws
------------
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.10 Pronouns. All pronouns used in these By-Laws shall be deemed to refer
--------
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered, amended or repealed, in whole or in part, or
new By-Laws may be adopted by the Board of Directors or by the stockholders as
provided in the Certificate of Incorporation.
15
<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
February 17, 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.
February 17, 2000
Page 2
We assume that the appropriate action will be taken, prior to the offer
and sale of the Shares in accordance with the Underwriting Agreement, to
register and qualify the Shares for sale under all applicable state securities
or "blue sky" laws.
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 only 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, and we disclaim any obligation to advise you of any change in any of
these sources of law or subsequent legal or factual developments which might
affect any matters or opinions set forth herein.
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 10.12
-------------
PROMISSORY NOTE
---------------
March 23, 1999 $378,100.00
William Seibel ("Maker"), hereby promises to pay to the order of ZC
-----
Acquisition Corp. (the "Company"), the principal amount of $378,100.00 together
-------
with interest thereon calculated from the date hereof in accordance with the
provisions of this Note.
This Note is the Executive Note referred to in the Senior Management
Agreement, dated as of March 23, 1999, between the Company and Maker (the
"Management Agreement"). Section 1(a) of the Management Agreement contains
--------------------
provisions for the issuance of this Note upon the terms and conditions specified
herein. Capitalized terms used herein and not otherwise defined shall have the
meanings given to them in the Management Agreement.
1. Interest. Interest shall accrue on the outstanding principal amount
--------
of this Note at a rate equal to the lesser of (i) 5% per annum or (ii) the
highest rate permitted by applicable law, compounded annually on each
anniversary of the date hereof.
2. Payment on Note.
---------------
(a) Term. Subject to Section 2(b) below, the entire principal amount
----
of this Note and all accrued interest thereon shall be due and payable on the
fifth anniversary of the date hereof.
(b) Mandatory Prepayments. Notwithstanding anything in Section 2(a)
---------------------
to the contrary, the Maker shall make the following mandatory prepayments:
(i) Upon the purchase of Stock from time to time by the Investors
pursuant to Section 1B(b) of the Purchase Agreement dated as of the date
hereof (the "Purchase Agreement"), Maker shall make a payment of principal
------------------
in an amount equal to the product of (A) $380,000, multiplied by (B) the
---------- --
quotient of (x) the amount paid to the Company in connection with such
purchase of Stock by Investors, divided by (y) $100,000,000, plus all
------- --
accrued interest on such principal amount (or such lesser principal amount
then outstanding). For purposes hereof, "Stock" shall have the meaning set
-----
forth in the Purchase Agreement.
(ii) In the event Maker receives any net cash proceeds (A) in
connection with the payment of a dividend or other distribution by the
Company or (B) relating to any other transaction or series of transactions
in which Maker sells any of the Executive Stock, Maker shall prepay any
amounts owed pursuant to this Note by applying all of such proceeds first,
-----
to any accrued interest and second, to any principal then outstanding.
------
Upon a Sale of the Company, Executive shall pay the entire principal amount
then outstanding and any accrued interest to the Company. For purposes
hereof, a "Sale of the Company" and "Executive Stock" shall have the
------------------- ---------------
meanings set forth in the Management Agreement.
<PAGE>
(c) Optional Prepayments. Maker may, at any time and from time to
--------------------
time without premium or penalty, prepay all of the outstanding principal amount
of the Note; provided that any prepayment will be accompanied by a payment of
accrued interest on the portion being prepaid.
(d) Right of Offset. Upon an Event of Default (as described in
---------------
Section 3 hereof) or the Company's repurchase of Executive Stock pursuant to
Section 3(e) of the Management Agreement, the Company shall be entitled to
offset any amounts owed to the Company by the Maker, now existing or hereinafter
arising, pursuant to this Note against any amounts payable by the Company to the
Maker pursuant to and as set forth in the Management Agreement between the
Company and the Maker.
3. Events of Default.
-----------------
(a) Definition. For purposes of this Note, an Event of Default
----------
shall be deemed to have occurred if:
(i) Maker fails to pay (A) within 30 days after the date when due,
the full amount of interest then accrued or (B) when due, the fall amount
of any principal payment; or
(ii) Maker makes an assignment for the benefit of creditors or admits
in writing his inability to pay his debts generally as they become due; or
an order, judgment or decree is entered adjudicating Maker bankrupt or
insolvent; or any order for relief with respect to Maker is entered under
the Federal Bankruptcy Code; or Maker petitions or applies to any tribunal
for the appointment of a custodian, trustee, receiver or liquidator of any
substantial part of Maker's assets, or commences any proceeding relating to
Maker under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction;
or any such petition or application is filed, or any such proceeding is
commenced, against Maker and either (A) Maker by any act indicates its
approval thereof, consent thereto or acquiescence therein or (B) such
petition, application or proceeding is not dismissed within 60 days.
(b) Consequences of Events of Default.
---------------------------------
If an Event of Default of the type described in subparagraph 3(a)(ii)
has occurred the aggregate principal amount of the Note (together with all
accrued interest thereon and all other amounts payable in connection therewith)
shall become immediately due and payable without any action on the part of the
Company, and Maker shall immediately pay to the Company all amounts due and
payable with respect to the Note.
If an Event of Default of the type described in subparagraph 3(a)(i)
has occurred and continued for 5 days, the Company may declare all or any
portion of the outstanding principal amount of the Note (together with all
accrued interest thereon and all other amounts due in connection therewith) due
and payable and demand immediate payment of all or any portion of the
outstanding principal amount of the Note.
Maker, or his successors and assigns, hereby waives diligence,
presentment, protest and demand and notice of protest and demand, dishonor and
nonpayment of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended from time to time and that the
<PAGE>
Company may accept security for this Note or release security for this Note, all
without in any way affecting the liability of Maker hereunder.
In the event that Maker fails to pay any amounts due hereunder when
due, Maker shall pay to the Company, in addition to such amounts due, all costs
of collection, including reasonable attorneys fees.
4. Amendment and Waiver. Except as otherwise expressly provided herein,
--------------------
the provisions of the Note may be amended and Maker may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if Maker has obtained the written consent of the Company.
5. Cancellation. After all principal and accrued interest at any time
------------
owed on this Note has been paid in full, this Note shall be surrendered to Maker
for cancellation and shall not be reissued.
6. Place of Payment. Payments of principal and interest are to be
----------------
delivered to the Company at the following address:
ZC Acquisition Corp.
1048 Tremont Street
Duxbury, MA 02332
Attention: Chief Financial Officer
or to such other address or to the attention of such other person as specified
by prior written notice to Maker.
7. Usury Laws. It is the intention of the Company and Maker to conform
----------
strictly to all applicable usury laws now or hereafter in force, and any
interest payable under this Note shall be subject to reduction to the amount not
in excess of the maximum legal amount allowed under the applicable usury laws as
now or hereafter construed by the courts having jurisdiction over such matters.
If the maturity of this Note is accelerated by reason of an election by the
Company resulting from an Event of Default, voluntary prepayment by Maker or
otherwise, then earned interest may never include more than the maximum amount
permitted by law, computed from the date hereof until payment, and any interest
in excess of the maximum amount permitted by law shall be canceled automatically
and, if theretofore paid, shall at the option of the Company either be rebated
to Maker or credited on the principal amount of this Note, or if this Note has
been paid, then the excess shall be rebated to Maker. The aggregate of all
interest (whether designated as interest, service charges, points or otherwise)
contracted for, chargeable, or receivable under this Note shall under no
circumstances exceed the maximum legal rate upon the unpaid principal balance of
this Note remaining unpaid from time to time. If such interest does exceed the
maximum legal rate, it shall be deemed a mistake and such excess shall be
canceled automatically and, if theretofore paid, rebated to Maker or credited on
the principal amount of this Note, or if this Note has been repaid, then such
excess shall be rebated to Maker.
8. Governing Law. This Note is made under and governed by the internal
-------------
law, not the laws of conflicts, of the State of Delaware.
* * * * *
<PAGE>
IN WITNESS WHEREOF, Maker has executed and delivered this Note as of
the date first above written.
/s/ William Seibel
_________________________________________
William Seibel - Maker
<PAGE>
EXHIBIT 10.13
-------------
PROMISSORY NOTE
---------------
August 17, 1999 $80,554.50
Gerard E. Dube ("Maker"), hereby promises to pay to the order of ZEFER
-----
Corp. (the "Company"), the principal amount of $80,554.50 together with interest
-------
thereon calculated from the date hereof in accordance with the provisions of
this Note.
This Note is the Executive Note referred to in the Senior Management
Agreement, dated as of the date hereof, between the Company and Maker (the
"Management Agreement"). Section 1(a) of the Management Agreement contains
--------------------
provisions for the issuance of this Note upon the terms and conditions specified
herein. Capitalized terms used herein and not otherwise defined shall have the
meanings given to them in the Management Agreement.
1. Interest. Interest shall accrue on the outstanding principal amount of
--------
this Note at a rate equal to the lesser of (i) 5% per annum or (ii) the highest
rate permitted by applicable law, compounded annually on each anniversary of the
date hereof.
2. Payment on Note.
---------------
(a) Term. Subject to Section 2(b) below, the entire principal amount
----
of this Note and all accrued interest thereon shall be due and payable on the
fifth anniversary of the date hereof.
(b) Mandatory Prepayments. Notwithstanding anything in Section 2(a)
---------------------
to the contrary, Maker shall make the following mandatory prepayments:
(i) Upon the purchase of Stock from time to time by the
Investors pursuant to Section 1B(b) of the Purchase Agreement dated March
23, 1999 by and among the Company and the Investors, as amended from time
to time (the "Purchase Agreement"), Maker shall make a payment of principal
------------------
in an amount equal to the product of (A) $102,000 multiplied by (B) the
---------- --
quotient of (x) the amount paid to the Company in connection with such
purchase of Stock by Investors, divided by (y) $100,000,000, plus all
------- --
accrued interest on such principal amount (or such lesser principal amount
then outstanding). For purposes hereof, "Stock" shall have the meaning set
-----
forth in the Purchase Agreement.
(ii) In the event Maker receives any net cash proceeds (A) in
connection with the payment of a dividend or other distribution by the
Company or (B) relating to any other transaction or series of transactions
in which Maker sells any of the Holder Stock, Maker shall prepay any
amounts owed pursuant to this Note by applying all of such proceeds first,
-----
to any accrued interest and second, to any principal then outstanding.
------
Upon a Sale of the Company, Maker shall pay the entire principal amount
then outstanding and any accrued
<PAGE>
interest to the Company. For purposes hereof, a "Sale of the Company" and
-------------------
"Executive Stock" shall have the meanings set forth in the Senior
---------------
Management Agreement.
(c) Optional Prepayments. Maker may, at any time and from time to
--------------------
time without premium or penalty, prepay all of the outstanding principal amount
of the Note; provided that any prepayment will be accompanied by a payment of
accrued interest on the portion being prepaid.
(d) Right of Offset. Upon an Event of Default (as described in
---------------
Section 3 hereof) or the Company's repurchase of Executive Stock pursuant to
Section 3(e) of the Management Agreement, the Company shall be entitled to
offset any amounts owed to the Company by the Maker, now existing or hereinafter
arising, pursuant to this Note against any amounts payable by the Company to the
Maker pursuant to and as set forth in the Management Agreement between the
Company and the Maker.
3. Events of Default.
-----------------
(a) Definition. For purposes of this Note, an Event of Default shall
----------
be deemed to have occurred if:
(i) Maker fails to pay (A) within 30 days after the date when due,
the full amount of interest then accrued or (B) when due, the full amount
of any principal payment; or
(ii) Maker makes an assignment for the benefit of creditors or admits
in writing his/her inability to pay his/her debts generally as they become
due; or an order, judgment or decree is entered adjudicating Maker bankrupt
or insolvent; or any order for relief with respect to Maker is entered
under the Federal Bankruptcy Code; or Maker petitions or applies to any
tribunal for the appointment of a custodian, trustee, receiver or
liquidator of any substantial part of Maker's assets, or commences any
proceeding relating to Maker under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation
law of any jurisdiction; or any such petition or application is filed, or
any such proceeding is commenced, against Maker and either (A) Maker by any
act indicates its approval thereof, consent thereto or acquiescence therein
or (B) such petition, application or proceeding is not dismissed within 60
days.
(b) Consequences of Events of Default.
---------------------------------
If an Event of Default of the type described in subparagraph 3(a)(ii)
has occurred the aggregate principal amount of the Note (together with all
accrued interest thereon and all other amounts payable in connection therewith)
shall become immediately due and payable without any action on the part of the
Company, and Maker shall immediately pay to the Company all amounts due and
payable with respect to the Note.
If an Event of Default of the type described in subparagraph 3(a)(i)
has occurred and continued for 5 days, the Company may declare all or any
portion of the outstanding principal amount of the Note (together with all
accrued interest thereon and all other amounts due in connection therewith) due
and payable and demand immediate payment of all or any portion of the
outstanding principal amount of the Note.
<PAGE>
Maker, or his/her successors and assigns, hereby waives diligence,
presentment, protest and demand and notice of protest and demand, dishonor and
nonpayment of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended from time to time and that the Company may accept
security for this Note or release security for this Note, all without in any way
affecting the liability of Maker hereunder.
In the event that Maker fails to pay any amounts due hereunder when
due, Maker shall pay to the Company, in addition to such amounts due, all costs
of collection, including reasonable attorneys fees.
4. Amendment and Waiver. Except as otherwise expressly provided herein,
--------------------
the provisions of the Note may be amended and Maker may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if Maker has obtained the written consent of the Company.
5. Cancellation. After all principal and accrued interest at any time
------------
owed on this Note has been paid in full, this Note shall be surrendered to Maker
for cancellation and shall not be reissued.
6. Place of Payment. Payments of principal and interest are to be
----------------
delivered to the Company at the following address:
ZEFER Corp.
711 Atlantic Avenue
Boston, MA 02111
Attention: Chief Financial Officer
or to such other address or to the attention of such other person as specified
by prior written notice to Maker.
7. Usury Laws. It is the intention of the Company and Maker to conform
----------
strictly to all applicable usury laws now or hereafter in force, and any
interest payable under this Note shall be subject to reduction to the amount not
in excess of the maximum legal amount allowed under the applicable usury laws as
now or hereafter construed by the courts having jurisdiction over such matters.
If the maturity of this Note is accelerated by reason of an election by the
Company resulting from an Event of Default, voluntary prepayment by Maker or
otherwise, then earned interest may never include more than the maximum amount
permitted by law, computed from the date hereof until payment, and any interest
in excess of the maximum amount permitted by law shall be canceled automatically
and, if theretofore paid, shall at the option of the Company either be rebated
to Maker or credited on the principal amount of this Note, or if this Note has
been paid, then the excess shall be rebated to Maker. The aggregate of all
interest (whether designated as interest, service charges, points or otherwise)
contracted for, chargeable, or receivable under this Note shall under no
circumstances exceed the maximum legal rate upon the unpaid principal balance of
this Note remaining unpaid from time to time. If such interest does exceed the
maximum legal rate, it shall be deemed a mistake and such excess shall be
canceled automatically and, if theretofore paid, rebated to Maker or credited on
the principal amount of this Note, or if this Note has been repaid, then such
excess shall be rebated to Maker.
<PAGE>
8. Governing Law. This Note is made under and governed by the internal
-------------
law, not the laws of conflicts, of the State of Delaware.
* * * * *
IN WITNESS WHEREOF, Maker has executed and delivered this Note as of
the date first above written.
/s/ Gerard E. Dube
------------------------------------
Gerard E. Dube - Maker
<PAGE>
EXHIBIT 10.14
-------------
PROMISSORY NOTE
---------------
May 21, 1999 $47,893.13
Sean W. Mullaney ("Maker"), hereby promises to pay to the order of
-----
ZEFER Corp. (the "Company"), the principal amount of $47,893.13 together with
-------
interest thereon calculated from the date hereof in accordance with the
provisions of this Note.
This Note is the Executive Note referred to in the Senior Management
Agreement, dated as of the date hereof, between the Company and Maker (the
"Management Agreement"). Section 1(a) of the Management Agreement contains
--------------------
provisions for the issuance of this Note upon the terms and conditions specified
herein. Capitalized terms used herein and not otherwise defined shall have the
meanings given to them in the Management Agreement.
1. Interest. Interest shall accrue on the outstanding principal amount of
--------
this Note at a rate equal to the lesser of (i) 5% per annum or (ii) the highest
rate permitted by applicable law, compounded annually on each anniversary of the
date hereof.
2. Payment on Note.
---------------
(a) Term. Subject to Section 2(b) below, the entire principal amount
----
of this Note and all accrued interest thereon shall be due and payable on the
fifth anniversary of the date hereof.
(b) Mandatory Prepayments. Notwithstanding anything in Section 2(a)
---------------------
to the contrary, Maker shall make the following mandatory prepayments:
(i) Upon the purchase of Stock from time to time by the
Investors pursuant to Section 1B(b) of the Purchase Agreement dated March
23, 1999 by and among the Company and the Investors, as amended from time
to time (the "Purchase Agreement"), Maker shall make a payment of principal
------------------
in an amount equal to the product of (A) $52,500.00, multiplied by (B) the
---------- --
quotient of (x) the amount paid to the Company in connection with such
purchase of Stock by Investors, divided by (y) $100,000,000, plus all
------- --
accrued interest on such principal amount (or such lesser principal amount
then outstanding). For purposes hereof, "Stock" shall have the meaning set
-----
forth in the Purchase Agreement.
(ii) In the event Maker receives any net cash proceeds (A) in
connection with the payment of a dividend or other distribution by the
Company or (B) relating to any other transaction or series of transactions
in which Maker sells any of the Holder Stock, Maker shall prepay any
amounts owed pursuant to this Note by applying all of such proceeds first,
-----
to any accrued interest and second, to any principal then outstanding.
------
Upon a Sale of the Company, Maker shall pay the entire principal amount
then outstanding and any accrued interest to the Company. For purposes
hereof, a "Sale of the Company" and "Executive Stock" shall have the
------------------- ---------------
meanings set forth in the Senior Management Agreement.
<PAGE>
(c) Optional Prepayments. Maker may, at any time and from time to
--------------------
time without premium or penalty, prepay all of the outstanding principal amount
of the Note; provided that any prepayment will be accompanied by a payment of
accrued interest on the portion being prepaid.
(d) Right of Offset. Upon an Event of Default (as described in
---------------
Section 3 hereof) or the Company's repurchase of Executive Stock pursuant to
Section 3(e) of the Management Agreement, the Company shall be entitled to
offset any amounts owed to the Company by the Maker, now existing or hereinafter
arising, pursuant to this Note against any amounts payable by the Company to the
Maker pursuant to and as set forth in the Management Agreement between the
Company and the Maker.
3. Events of Default.
-----------------
(a) Definition. For purposes of this Note, an Event of Default shall
----------
be deemed to have occurred if:
(i) Maker fails to pay (A) within 30 days after the date when due,
the full amount of interest then accrued or (B) when due, the full amount
of any principal payment; or
(ii) Maker makes an assignment for the benefit of creditors or admits
in writing his inability to pay his debts generally as they become due; or
an order, judgment or decree is entered adjudicating Maker bankrupt or
insolvent; or any order for relief with respect to Maker is entered under
the Federal Bankruptcy Code; or Maker petitions or applies to any tribunal
for the appointment of a custodian, trustee, receiver or liquidator of any
substantial part of Maker's assets, or commences any proceeding relating to
Maker under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction;
or any such petition or application is filed, or any such proceeding is
commenced, against Maker and either (A) Maker by any act indicates its
approval thereof, consent thereto or acquiescence therein or (B) such
petition, application or proceeding is not dismissed within 60 days.
(b) Consequences of Events of Default.
---------------------------------
If an Event of Default of the type described in subparagraph 3(a)(ii)
has occurred the aggregate principal amount of the Note (together with all
accrued interest thereon and all other amounts payable in connection therewith)
shall become immediately due and payable without any action on the part of the
Company, and Maker shall immediately pay to the Company all amounts due and
payable with respect to the Note.
If an Event of Default of the type described in subparagraph 3(a)(i)
has occurred and continued for 5 days, the Company may declare all or any
portion of the outstanding principal amount of the Note (together with all
accrued interest thereon and all other amounts due in connection therewith) due
and payable and demand immediate payment of all or any portion of the
outstanding principal amount of the Note.
<PAGE>
Maker, or his successors and assigns, hereby waives diligence,
presentment, protest and demand and notice of protest and demand, dishonor and
nonpayment of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended from time to time and that the Company may accept
security for this Note or release security for this Note, all without in any way
affecting the liability of Maker hereunder.
In the event that Maker fails to pay any amounts due hereunder when
due, Maker shall pay to the Company, in addition to such amounts due, all costs
of collection, including reasonable attorneys fees.
4. Amendment and Waiver. Except as otherwise expressly provided herein,
--------------------
the provisions of the Note may be amended and Maker may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if Maker has obtained the written consent of the Company.
5. Cancellation. After all principal and accrued interest at any time
------------
owed on this Note has been paid in full, this Note shall be surrendered to Maker
for cancellation and shall not be reissued.
6. Place of Payment. Payments of principal and interest are to be
----------------
delivered to the Company at the following address:
ZEFER Corp.
105 South Street
Boston, MA 02111
Attention: Chief Financial Officer
or to such other address or to the attention of such other person as specified
by prior written notice to Maker.
7. Usury Laws. It is the intention of the Company and Maker to conform
----------
strictly to all applicable usury laws now or hereafter in force, and any
interest payable under this Note shall be subject to reduction to the amount not
in excess of the maximum legal amount allowed under the applicable usury laws as
now or hereafter construed by the courts having jurisdiction over such matters.
If the maturity of this Note is accelerated by reason of an election by the
Company resulting from an Event of Default, voluntary prepayment by Maker or
otherwise, then earned interest may never include more than the maximum amount
permitted by law, computed from the date hereof until payment, and any interest
in excess of the maximum amount permitted by law shall be canceled automatically
and, if theretofore paid, shall at the option of the Company either be rebated
to Maker or credited on the principal amount of this Note, or if this Note has
been paid, then the excess shall be rebated to Maker. The aggregate of all
interest (whether designated as interest, service charges, points or otherwise)
contracted for, chargeable, or receivable under this Note shall under no
circumstances exceed the maximum legal rate upon the unpaid principal balance of
this Note remaining unpaid from time to time. If such interest does exceed the
maximum legal rate, it shall be deemed a mistake and such excess shall be
canceled automatically and, if theretofore paid, rebated to Maker or credited on
the principal amount of this Note, or if this Note has been repaid, then such
excess shall be rebated to Maker.
<PAGE>
8. Governing Law. This Note is made under and governed by the internal
-------------
law, not the laws of conflicts, of the State of Delaware.
* * * * *
IN WITNESS WHEREOF, Maker has executed and delivered this Note as of
the date first above written.
/s/ Sean Mullaney
-------------------------------------
Sean W. Mullaney - Maker
<PAGE>
EXHIBIT 10.15
-------------
PROMISSORY NOTE
---------------
August 25, 1999 $74,804.52
James H. Slamp ("Maker"), hereby promises to pay to the order of ZEFER
-----
Corp. (the "Company"), the principal amount of $74,804.52 together with interest
-------
thereon calculated from the date hereof in accordance with the provisions of
this Note.
This Note is the Executive Note referred to in the Senior Management
Agreement, dated as of the date hereof, between the Company and Maker (the
"Management Agreement"). Section 1(a) of the Management Agreement contains
--------------------
provisions for the issuance of this Note upon the terms and conditions specified
herein. Capitalized terms used herein and not otherwise defined shall have the
meanings given to them in the Management Agreement.
1. Interest. Interest shall accrue on the outstanding principal amount of
--------
this Note at a rate equal to the lesser of (i) 5% per annum or (ii) the highest
rate permitted by applicable law, compounded annually on each anniversary of the
date hereof.
2. Payment on Note.
---------------
(a) Term. Subject to Section 2(b) below, the entire principal amount
----
of this Note and all accrued interest thereon shall be due and payable on the
fifth anniversary of the date hereof.
(b) Mandatory Prepayments. Notwithstanding anything in Section 2(a)
---------------------
to the contrary, Maker shall make the following mandatory prepayments:
(i) Upon the purchase of Stock from time to time by the
Investors pursuant to Section 1B(b) of the Purchase Agreement dated March
23, 1999 by and among the Company and the Investors, as amended from time
to time (the "Purchase Agreement"), Maker shall make a payment of principal
------------------
in an amount equal to the product of (A) $74,804.52, multiplied by (B)
---------- --
the quotient of (x) the amount paid to the Company in connection with such
purchase of Stock by Investors, divided by (y) $100,000,000, plus all
------- --
accrued interest on such principal amount (or such lesser principal amount
then outstanding). For purposes hereof, "Stock" shall have the meaning set
-----
forth in the Purchase Agreement.
(ii) In the event Maker receives any net cash proceeds (A) in
connection with the payment of a dividend or other distribution by the
Company or (B) relating to any other transaction or series of transactions
in which Maker sells any of the Holder Stock, Maker shall prepay any
amounts owed pursuant to this Note by applying all of such proceeds first,
-----
to any accrued interest and second, to any principal then outstanding.
------
Upon a Sale of the Company, Maker shall pay the entire principal amount
then outstanding and any accrued
<PAGE>
interest to the Company. For purposes hereof, a "Sale of the Company" and
-------------------
"Executive Stock" shall have the meanings set forth in the Senior
---------------
Management Agreement.
(c) Optional Prepayments. Maker may, at any time and from time to
--------------------
time without premium or penalty, prepay all of the outstanding principal amount
of the Note; provided that any prepayment will be accompanied by a payment of
accrued interest on the portion being prepaid.
(d) Right of Offset. Upon an Event of Default (as described in
---------------
Section 3 hereof) or the Company's repurchase of Executive Stock pursuant to
Section 3(e) of the Management Agreement, the Company shall be entitled to
offset any amounts owed to the Company by the Maker, now existing or hereinafter
arising, pursuant to this Note against any amounts payable by the Company to the
Maker pursuant to and as set forth in the Management Agreement between the
Company and the Maker.
3. Events of Default.
-----------------
(a) Definition. For purposes of this Note, an Event of Default shall
----------
be deemed to have occurred if:
(i) Maker fails to pay (A) within 30 days after the date when due,
the full amount of interest then accrued or (B) when due, the full amount
of any principal payment; or
(ii) Maker makes an assignment for the benefit of creditors or admits
in writing his/her inability to pay his/her debts generally as they become
due; or an order, judgment or decree is entered adjudicating Maker bankrupt
or insolvent; or any order for relief with respect to Maker is entered
under the Federal Bankruptcy Code; or Maker petitions or applies to any
tribunal for the appointment of a custodian, trustee, receiver or
liquidator of any substantial part of Maker's assets, or commences any
proceeding relating to Maker under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation
law of any jurisdiction; or any such petition or application is filed, or
any such proceeding is commenced, against Maker and either (A) Maker by any
act indicates its approval thereof, consent thereto or acquiescence therein
or (B) such petition, application or proceeding is not dismissed within 60
days.
(b) Consequences of Events of Default.
---------------------------------
If an Event of Default of the type described in subparagraph 3(a)(ii)
has occurred the aggregate principal amount of the Note (together with all
accrued interest thereon and all other amounts payable in connection therewith)
shall become immediately due and payable without any action on the part of the
Company, and Maker shall immediately pay to the Company all amounts due and
payable with respect to the Note.
If an Event of Default of the type described in subparagraph 3(a)(i)
has occurred and continued for 5 days, the Company may declare all or any
portion of the outstanding principal amount of the Note (together with all
accrued interest thereon and all other amounts due in
<PAGE>
connection therewith) due and payable and demand immediate payment of all or any
portion of the outstanding principal amount of the Note.
Maker, or his successors and assigns, hereby waives diligence,
presentment, protest and demand and notice of protest and demand, dishonor and
nonpayment of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended from time to time and that the Company may accept
security for this Note or release security for this Note, all without in any way
affecting the liability of Maker hereunder.
In the event that Maker fails to pay any amounts due hereunder when
due, Maker shall pay to the Company, in addition to such amounts due, all costs
of collection, including reasonable attorneys fees.
4. Amendment and Waiver. Except as otherwise expressly provided herein,
--------------------
the provisions of the Note may be amended and Maker may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if Maker has obtained the written consent of the Company.
5. Cancellation. After all principal and accrued interest at any time
------------
owed on this Note has been paid in full, this Note shall be surrendered to Maker
for cancellation and shall not be reissued.
6. Place of Payment. Payments of principal and interest are to be
----------------
delivered to the Company at the following address:
ZEFER Corp.
105 South Street
Boston, MA 02111
Attention: General Counsel
or to such other address or to the attention of such other person as specified
by prior written notice to Maker.
7. Usury Laws. It is the intention of the Company and Maker to conform
----------
strictly to all applicable usury laws now or hereafter in force, and any
interest payable under this Note shall be subject to reduction to the amount not
in excess of the maximum legal amount allowed under the applicable usury laws as
now or hereafter construed by the courts having jurisdiction over such matters.
If the maturity of this Note is accelerated by reason of an election by the
Company resulting from an Event of Default, voluntary prepayment by Maker or
otherwise, then earned interest may never include more than the maximum amount
permitted by law, computed from the date hereof until payment, and any interest
in excess of the maximum amount permitted by law shall be canceled automatically
and, if theretofore paid, shall at the option of the Company either be rebated
to Maker or credited on the principal amount of this Note, or if this Note has
been paid, then the excess shall be rebated to Maker. The aggregate of all
interest (whether designated as interest, service charges, points or otherwise)
contracted for, chargeable, or receivable under this Note shall under no
circumstances exceed the maximum legal rate upon the unpaid principal balance of
this Note remaining unpaid from time to time. If such interest does exceed the
maximum legal rate, it shall
<PAGE>
be deemed a mistake and such excess shall be canceled automatically and, if
theretofore paid, rebated to Maker or credited on the principal amount of this
Note, or if this Note has been repaid, then such excess shall be rebated to
Maker.
8. Governing Law. This Note is made under and governed by the internal
-------------
law, not the laws of conflicts, of the State of Delaware.
* * * * *
/s/ James Slamp
-----------------------
James Slamp - Maker
<PAGE>
EXHIBIT 10.16
-------------
PROMISSORY NOTE
---------------
May 21, 1999 $47,893.13
Martha Stephens ("Maker"), hereby promises to pay to the order of
-----
ZEFER Corp. (the "Company"), the principal amount of $47,893.13 together with
-------
interest thereon calculated from the date hereof in accordance with the
provisions of this Note.
This Note is the Executive Note referred to in the Senior Management
Agreement, dated as of the date hereof, between the Company and Maker (the
"Management Agreement"). Section 1(a) of the Management Agreement contains
--------------------
provisions for the issuance of this Note upon the terms and conditions specified
herein. Capitalized terms used herein and not otherwise defined shall have the
meanings given to them in the Management Agreement.
1. Interest. Interest shall accrue on the outstanding principal amount of
--------
this Note at a rate equal to the lesser of (i) 5% per annum or (ii) the highest
rate permitted by applicable law, compounded annually on each anniversary of the
date hereof.
2. Payment on Note.
---------------
(a) Term. Subject to Section 2(b) below, the entire principal amount
----
of this Note and all accrued interest thereon shall be due and payable on the
fifth anniversary of the date hereof.
(b) Mandatory Prepayments. Notwithstanding anything in Section 2(a)
---------------------
to the contrary, Maker shall make the following mandatory prepayments:
(i) Upon the purchase of Stock from time to time by the
Investors pursuant to Section 1B(b) of the Purchase Agreement dated March
23, 1999 by and among the Company and the Investors, as amended from time
to time (the "Purchase Agreement"), Maker shall make a payment of principal
------------------
in an amount equal to the product of (A) $52,500, multiplied by (B) the
---------- --
quotient of (x) the amount paid to the Company in connection with such
purchase of Stock by Investors, divided by (y) $100,000,000, plus all
------- --
accrued interest on such principal amount (or such lesser principal amount
then outstanding). For purposes hereof, "Stock" shall have the meaning set
-----
forth in the Purchase Agreement.
(ii) In the event Maker receives any net cash proceeds (A) in
connection with the payment of a dividend or other distribution by the
Company or (B) relating to any other transaction or series of transactions
in which Maker sells any of the Holder Stock, Maker shall prepay any
amounts owed pursuant to this Note by applying all of such proceeds first,
-----
to any accrued interest and second, to any principal then outstanding.
------
Upon a Sale of the Company, Maker shall pay the entire principal amount
then outstanding and any accrued interest to the Company. For purposes
hereof, a "Sale of the Company" and "Executive Stock" shall have the
------------------- ---------------
meanings set forth in the Senior Management Agreement.
<PAGE>
(c) Optional Prepayments. Maker may, at any time and from time to
--------------------
time without premium or penalty, prepay all of the outstanding principal amount
of the Note; provided that any prepayment will be accompanied by a payment of
accrued interest on the portion being prepaid.
(d) Right of Offset. Upon an Event of Default (as described in
---------------
Section 3 hereof) or the Company's repurchase of Executive Stock pursuant to
Section 3(e) of the Management Agreement, the Company shall be entitled to
offset any amounts owed to the Company by the Maker, now existing or hereinafter
arising, pursuant to this Note against any amounts payable by the Company to the
Maker pursuant to and as set forth in the Management Agreement between the
Company and the Maker.
3. Events of Default.
-----------------
(a) Definition. For purposes of this Note, an Event of Default shall
----------
be deemed to have occurred if:
(i) Maker fails to pay (A) within 30 days after the date when due,
the full amount of interest then accrued or (B) when due, the full amount
of any principal payment; or
(ii) Maker makes an assignment for the benefit of creditors or admits
in writing her inability to pay her debts generally as they become due; or
an order, judgment or decree is entered adjudicating Maker bankrupt or
insolvent; or any order for relief with respect to Maker is entered under
the Federal Bankruptcy Code; or Maker petitions or applies to any tribunal
for the appointment of a custodian, trustee, receiver or liquidator of any
substantial part of Maker's assets, or commences any proceeding relating to
Maker under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction;
or any such petition or application is filed, or any such proceeding is
commenced, against Maker and either (A) Maker by any act indicates its
approval thereof, consent thereto or acquiescence therein or (B) such
petition, application or proceeding is not dismissed within 60 days.
(b) Consequences of Events of Default.
---------------------------------
If an Event of Default of the type described in subparagraph 3(a)(ii)
has occurred the aggregate principal amount of the Note (together with all
accrued interest thereon and all other amounts payable in connection therewith)
shall become immediately due and payable without any action on the part of the
Company, and Maker shall immediately pay to the Company all amounts due and
payable with respect to the Note.
If an Event of Default of the type described in subparagraph 3(a)(i)
has occurred and continued for 5 days, the Company may declare all or any
portion of the outstanding principal amount of the Note (together with all
accrued interest thereon and all other amounts due in connection therewith) due
and payable and demand immediate payment of all or any portion of the
outstanding principal amount of the Note.
Maker, or her successors and assigns, hereby waives diligence,
presentment, protest and demand and notice of protest and demand, dishonor and
nonpayment of this Note, and expressly
<PAGE>
agrees that this Note, or any payment hereunder, may be extended from time to
time and that the Company may accept security for this Note or release security
for this Note, all without in any way affecting the liability of Maker
hereunder.
In the event that Maker fails to pay any amounts due hereunder when
due, Maker shall pay to the Company, in addition to such amounts due, all costs
of collection, including reasonable attorneys fees.
4. Amendment and Waiver. Except as otherwise expressly provided herein,
--------------------
the provisions of the Note may be amended and Maker may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if Maker has obtained the written consent of the Company.
5. Cancellation. After all principal and accrued interest at any time
------------
owed on this Note has been paid in full, this Note shall be surrendered to Maker
for cancellation and shall not be reissued.
6. Place of Payment. Payments of principal and interest are to be
----------------
delivered to the Company at the following address:
ZEFER Corp.
105 South Street
Boston, MA 02111
Attention: Chief Financial Officer
or to such other address or to the attention of such other person as specified
by prior written notice to Maker.
7. Usury Laws. It is the intention of the Company and Maker to conform
----------
strictly to all applicable usury laws now or hereafter in force, and any
interest payable under this Note shall be subject to reduction to the amount not
in excess of the maximum legal amount allowed under the applicable usury laws as
now or hereafter construed by the courts having jurisdiction over such matters.
If the maturity of this Note is accelerated by reason of an election by the
Company resulting from an Event of Default, voluntary prepayment by Maker or
otherwise, then earned interest may never include more than the maximum amount
permitted by law, computed from the date hereof until payment, and any interest
in excess of the maximum amount permitted by law shall be canceled automatically
and, if theretofore paid, shall at the option of the Company either be rebated
to Maker or credited on the principal amount of this Note, or if this Note has
been paid, then the excess shall be rebated to Maker. The aggregate of all
interest (whether designated as interest, service charges, points or otherwise)
contracted for, chargeable, or receivable under this Note shall under no
circumstances exceed the maximum legal rate upon the unpaid principal balance of
this Note remaining unpaid from time to time. If such interest does exceed the
maximum legal rate, it shall be deemed a mistake and such excess shall be
canceled automatically and, if theretofore paid, rebated to Maker or credited on
the principal amount of this Note, or if this Note has been repaid, then such
excess shall be rebated to Maker.
8. Governing Law. This Note is made under and governed by the internal
-------------
law, not the laws of conflicts, of the State of Delaware.
* * * * *
<PAGE>
IN WITNESS WHEREOF, Maker has executed and delivered this Note as of
the date first above written.
/s/ Martha Stephens
----------------------------
Martha Stephens - Maker
<PAGE>
EXHIBIT 10.17
-------------
PROMISSORY NOTE
---------------
May 21, 1999 $50,600.00
Frank Torbey ("Maker") hereby promises to pay to the order of ZEFER
-----
Corp. (the "Company"), the principal amount of $50,600.00 together with interest
-------
thereon calculated from the date hereof in accordance with the provisions of
this Note.
This Note is the Executive Note referred to in the Senior Management
Agreement, dated as of the date hereof, between the Company and Maker (the
"Management Agreement"). Section 1(a) of the Management Agreement contains
--------------------
provisions for the issuance of this Note upon the terms and conditions specified
herein. Capitalized terms used herein and not otherwise defined shall have the
meanings given to them in the Management Agreement.
1. Interest. Interest shall accrue on the outstanding principal amount of
--------
this Note at a rate equal to the lesser of (i) 5% per annum or (ii) the highest
rate permitted by applicable law, compounded annually on each anniversary of the
date hereof.
2. Payment on Note.
---------------
(a) Term. Subject to Section 2(b) below, the entire principal amount
----
of this Note and all accrued interest thereon shall be due and payable on the
fifth anniversary of the date hereof.
(b) Mandatory Prepayments. Notwithstanding anything in Section 2(a)
---------------------
to the contrary, Maker shall make the following mandatory prepayments:
(i) Upon the purchase of Stock from time to time by the
Investors pursuant to Section 1B(b) of the Purchase Agreement dated March
23, 1999 by and among the Company and the Investors, as amended from time
to time (the "Purchase Agreement"), Maker shall make a payment of principal
------------------
in an amount equal to the product of (A) $55,000, multiplied by (B) the
-------------
quotient of (x) the amount paid to the Company in connection with such
purchase of Stock by Investors, divided by (y) $100,000,000, plus all
----------
accrued interest on such principal amount (or such lesser principal amount
then outstanding). For purposes hereof, "Stock" shall have the meaning set
-----
forth in the Purchase Agreement.
(ii) In the event Maker receives any net cash proceeds (A) in
connection with the payment of a dividend or other distribution by the
Company or (B) relating to any other transaction or series of transactions
in which Maker sells any of the Holder Stock, Maker shall prepay any
amounts owed pursuant to this Note by applying all of such proceeds first,
-----
to any accrued interest and second, to any principal then outstanding.
------
Upon a Sale of the Company, Maker shall pay the entire principal amount
then outstanding and any accrued interest to the Company. For purposes
hereof, a "Sale of the Company" and "Executive Stock" shall have the
------------------- ---------------
meanings set forth in the Senior Management Agreement.
<PAGE>
(c) Optional Prepayments. Maker may, at any time and from time to
--------------------
time without premium or penalty, prepay all of the outstanding principal amount
of the Note; provided that any prepayment will be accompanied by a payment of
accrued interest on the portion being prepaid.
(d) Right of Offset. Upon an Event of Default (as described in
---------------
Section 3 hereof) or the Company's repurchase of Executive Stock pursuant to
Section 3(e) of the Management Agreement, the Company shall be entitled to
offset any amounts owed to the Company by the Maker, now existing or hereinafter
arising, pursuant to this Note against any amounts payable by the Company to the
Maker pursuant to and as set forth in the Management Agreement between the
Company and the Maker.
3. Events of Default.
-----------------
(a) Definition. For purposes of this Note, an Event of Default shall
----------
be deemed to have occurred if:
(i) Maker fails to pay (A) within 30 days after the date when due,
the full amount of interest then accrued or (B) when due, the full amount
of any principal payment; or
(ii) Maker makes an assignment for the benefit of creditors or admits
in writing his inability to pay his debts generally as they become due; or
an order, judgment or decree is entered adjudicating Maker bankrupt or
insolvent; or any order for relief with respect to Maker is entered under
the Federal Bankruptcy Code; or Maker petitions or applies to any tribunal
for the appointment of a custodian, trustee, receiver or liquidator of any
substantial part of Maker's assets, or commences any proceeding relating to
Maker under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction;
or any such petition or application is filed, or any such proceeding is
commenced, against Maker and either (A) Maker by any act indicates its
approval thereof, consent thereto or acquiescence therein or (B) such
petition, application or proceeding is not dismissed within 60 days.
(b) Consequences of Events of Default.
---------------------------------
If an Event of Default of the type described in subparagraph 3(a)(ii)
has occurred the aggregate principal amount of the Note (together with all
accrued interest thereon and all other amounts payable in connection therewith)
shall become immediately due and payable without any action on the part of the
Company, and Maker shall immediately pay to the Company all amounts due and
payable with respect to the Note.
If an Event of Default of the type described in subparagraph 3(a)(i)
has occurred and continued for 5 days, the Company may declare all or any
portion of the outstanding principal amount of the Note (together with all
accrued interest thereon and all other amounts due in connection therewith) due
and payable and demand immediate payment of all or any portion of the
outstanding principal amount of the Note.
Maker, or his successors and assigns, hereby waives diligence,
presentment, protest and demand and notice of protest and demand, dishonor and
nonpayment of this Note, and expressly
<PAGE>
agrees that this Note, or any payment hereunder, may be extended from time to
time and that the Company may accept security for this Note or release security
for this Note, all without in any way affecting the liability of Maker
hereunder.
In the event that Maker fails to pay any amounts due hereunder when
due, Maker shall pay to the Company, in addition to such amounts due, all costs
of collection, including reasonable attorneys fees.
4. Amendment and Waiver. Except as otherwise expressly provided herein,
--------------------
the provisions of the Note may be amended and Maker may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if Maker has obtained the written consent of the Company.
5. Cancellation. After all principal and accrued interest at any time
------------
owed on this Note has been paid in full, this Note shall be surrendered to Maker
for cancellation and shall not be reissued.
6. Place of Payment. Payments of principal and interest are to be
----------------
delivered to the Company at the following address:
ZEFER Corp.
105 South Street
Boston, MA 02111
Attention: Chief Financial Officer
or to such other address or to the attention of such other person as specified
by prior written notice to Maker.
7. Usury Laws. It is the intention of the Company and Maker to conform
----------
strictly to all applicable usury laws now or hereafter in force, and any
interest payable under this Note shall be subject to reduction to the amount not
in excess of the maximum legal amount allowed under the applicable usury laws as
now or hereafter construed by the courts having jurisdiction over such matters.
If the maturity of this Note is accelerated by reason of an election by the
Company resulting from an Event of Default, voluntary prepayment by Maker or
otherwise, then earned interest may never include more than the maximum amount
permitted by law, computed from the date hereof until payment, and any interest
in excess of the maximum amount permitted by law shall be canceled automatically
and, if theretofore paid, shall at the option of the Company either be rebated
to Maker or credited on the principal amount of this Note, or if this Note has
been paid, then the excess shall be rebated to Maker. The aggregate of all
interest (whether designated as interest, service charges, points or otherwise)
contracted for, chargeable, or receivable under this Note shall under no
circumstances exceed the maximum legal rate upon the unpaid principal balance of
this Note remaining unpaid from time to time. If such interest does exceed the
maximum legal rate, it shall be deemed a mistake and such excess shall be
canceled automatically and, if theretofore paid, rebated to Maker or credited on
the principal amount of this Note, or if this Note has been repaid, then such
excess shall be rebated to Maker.
8. Governing Law. This Note is made under and governed by the internal
-------------
law, not the laws of conflicts, of the State of Delaware.
* * * * *
<PAGE>
IN WITNESS WHEREOF, Maker has executed and delivered this Note as of
the date first above written.
/s/ Frank Torbey
---------------------------
Frank Torbey - Maker
<PAGE>
EXHIBIT 10.22
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,THIS NOTE HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE.
ZEFER Corp.
Convertible Subordinated Promissory Note Due May 28, 2002
$2,000,000 Boston, Massachusetts
May 28, 1999
ZEFER Corp., a Delaware corporation (the "Company"), for value received,
hereby promises to pay to Renaissance Worldwide, Inc. ("Renaissance"), or its
registered assigns (the "Holder"), the principal sum of Two Million Dollars
($2,000,000) in eight equal quarterly installments of $250,000 on the 28th day
of May, August, November and February (each a "Quarterly Payment Date")
commencing on May __, 2000, and to pay interest (computed on the basis of a 365-
day year) from the date hereof on the unpaid balance of such principal amount
from time to time outstanding at the rate equal to the 30-day LIBOR rate, as
announced by The Wall Street Journal, plus 200 basis points per annum, on each
Quarterly Payment Date commencing August 28, 1999 and continuing until May 28,
2002.
This Note has been issued by the Company in connection with the Asset
Purchase Agreement, dated as of May 19, 1999, among the Company, Renaissance and
Neoglyphics Media Corporation (the "Purchase Agreement"), and in conjunction
with (i) the Agreement to be Bound by Registration Agreement, dated May 28,
1999, among Renaissance and certain existing stockholders of the Company (the
"GTCR Partners") and (ii) the Agreement to be Bound by Stockholders Agreement,
dated May 28, 1999, among Renaissance and the GTCR Partners, reference to each
of which is made for a statement of certain additional rights and benefits to
which the Holder is entitled.
<PAGE>
1. Subordination.
-------------
The Holder agrees that it will, without payment of additional
consideration, agree to such customary subordination provisions as any holder of
Senior Indebtedness (as defined below) may from time to time request and, the
Holder shall execute and deliver to any holder of Senior Indebtedness (i) any
such instrument as such holder of Senior Indebtedness may request in order to
confirm the subordination of this Note to such Senior Indebtedness upon the
terms so agreed, and (ii) any powers of attorney specifically confirming the
rights of holders of Senior Indebtedness to enforce such subordination and all
such proofs of claim, assignments of claim and other instruments as may be
requested by the holders of Senior Indebtedness or their representatives to
enforce all claims upon or in respect of this Note. "Senior Indebtedness" means
the principal of, and premium, if any, and interest on (i) all indebtedness of
the Company for monies borrowed from banks, trust companies, insurance companies
and other financial institutions, including commercial paper and accounts
receivable sold or assigned by the Company to such institutions, (ii)
obligations of the Company as lessee under capital leases, (iii) principal of,
and premium, if any, and interest on any indebtedness or obligations of others
of the kinds described in (i) and (ii) above assumed or guaranteed in any manner
by the Company, (iv) deferrals, renewals, extensions and refundings of any such
indebtedness of the Company which the Company and the holder this Note may
hereafter from time to time expressly and specifically agree in writing shall
constitute Senior Indebtedness.
2. Conversion.
----------
(a) Subject to and in compliance with the provisions of this Section 2,
prior to the payment in full of the principal amount of this Note, the Holder
may convert the outstanding principal amount of this Note, in whole or in part,
into such number of fully paid, nonassessable shares of common stock, $.01 par
value per share ("Common Stock"), of the Company as is determined by dividing
the aggregate principal amount to be so converted by the applicable Conversion
Price (as defined below and as adjusted pursuant to the provision of Section
2(c)).
(b) If, prior to May __, 2002, the Company files a registration statement
for an initial public offering, of its Common Stock ("IPO"), the Company shall,
within five business days of the initial filing of such registration statement,
send written notice of such filing (the "Filing Notice") to the Holder. The
Holder shall, within 30 days from the date of receipt of the Filing Notice (but
in any event no later than the printing of the red herring prospectus for the
IPO), determine whether or not it will convert the outstanding principal amount
of this Note, in whole or in part, into shares of Common Stock in accordance
with this Section 2 and shall send an irrevocable, written notice to the Company
of such election (the "Election Notice"). If, upon the expiration of such 30-day
period, the Holder has not elected to convert this
-2-
<PAGE>
Note into shares of Common Stock or has not notified the Company of its
election, the Holder shall forfeit, its right to convert this Note into Common
Stock hereunder. If the Holder has elected to convert this Note into shares of
Common Stock pursuant to this Section 2(a), such conversion shall become
effective immediately prior to the effectiveness of the registration statement
for the IPO.
(c) For purposes of this Section 2, the "Conversion Price" at which Common
Stock shall be issuable upon conversion of this Note shall be equal to the
product of (A) the per share price to the public of the Common Stock in the IPO
and (B) .8. The Holder and the Company expressly acknowledge and agree that any
rights under this Section 2 are conditioned upon the closing of the IPO.
(d) Surrender of Note and Delivery of Certificates. When surrendered for
----------------------------------------------
conversion this Note shall, unless the shares issuable on conversion are to be
issued in the same name as the name in which this Note is then registered, be
duly endorsed by, or accompanied by instruments of transfer in form satisfactory
to the Company duly executed by, the Holder or his or its duly authorized
attorney. As promptly as practicable after the surrender of this Note for
conversion and the receipt of the Election Notice, the Company shall deliver or
cause to be delivered at its principal executive office to the Holder, or on the
Holder's written order, a certificate or certificates for the number of full
shares issuable upon the conversion of this Note, or portion hereof, in
accordance with the provisions hereof. Such conversion shall be deemed to have
been made at the time this Note shall have been surrendered for conversion and
the Election Notice shall have been received by the Company at its principal
executive office (the "Conversion Date"), and the Holder in whose name any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become on the Conversion Date the holder
of record of the shares represented thereby. If less than the entire outstanding
principal amount of this Note is being converted, a new Note shall promptly be
delivered to the holder for the unconverted principal balance and shall be of
like tenor as to all terms as the Note surrendered.
(e) Adjustment of Conversion Price.
------------------------------
(i) In case the Company shall:
(A) declare a dividend of Common Stock on its Common Stock;
(B) subdivide outstanding Common Stock into a larger number of
shares of Common Stock by reclassification, stock split or otherwise;
or
-3-
<PAGE>
(C) combine outstanding Common Stock into a smaller number of
shares of Common Stock by reclassification, reverse stock split or
otherwise, the number of shares of Common Stock issuable upon
conversion of this Note immediately prior to any such event shall be
adjusted proportionately so that thereafter the Holder shall be
entitled to receive upon conversion of this Note the number of shares
of Common Stock which such Holder would have owned after the happening
of any of the events described above had this Note been converted
immediately prior to the happening of such event; provided, however,
that the Conversion Price shall in no event be reduced to less than
the par value of the shares issuable upon conversion. An adjustment
made pursuant to this Section 2(c) shall become effective immediately
after the record date in the case of a dividend and shall become
effective immediately after the effective date in the case of a
subdivision or combination.
(ii) If, prior to maturity of this Note, the Company shall at any time
consolidate or merge with another corporation (other than a merger or
consolidation in which the Company is the surviving corporation), the Holder
will thereafter be entitled to receive, upon the conversion hereof, the
securities or property to which a holder of the number of shares of Common Stock
then deliverable upon the conversion hereof would have been entitled upon such
consolidation or merger, and the Company shall take such steps in connection
with such consolidation or merger as may be necessary to ensure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to any securities or property thereafter deliverable upon the
conversion of this Note.
(f) Notice. In case the Company proposes to take any action referred to in
------
Section 2(c) above, or to effect the liquidation, dissolution or winding up of
the Company, then the Company shall cause notice thereof to be mailed to the
Holder, at such Holder's address appearing in the Note Register, at least twenty
(20) days prior to the date on which the transfer books of the Company shall
close or a record be taken for such stock dividend or the date when such
reclassification, liquidation, dissolution or winding up shall be effective, as
the case may be.
(g) Statement of Adjustment. Whenever the Conversion Price shall be
-----------------------
adjusted as provided in Section 2(c) above, the Company shall forthwith file at
each office designated for the conversion of Subordinated Notes, a statement,
signed by the Chairman of the Board, the President, any Vice President, the
Treasurer or Secretary of the Company, showing in reasonable detail the facts
requiring such adjustment and the Conversion Price that will be effective after
such adjustment. The Company shall also cause a notice setting forth any such
adjustment to be sent by mail, first class, postage prepaid, to each record
holder of Subordinated Notes at his or its address appearing on the Note
Register. Where appropriate, such notice may
-4-
<PAGE>
be given in advance and may be included as part of a notice required to be
mailed under the provisions of Section 2(d) hereof.
(h) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issuable upon conversion of this Note, but a payment in cash will be made in
respect of any fraction of a share which would otherwise be issuable upon the
surrender of this Note, or portion hereof, for conversion. Such payment shall be
based on the fair market value of the Common Stock at the time of conversion of
this Note, as determined in good faith by the Board of Directors.
(i) Accrued Interest. Upon the conversion of this Note, the Company shall
----------------
not be required to pay any accrued but unpaid interest on the amount so
converted up to the Conversion Date.
(j) Securities Act of 1933. Upon conversion of this Note, the Holder may
----------------------
be required to execute and deliver to the Company an instrument, in form
satisfactory to the Company, representing that the shares issuable upon
conversion hereof are being acquired for investment and not with a view to
distribution within the meaning of the Securities Act of 1933, as amended.
3. No Prepayment of Principal. Except as otherwise provided in Section 6(g),
--------------------------
the principal indebtedness represented by this Note may not be prepaid in whole
or in part, without the prior written consent of the Holder.
4. Default.
-------
Subject to the subordination provisions of Section 1, the entire unpaid
principal of this Note and the interest then accrued on this Note shall become
and be immediately due and payable upon written demand of the Holder, without
any other notice or demand of any kind or any presentment or protest, if any one
of the following events shall occur and be continuing at the time of such
demand, whether voluntarily or involuntarily, or, without limitation, occurring
or brought about by operation of law or pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or regulation of any
governmental body:
(a) if default shall be made in the payment of any installment of
principal of Note, or of any installment of interest on this Note, and if any
such default shall remain unremedied for ten (10) days; or
(b) if the Company (i) makes a composition or an assignment for the
benefit of creditors or trust mortgage, (ii) applies for, consents to,
acquiesces in, files a petition seeking or admits (by answer, default or
otherwise) the material allegations of a petition filed against it seeking the
appointment of a trustee, receiver or liquidator, in bankruptcy or otherwise, of
itself or of all or a substantial portion of its
-5-
<PAGE>
assets, or a reorganization, arrangement with creditors or other remedy, relief
or adjudication available to or against a bankrupt, insolvent or debtor under
any bankruptcy or insolvency law or any law affecting the rights of creditors
generally, or (iii) admits in writing its inability to pay its debts generally
as they become due; or
(c) if an order for relief shall have been entered by a bankruptcy court
or if a decree, order or judgment shall have been entered adjudging the Company
insolvent, or appointing a receiver, liquidator, custodian or trustee, in
bankruptcy or otherwise, for it or for all or a substantial portion of its
assets, or approving the winding-up or liquidation of its affairs on the grounds
of insolvency or nonpayment of debts, and such order for relief, decree, order
or judgment shall remain undischarged or unstayed for a period of sixty (60)
days; or if any substantial part of the property of the Company is sequestered
or attached and shall not be returned to the possession of the Company or such
subsidiary or released from such attachment within sixty (60) days.
5. Note Register.
-------------
(a) The Company shall keep at its principal executive office a register
(herein sometimes referred to as the "Note Register"), in which, subject to such
reasonable regulations as it may prescribe, but at its expense (other than
transfer taxes, if any), the Company shall provide for the registration and
transfer of this Note.
(b) Whenever this Note shall be surrendered at the principal executive
office of the Company for transfer or exchange, accompanied by a written
instrument of transfer in form reasonably satisfactory to the Company duly
executed by the Holder or his or its attorney duly authorized in writing, the
Company shall execute and deliver in exchange therefor a new Note or Notes, as
may be requested by such Holder, in the same aggregate unpaid principal amount
and payable on the same date as the principal amount of the Note or Notes so
surrendered; each such new Note shall be dated as of the date to which interest
has been paid on the unpaid principal amount of the Note or Notes so surrendered
and shall be in such principal amount and registered in such name or names as
such Holder may designate in writing.
(c) Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Note and of indemnity
reasonably satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Note (in case of mutilation) the Company will make and deliver in lieu of
this Note a new Note of like tenor and unpaid principal amount and dated as of
the date to which interest has been paid on the unpaid principal amount of this
Note in lieu of which such new Note is made and delivered.
-6-
<PAGE>
6. General.
-------
(a) Successors and Assigns. This Note, and the obligations and rights of
----------------------
the Company hereunder, shall be binding upon and inure to the benefit of the
Company, the holder of this Note, and their respective heirs, successors and
assigns.
(b) Recourse. Recourse under this Note shall be to the general unsecured
--------
assets of the Company only and in no event to the officers, directors or
stockholders of the Company.
(c) Changes. Changes in or additions to this Note may be made or
-------
compliance with any term, covenant, agreement, condition or provision set forth
herein may be omitted or waived (either generally or in a particular instance
and either retroactively or prospectively), upon written consent of the Company
and the holder of the Note then outstanding.
(d) Currency. All payments shall be made in such coin or currency of the
--------
United States of America as at the time of payment shall be legal tender therein
for the payment of public and private debts.
(e) Notices. All notices, requests, consents and demands shall be made in
-------
writing and shall be mailed postage prepaid, or delivered by hand, to the
Company or to the holder hereof at their respective addresses set forth below or
to such other address as may be furnished in writing to the other party hereto:
If to the Holder:
Renaissance Worldwide, Inc.
189 Wells Avenue
Newton, Massachusetts 02159
Attention: General Counsel
If to the Company:
ZEFER Corp.
105 South Street
Boston, Massachusetts 02111
Attention: General Counsel
(f) Saturdays, Sundays, Holidays. If any date that may at any time be
----------------------------
specified in this Note as a date for the making of any payment of principal or
interest under this Note shall fall on Saturday, Sunday or on a day which in the
Boston,
-7-
<PAGE>
Massachusetts shall be a legal holiday, then the date for the making of that
payment shall be the next subsequent day which is not a Saturday, Sunday or
legal holiday.
(g) This Note is subject to and entitled to the benefits of the Purchase
Agreement. The Company may, in accordance with the provisions of Section 8.5 of
the Purchase Agreement, elect to credit against amounts otherwise payable under
this Note any unpaid amounts claimed by the Company against Renaissance under
Article VIII of the Purchase Agreement. The rights of the Company under this
Section 6(g) shall be enforceable against Renaissance and any subsequent holder
of this Note.
(h) Governing Law. This Note shall be construed and enforced in accordance
-------------
with, and the rights of the parties shall be governed by, the laws of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, this Note has been executed and delivered as a sealed
instrument on the date first above written by the duly authorized representative
of the Company.
ZEFER CORP.
By: /s/ William Seibel
------------------
President
[Corporate Seal]
ATTEST: /s/ Sean Mullaney
-----------------
Secretary
-8-
<PAGE>
EXHIBIT 10.27
________________________________________________________________________________
LOAN AND SECURITY AGREEMENT
ZEFER CORP
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1 ACCOUNTING AND OTHER TERMS................................................ 4
--------------------------
2 LOAN AND TERMS OF PAYMENT................................................. 4
-------------------------
2.1 Advances........................................................... 4
2.2 Overadvances....................................................... 4
2.3 Interest Rate, Payments............................................ 4
2.4 Fees............................................................... 5
3 CONDITIONS OF LOANS....................................................... 5
-------------------
3.1 Conditions Precedent to Initial Advance............................ 5
3.2 Conditions Precedent to all Advances............................... 5
4 CREATION OF SECURITY INTEREST............................................. 5
-----------------------------
4.1 Grant of Security Interest......................................... 5
5 REPRESENTATIONS AND WARRANTIES............................................ 5
------------------------------
5.1 Due Organization and Authorization................................. 5
5.2 Collateral......................................................... 6
5.3 Litigation......................................................... 6
5.4 No Material Adverse Change in Financial Statements................. 6
5.5 Solvency........................................................... 6
5.6 Regulatory Compliance.............................................. 6
5.7 Subsidiaries....................................................... 6
5.8 Full Disclosure.................................................... 6
6 AFFIRMATIVE COVENANTS..................................................... 7
---------------------
6.1 Government Compliance.............................................. 7
6.2 Financial Statements, Reports, Certificates........................ 7
6.3 Inventory; Returns................................................. 7
6.4 Taxes.............................................................. 7
6.5 Insurance.......................................................... 7
6.6 Primary Accounts................................................... 8
6.7 Financial Covenants................................................ 8
6.8 Further Assurances................................................. 8
7 NEGATIVE COVENANTS........................................................ 8
------------------
7.1 Dispositions....................................................... 8
7.2 Changes in Business, Ownership, Management or Business Locations... 8
7.3 Mergers or Acquisitions............................................ 8
7.4 Indebtedness....................................................... 8
7.5 Encumbrance........................................................ 9
7.6 Distributions; Investments......................................... 9
7.7 Transactions with Affiliates....................................... 9
7.8 Subordinated Debt.................................................. 9
7.9 Compliance......................................................... 9
8 EVENTS OF DEFAULT........................................................ 9
-----------------
8.1 Payment Default.................................................... 9
8.2 Covenant Default................................................... 9
</TABLE>
2
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<TABLE>
<S> <C>
8.3 Material Adverse Change..................... 9
8.4 Attachment.................................. 10
8.5 Insolvency.................................. 10
8.6 Other Agreements............................ 10
8.7 Judgments................................... 10
8.8 Misrepresentations.......................... 10
9 BANK'S RIGHTS AND REMEDIES........................... 10
--------------------------
9.1 Rights and Remedies......................... 10
9.2 Power of Attorney........................... 11
9.3 Accounts Collection......................... 11
9.4 Bank Expenses............................... 11
9.5 Bank's Liability for Collateral............. 11
9.6 Remedies Cumulative......................... 11
9.7 Demand Waiver............................... 12
10 NOTICES.............................................. 12
-------
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER........... 12
------------------------------------------
12 GENERAL PROVISIONS.......................... ........ 12
------------------
12.1 Successors and Assigns...................... 12
12.2 Indemnification............................. 12
12.3 Time of Essence............................. 12
12.4 Severability of Provision................... 13
12.5 Amendments in Writing, Integration.......... 13
12.6 Counterparts................................ 13
12.7 Survival.................................... 13
12.8 Confidentiality............................. 13
12.9 Attorneys' Fees, Costs and Expenses......... 13
12.10 Countersignatures........................... 13
13 DEFINITIONS......................................... 14
-----------
13.1 Definitions................................. 14
</TABLE>
3
<PAGE>
This LOAN AND SECURITY AGREEMENT dated December 16, 1998, between SILICON
VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara,
California 95054 a loan production office located 40 William Street, Wellesley,
MA 02481 and ZEFER CORP ("Borrower"), whose address is 107 South Street, Boston,
Massachusetts 02111 provides the terms on which Bank will lend to Borrower and
Borrower will repay Bank. The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
--------------------------
Accounting terms not defined in this Agreement will be construed
following GAAP Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. This Agreement shall be construed to
impart upon Bank a duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
-------------------------
2.1 Advances.
Borrower will pay Bank the unpaid principal amount of all Advances and
interest on the unpaid principal amount of the Advances.
2.1.1 Revolving Advances.
(a) Bank will make Advances not exceeding the lesser of (A) the Committed
Revolving Line or (B) the Borrowing Base, whichever is less. Amounts borrowed
under this Section may be repaid and reborrowed during the term of this
Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Eastern time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to reliance.
(c) The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Advances and other amounts due under this Agreement are
immediately payable.
2.2 Overadvances.
If Borrower's Obligations under Section 2.1.1 exceed the lesser of either
(i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower must
immediately pay Bank the excess.
2.3 Interest Rate, Payments.
(a) Interest Rate. Advances accrue interest on the outstanding principal
balance at a per annum rate of 0.50 of one percentage point above the Prime
Rate. After an Event of Default. Obligations accrue interest at 5.00 percent
above the rate effective immediately before the Event of Default. The interest
rate increases or decreases when the Prime Rate changes. Interest is computed on
a 360 day year for the actual number of days elapsed.
(b) Payments. Interest due on the Committed Revolving Line is payable on
the 16th of each month. Bank may debit any of Borrower's deposit accounts
including Account Number
4
<PAGE>
______________________ for principal and interest payments or any amounts
Borrower owes Bank. Bank will notify Borrower when it debits Borrower's
accounts. These debits are not a set-off. Payments received after 12:00 noon
Eastern time are considered received at the opening of business on the next
Business Day. When a payment is due on a day that is not a Business Day, the
payment is due the next Business Day and additional fees or interest accrue.
2.4 Fees.
Borrower will pay:
(a) Bank Expenses. All Bank Expenses (including reasonable attorneys' fees
and expenses) incurred through and after the date of this Agreement, are payable
when due.
3 CONDITIONS OF LOANS
-------------------
3.1 Conditions Precedent to Initial Advance.
Bank's obligation to make the initial Advance is subject to the condition
precedent that it receive the agreements, documents and fees it requires and
Bank's completion of a Collateral audit with results acceptable to Bank.
3.2 Conditions Precedent to all Advances.
Bank's obligations to make each Advance, including the initial Advance, is
subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Advance and no Event of Default may have occurred and be continuing, or result
from the Advance. Each Advance is Borrower's representation and warranty on that
date that the representations and warranties of Section 5 remain true.
4 CREATION OF SECURITY INTEREST
-----------------------------
4.1 Grant of Security Interest.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrowers duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral.
5 REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
5.1 Due Organization and Authorization.
Borrower and each Subsidiary is duly existing and in good standing in its
state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material
5
<PAGE>
agreement by which Borrower is bound. Borrower is not in default under any
agreement to which or by which it is bound in which the default could cause a
Material Adverse Change.
5.2 Collateral.
Borrower has good title to the Collateral, free of Liens except Permitted
Liens. The Accounts are bona fide, existing obligations, and the service or
property has been performed or delivered to the account debtor or its agent for
immediate shipment to and unconditional acceptance by the account debtor.
Borrower has no notice of any actual or imminent Insolvency Proceeding of any
account debtor whose accounts are an Eligible Account in any Borrowing Base
Certificate. All Inventory is in all material respects of good and marketable
quality, free from material defects.
5.3 Litigation.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.
5.4 No Material Adverse Change in Financial Statements.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrowers consolidated
financial condition and Borrower's consolidated results of operations. There has
not been any material deterioration in Borrower's consolidated financial
condition since the date of the most recent financial statements submitted to
Bank.
5.5 Solvency.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 Regulatory Compliance.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations G, T and U of the Federal Reserve Board of Governors). Borrower has
complied with the Federal Fair Labor Standards Act. Borrower has not violated
any laws, ordinances or rules, the violation of which could cause a Material
Adverse Change. None of Borrower's or any Subsidiary's properties or assets has
been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge,
by previous Persons, in disposing, producing, storing, treating, or transporting
any hazardous substance other than legally. Borrower and each Subsidiary has
timely filed all required tax returns and paid, or made adequate provision to
pay, all taxes, except those being contested in good faith with adequate
reserves under GAAP. Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all government authorities that are necessary to continue
its business as currently conducted.
5.7 Subsidiaries.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
6
<PAGE>
5.8 Full Disclosure.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.
6 AFFIRMATIVE COVENANTS
---------------------
Borrower will do all of the following:
6.1 Government Compliance.
Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify could have a material adverse
effect on Borrower's business or operations. Borrower will comply, and have each
Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or cause a Material Adverse Change.
6.2 Financial Statements, Reports, Certificates.
(a) Borrower will deliver to Bank: (i) as soon as available, but no later
than 30 days after the last day of each month, a company prepared consolidated
balance sheet and income statement covering Borrowers consolidated operations
during the period, in a form and certified by a Responsible Officer acceptable
to Bank; (ii) as soon as available, but no later than 120 days after the last
day of Borrower's fiscal year, audited consolidated financial statements
prepared under GAAP, consistently applied, together with an unqualified opinion
on the financial statements from an independent certified public accounting firm
acceptable to Bank; (iii) a prompt report of any legal actions pending or
threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of $100,000 or more; and (iv) budgets, sales
projections, operating plans or other financial information Bank requests.
(b) Within 20 days after the last day of each month, Borrower will deliver
to Bank a Borrowing Base Certificate signed by a Responsible Officer in the form
of Exhibit C, with aged listings of accounts receivable.
(c) Within 30 days after the last day of each month, Borrower will deliver
to Bank with the monthly financial statements a Compliance Certificate signed by
a Responsible Officer in the form of Exhibit D.
(d) Bank has the right to audit Borrowers Collateral at Borrower's
expense, but the audits will be conducted no more often than every year unless
an Event of Default has occurred and is continuing. Notwithstanding the
foregoing, Bank shall conduct an Collateral audit prior to the first Advance
hereunder.
6.3 Inventory; Returns.
Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrowers customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims, that involve more than $50,000.
6.4 Taxes.
Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.
7
<PAGE>
6.5 Insurance.
Borrower will keep its business and the Collateral insured for risks and
in amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
will have a lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured and
provide that the insurer must give Bank at least 20 days notice before canceling
its policy. At Bank's request, Borrower will deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any policy
will, at Bank's option, be payable to Bank on account of the Obligations.
6.6 Primary Accounts.
Borrower will maintain its primary depository and operating accounts with
Bank.
6.7 Financial Covenants.
Borrower will maintain as of the last day of each month:
(i) Quick Ratio [Adjusted]. A ratio of Quick Assets to Current
Liabilities minus Deferred Maintenance Revenue of at least 1.50 to 1.00.
(ii) Tangible Net Worth. A Tangible Net Worth of at least $200,000.
6.8 Further Assurances.
Borrower will execute any further instruments and take further action as
Bank requests to perfect or continue Bank's security interest in the Collateral
or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
------------------
Borrower will not do any of the following:
7.1 Dispositions.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.
7.2 Changes in Business, Ownership, Management or Business Locations.
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or have a material
change in its ownership of greater than 25%. Borrower will not, without at least
30 days prior written notice, relocate its chief executive office or add any new
offices or business locations.
7.3 Mergers or Acquisitions.
(i) Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate. with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except (i) where no Event of Default has occurred
and is continuing or would
8
<PAGE>
result from such action during the term of this Agreement or (ii) result in a
decrease of more than 25% of Tangible Net Worth; or (iii) merge or consolidate a
Subsidiary into another Subsidiary or into Borrower.
7.4 Indebtedness.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 Encumbrance.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here.
7.6 Distributions; Investments.
Directly or indirectly acquire or own any Person, or make any Investment
in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock.
7.7 Transactions with Affiliates.
Directly or indirectly enter or permit any material transaction with any
Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person.
7.8 Subordinated Debt.
Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.
7.9 Compliance.
Become an "investment company" or a company controlled by an "investment
company" under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Advance for that purpose; fail to meet the minimum funding
requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as
defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards
Act or violate any other law or regulation, if the violation could have a
material adverse effect on Borrowers business or operations or cause a Material
Adverse Change, or permit any of its Subsidiaries to do so.
8 EVENTS OF DEFAULT
-----------------
Any one of the following is an Event of Default:
8.1 Payment Default.
If Borrower fails to pay any of the Obligations;
8.2 Covenant Default.
If Borrower does not perform any obligation in Section 6 or violates any
covenant in Section 7 or does not perform or observe any other material term,
condition or covenant in this Agreement, any Loan
9
<PAGE>
Documents, or in any agreement between Borrower and Bank and as to any default
under a term, condition or covenant that can be cured, has not cured the default
within 10 days after it occurs, or if the default cannot be cured within 10 days
or cannot be cured after Borrower's attempts within 10 day period, and the
default may be cured within a reasonable time, then Borrower has an additional
period (of not more than 30 days) to attempt to cure the default. During the
additional time, the failure to cure the default is not an Event of Default (but
no Advances will be made during the cure period);
8.3 Material Adverse Change.
(i) If there occurs a material impairment in the perfection or priority of
the Bank's security interest in the Collateral or in the value of such
Collateral which is not covered by adequate insurance or (ii) if the Bank
determines, based upon information available to it and in its reasonable
judgment that there is a reasonable likelihood that Borrower will fail to comply
with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.
8.4 Attachment.
If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrowers assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Advances will be made
during the cure period);
8.5 Insolvency.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Advances will be made before any
Insolvency Proceeding is dismissed);
8.6 Other Agreements.
If there is a default in any agreement between Borrower and a third party
that gives the third party the right to accelerate any Indebtedness exceeding
$100,000 or that could cause a Material Adverse Change;
8.7 Judgments.
If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Advances
will be made before the judgment is stayed or satisfied); or
8.8 Misrepresentations.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
10
<PAGE>
9 BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 Rights and Remedies.
When an Event of Default occurs and continues Bank may without notice or
demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an Event
of Default described in Section 8.5 occurs all Obligations are immediately due
and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit under
this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors for
amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or reasonable
to protect its security interest in the Collateral. Borrower will assemble the
Collateral if Bank requires and make it available as Bank designates. Bank may
enter premises where the Collateral is located, take and maintain possession of
any part of the Collateral, and pay, purchase, contest, or compromise any Lien
which appears to be prior or superior to its security interest and pay all
expenses incurred. Borrower grants Bank a license to enter and occupy any of
its premises, without charge, to exercise any of Bank's rights or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower it
holds. or (ii) any amount held by Bank owing to or for the credit or the account
of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral; and
(g) Dispose of the Collateral according to the Code.
9.2 Power of Attorney.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrowers name on
any invoice or bill of lading for any Account or drafts against account debtors,
(iii) make, settle, and adjust all claims under Borrower's insurance policies;
(iv) settle and adjust disputes and claims about the Accounts directly with
account debtors, for amounts and on terms Bank determines reasonable; and (v)
transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Advances terminates.
9.3 Accounts Collection.
When an Event of Default occurs and continues, Bank may notify any Person
owing Borrower money of Bank's security interest in the funds and verify the
amount of the Account. Borrower must collect all payments in trust for Bank and,
if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
11
<PAGE>
9.4 Bank Expenses.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.
9.5 Bank's Liability for Collateral.
If Bank complies with reasonable banking practices it is not liable for:
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral; or (d) any act or default of
any carrier, warehouseman, bailee, or other person. Borrower bears all risk of
loss, damage or destruction of the Collateral.
9.6 Remedies Cumulative.
Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Bank's exercise of one right or remedy is
not an election, and Bank's waiver of any Event of Default is not a continuing
waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given.
9.7 Demand Waiver.
Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
10 NOTICES
-------
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A Party may change its notice address by giving the other Party
written notice.
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
------------------------------------------
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. EACH OF BORROWER AND BANK HEREBY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE COMMONWEALTH OF
MASSACHUSETTS, BUT IF FOR ANY REASON THE BANK IS DENIED ACCESS TO SUCH COURTS,
THEN THE VENUE WILL BE IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF
SANTA CLARA, STATE OF CALIFORNIA.
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE
LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT.
12
<PAGE>
EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS
LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12 GENERAL PROVISIONS
------------------
12.1 Successors and Assigns.
This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement.
12.2 Indemnification.
Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence.
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 Severability of Provision.
Each provision of this Agreement is severable from every other provision
in determining the enforceability of any provision.
12.5 Amendments in Writing, Integration.
All amendments to this Agreement must be in writing and signed by Borrower
and Bank. This Agreement represents the entire agreement about this subject
matter, and supersedes prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement merge into this Agreement and
the Loan Documents.
12.6 Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
12.7 Survival.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The
obligations of Borrower in Section 12.2 to indemnify Bank will survive until all
statutes of limitations for actions that may be brought against Bank have run.
13
<PAGE>
12.8 Confidentiality.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either: (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.
12.9 Attorneys' Fees, Costs and Expenses.
In any action or proceeding between Borrower and Bank arising out of the
Loan Documents, the prevailing party will be entitled to recover its reasonable
attorneys' fees and other costs and expenses incurred, in addition to any other
relief to which it may be entitled.
12.10 Countersignatures.
This Agreement shall become effective only when it shall have been
executed by Borrower and Bank (provided, however, in no event shall this
Agreement become effective until signed by an officer of Bank in California).
13 DEFINITIONS
-----------
13.1 Definitions.
In this Agreement:
"Accounts" are all existing and later arising accounts, contract rights.
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" is a loan advance (or advances) under the
Committed Revolving Line.
"Affiliate" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"Bank Expenses" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"Borrower's Books" are all Borrowers books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.
"Borrowing Base" is 80% of Eligible Accounts as determined by Bank from
Borrower's most recent Borrowing Base Certificate.
"Business Day" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.
14
<PAGE>
"Closing Date" is the date of this Agreement.
"Code" is the Massachusetts Uniform Commercial Code.
"Collateral" is the property described on Exhibit A.
---------
"Committed Revolving Line" is an Advance of up to $200,000.
"Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"Current Liabilities" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"Deferred Maintenance Revenue" is all amounts received in advance of
performance under maintenance contracts and not yet recognized as revenue.
"Eligible Accounts" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5.2;
but Bank may change eligibility standards by giving Borrower notice. Unless
- ---
Bank agrees otherwise in writing, Eligible Accounts will not include:
(a) Accounts that the account debtor has not paid within 90 days of
invoice date;
(b) Accounts for an account debtor, 50% or more of whose Accounts have not
been paid within 90 days of invoice date;
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 35% of all Accounts, for the amounts
that exceed that percentage, unless the Bank approves in writing;
(e) Accounts for which the account debtor does not have its principal
place of business in the United States, unless approved by Bank in
writing,
(f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality;
(g) Accounts for which Borrower owes the account debtor, but only up to
the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts);
15
<PAGE>
(h) Accounts for demonstration or promotional equipment or in which goods
are consigned, sales guaranteed, sale or return, sale on approval,
bill and hold, or other terms if account debtor's payment may be
conditional;
(i) Accounts for which the account debtor is Borrower's Affiliate,
officer, employee or agent;
(j) Accounts in which the account debtor disputes liability or makes any
claim and Bank believes there may be a basis for dispute (but only up
to the disputed or claimed amount), or if the Account Debtor is
subject to an Insolvency Proceeding, or becomes insolvent, or goes out
of business;
(k) Accounts for which Bank reasonably determines collection to be
doubtful.
"Equipment" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"GAAP" is generally accepted accounting principles.
"Indebtedness" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"Insolvency Proceeding" are proceedings by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Inventory" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"Investment" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
"Lien" is a mortgage, lien, deed of trust, charge, pledge. security
interest or other encumbrance.
"Loan Documents" are, collectively. this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"Material Adverse Change" is defined in Section 8.3.
"Obligations" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
Exchange Contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.
16
<PAGE>
"Permitted Indebtedness" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other Loan
Document;
(b) Indebtedness existing on the Closing Date and shown on the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(e) Indebtedness secured by Permitted Liens.
"Permitted Investments" are:
(a) Investments shown on the Schedule and existing on the Closing Date;
and
(b) (i) marketable direct obligations issued or unconditionally guaranteed
by the United States or its agency or any State maturing within 1 year from its
acquisition, (ii) commercial paper maturing no more than 1 year after its
creation and having the highest rating from either Standard & Poor's Corporation
or Moody's Investors Service, Inc., and (iii) Bank's certificates of deposit
issued maturing no more than 1 year after issue.
"Permitted Liens" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies. either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
--
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower or
its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
--
property and improvements and the proceeds of the equipment;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a lessor,
licensor or under any lease or license, if the leases, subleases, licenses and
---
sublicenses permit granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
---
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"Person" is any individual, sole proprietorship, partnership, limited
liability company, joint venture company association, trust, unincorporated
organization, association, corporation. institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"Prime Rate" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate.
"Quick Assets" is, on any date, the Borrower's consolidated, unrestricted
cash, cash equivalents, net billed accounts receivable and investments with
maturates of fewer than 12 months determined according to GAAP.
17
<PAGE>
"Responsible Officer" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" is December 15, 1999.
"Schedule" is any attached schedule of exceptions.
"Subordinated Debt" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).
"Subsidiary" is for any Person, or any other business entity of which more
than 50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by the Person or one or more Affiliates of the Person.
"Tangible Net Worth" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
-----
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities plus Subordinated Debt
---
"Total Liabilities" is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
BORROWER:
Zefer Corp
By:____________________
Title:_________________
BANK:
SILICON VALLEY BANK
By:____________________
Title:_________________
18
<PAGE>
EXHIBIT A
---------
The Collateral consists of all of Borrower's right title and interest in
and to the following:
All goods and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, financial assets, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing:
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past. present and future infringement of any of the
foregoing; and
All Borrower's Books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.
19
<PAGE>
EXHIBIT 10.28
WARRANT AGREEMENT
-----------------
This WARRANT AGREEMENT (this "Agreement") is made as of November 24,
---------
1999, by and among GTCR Capital Partners, L.P., a Delaware limited partnership
(the "Purchaser"), and ZEFER Corp., a Delaware corporation (the "Company").
--------- -------
Capitalized terms used herein and not otherwise defined shall have the meanings
given to such terms in Section 5A hereof.
WHEREAS, the Company and the Purchaser have entered into a Loan
Agreement, dated as of the date hereof (as the same shall be modified, amended
and supplemented from time to time, the "Loan Agreement");
--------------
WHEREAS, pursuant to the Loan Agreement, the Purchaser will make a
loan to the Company on the date hereof in the principal amount of $12,789,175
(the "Initial Loan") and, subject to the terms and conditions of the Loan
------------
Agreement, will make loans to the Company from time to time after the date
hereof (each a "Subsequent Loan", and together with the Initial Loan, the
---------------
"Loans") up to an aggregate principal amount (excluding the Initial Loan) of
-----
$19,407,121 (the "Aggregate Subsequent Loan Amount");
--------------------------------
WHEREAS, as an inducement and partial consideration to the Purchaser
to enter into the Loan Agreement and to make the Loans, the Company has agreed
to (i) issue to the Purchaser on the date hereof a warrant (the "Common
------
Warrant") representing the right to purchase the Common Warrant Shares from the
- -------
Company, (ii) issue to the Purchaser on the date hereof a warrant (the "Initial
-------
Preferred Warrant") representing the right to purchase the Initial Preferred
- -----------------
Warrant Shares from the Company, and (iii) issue to the Purchaser on the date of
each Subsequent Loan a warrant (each a "Subsequent Preferred Warrant", and
----------------------------
together with the Common Warrant and the Initial Preferred Warrant, the
"Warrants") representing the right to purchase Subsequent Preferred Warrant
- ---------
Shares from the Company, in each case pursuant to the terms and conditions of
this Agreement and in the form of Exhibit A attached hereto; and
---------
WHEREAS, the Company has authorized the issuance of the Warrants to
the Purchaser pursuant to the terms and conditions of this Agreement and each
such Warrant.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. Issuance of Warrants; Closings.
------------------------------
1A. Initial Closing. The issuance of the Common Warrant and the
-------------
Initial Preferred Warrant (collectively, the "Initial Warrants") to the
----------------
Purchaser (the "Initial Closing") shall take place simultaneously with the
---------------
closing of the Initial Loan pursuant to the Loan Agreement. The date of the
Initial Closing is hereinafter referred to as the "Initial Closing Date."
--------------------
1B. Issuance of Initial Warrants. At the Initial Closing, the
----------------------------
Company shall issue to the Purchaser the Initial Warrants representing the right
to purchase the Common Warrant Shares and the Initial Preferred Warrant Shares.
The Initial Warrants shall be exercisable immediately upon
<PAGE>
issuance thereof, and the Purchaser may exercise all or any portion of the
Initial Warrants at any time and from to time thereafter.
1C. Subsequent Closings. The issuance of each Subsequent Preferred
-------------------
Warrant to the Purchaser (each a "Subsequent Closing") shall take place
------------------
simultaneously with the closing of each Subsequent Loan. The date of each
Subsequent Closing is hereinafter referred to as a "Subsequent Closing Date").
-----------------------
1D. Issuances of Subsequent Preferred Warrants. At each Subsequent
------------------------------------------
Closing, the Company shall issue to the Purchaser a Subsequent Preferred Warrant
representing the right to purchase a number of Subsequent Preferred Warrant
Shares equal to the product of (i) the total number of Subsequent Preferred
Warrant Shares, multiplied by (ii) a fraction, (A) the numerator of which is an
---------- --
amount equal to the principal amount of the Subsequent Loan made by the
Purchaser at such Subsequent Closing and (B) the denominator of which is an
amount equal to the Aggregate Subsequent Loan Amount.
SECTION 2. Representations and Warranties of the Company. As of the
---------------------------------------------
Initial Closing, and as of each Subsequent Closing, the Company represents and
warrants to the Purchaser as follows:
2A. Good Standing. The Company is a corporation duly organized,
-------------
validly existing and in good standing under the laws of the State of Delaware.
2B. Authority Relative to this Agreement. The Company has all
------------------------------------
requisite corporate power and authority to enter into and perform this Agreement
and to issue and deliver the Warrants to the Purchaser. The execution, delivery
and performance by the Company of this Agreement, including the issuance and
delivery of the Warrants to the Purchaser, have been duly authorized by all
necessary corporate action on the part of the Company. This Agreement has been
duly executed and delivered by the Company and is a legal, valid and binding
obligation of the Company and is enforceable against the Company in accordance
with its terms.
2C. No Conflict or Violation. The execution and delivery of this
------------------------
Agreement by the Company, the performance by the Company of its obligations
hereunder and the issuance and delivery of the Warrants to the Purchaser does
not and will not conflict with or result in a violation of (i) the charter or
bylaws of the Company or (ii) any agreement, instrument, law, rule, regulation,
order, writ, judgment or decree to which the Company is a party or is subject,
except for such conflicts and violations which will not, individually or in the
aggregate, have a material adverse effect on the business, operations, assets,
condition (financial or otherwise) or business prospects of the Company and will
not deprive the Purchaser of any material benefit under this Agreement.
2D. Validity of Issuance. The Warrants to be issued to the Purchaser
--------------------
pursuant to this Agreement and the Warrant Shares issued upon exercise of the
Warrants will, when issued, be duly and validly issued, fully paid and non-
assessable.
-2-
<PAGE>
2E. Capital Structure (Initial Closing). The authorized and issued
-----------------------------------
capital stock of the Company as of the Initial Closing and immediately
thereafter is as set forth on the Capitalization Schedule dated as of the
-----------------------
Initial Closing Date and attached hereto.
2F. Capital Structure (Subsequent Closings). The authorized and
---------------------------------------
issued capital stock of the Company as of any Subsequent Closing and immediately
thereafter will be as set forth on the Capitalization Schedule dated as of such
-----------------------
Subsequent Closing Date and provided to the Purchaser prior to such Subsequent
Closing.
SECTION 3. Investment Representations; Legends.
-----------------------------------
3A. Investment Representations. The Purchaser hereby represents and
--------------------------
warrants to the Company that the Purchaser is acquiring the Warrants, and to the
extent any such Warrant has been exercised, the Warrant Shares, for its own
account and not with a view to, or for resale in connection with, the
distribution or other disposition thereof. The Purchaser agrees and
acknowledges that it will not, directly or indirectly, offer, transfer or sell
any Warrant or any Warrant Shares, or solicit any offers to purchase or acquire
any Warrant or any Warrant Shares, unless the transfer or sale is (i) pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, and the rules and regulations thereunder (the "Securities Act") and has
--------------
been registered under any applicable state securities or "blue sky" laws or (ii)
pursuant to an exemption from registration under the Securities Act and all
applicable state securities or "blue sky" laws.
3B. Additional Investment Representations. The Purchaser hereby
-------------------------------------
represents and warrants to the Company that (i) it has such knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of its investment hereunder, (ii) it is able to incur a
complete loss of such investment, (iii) it is able to bear the economic risk of
such investment for an indefinite period of time and (iv) it is an "accredited
investor" as that term is defined in Regulation D under the Securities Act.
3C. Legends. The Purchaser hereby acknowledges that the Company will
-------
stamp or otherwise imprint each Warrant with a legend in substantially the
following form:
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.
In connection with the transfer of any Warrant or any Warrant Shares
(other than a transfer pursuant to a public offering registered under the
Securities Act, pursuant to Rule 144 or Rule 144A promulgated under the
Securities Act (or any similar rules then in effect) or to an affiliate
-3-
<PAGE>
of the Purchaser), the Purchaser shall deliver, upon the reasonable request of
the Company, an opinion of counsel, which counsel shall be knowledgeable in
securities laws and which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer may be effected without registration
under the Securities Act. Upon receipt of an opinion of counsel reasonably
satisfactory to the Company to the effect that such legend no longer applies to
any particular Warrant and/or Warrant Shares, the Company shall promptly issue a
replacement Warrant and/or replacement certificate evidencing such Warrant
Shares (as applicable), which does not contain such legend.
In addition, the Purchaser hereby acknowledges that, so long as any
particular Warrant Shares remain Stockholder Shares (as defined in the
Stockholders Agreement), the Company will stamp or otherwise imprint each
Warrant and/or certificate evidencing such Warrant Shares with a legend in
substantially the following form:
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.
Upon any Warrant Shares ceasing to be Stockholder Shares (as defined
in the Stockholders Agreement) in accordance with the terms of the Stockholders
Agreement, the Company shall promptly remove the legend set forth immediately
above from any Warrant and/or certificate evidencing such Warrant Shares.
SECTION 4. Inspection Rights. The Company shall permit any representatives
-----------------
designated by the Purchaser (so long as the Purchaser or any affiliate of the
Purchaser holds any Warrant Shares), any holder of at least 50% of the Warrant
Shares that are Common Stock or any holder of at least 50% of the Warrant Shares
that are Class A Preferred, upon reasonable notice and during normal business
hours and at such other times as any such holder may reasonably request, to (i)
visit and inspect any of the properties of the Company and its subsidiaries,
(ii) examine the corporate and financial records of the Company and its
subsidiaries and make copies thereof or extracts therefrom and (iii) discuss the
affairs, finances and accounts of the Company and/or any of its subsidiaries
with their respective directors, officers, key employees and independent
accountants (it being understood that such representatives will keep all non-
public information confidential to the full extent permitted by applicable law).
SECTION 5. Miscellaneous
-------------
5A. Definitions. For the purposes of this Agreement, the following
-----------
terms shall have the following meanings:
-4-
<PAGE>
"Class A Preferred" means the Company's Class A Preferred Stock, par
-----------------
value $.01 per share.
"Common Stock" means the Company's Common Stock, par value $.01 per
------------
share.
"Common Warrant Shares" means 1,237,804 shares of Common Stock
---------------------
obtained or obtainable upon exercise of the Common Warrant, as such number of
shares shall be adjusted from time to time in accordance with Section 2 of the
Common Warrant.
"Initial Preferred Warrant Shares" means 1,499 shares of Class A
--------------------------------
Preferred obtained or obtainable upon exercise of the Initial Preferred Warrant,
as such number of shares shall be adjusted from time to time in accordance with
Section 2 of the Initial Preferred Warrant.
"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.
"Subsequent Preferred Warrant Shares" means 4720 shares of Class A
-----------------------------------
Preferred obtained or obtainable upon exercise of the Subsequent Preferred
Warrants, as such number of shares shall be adjusted from time to time in
accordance with Section 2 of the Subsequent Preferred Warrants.
"Warrant Shares" means, collectively, the Common Warrant Shares, the
--------------
Initial Preferred Warrant Shares and any Subsequent Preferred Warrant Shares
then outstanding.
5B. Notices. All notices and other communications provided for
-------
herein shall be dated and in writing and shall be deemed to have been duly given
(i) when delivered, if delivered personally, sent by registered or certified
mail, return receipt requested and postage prepaid, or sent via nationally
recognized overnight courier or via facsimile with confirmation of receipt and
(ii) when received if delivered otherwise, to the party to whom it is directed:
If to the Company:
-----------------
ZEFER Corp.
711 Atlantic Ave.
6/th/ Floor
Boston, MA 02111
Attention: Sean Mullaney
Facsimile No.: (617) 451-8001
-5-
<PAGE>
with a copy to:
--------------
GTCR Fund VI, L.P.
c/o GTCR Golder Rauner, L.L.C.
6100 Sears Tower
Chicago, IL 60606
Attention: Philip A. Canfield
Timothy P. McAdam
Facsimile No.: (312) 382-2201
If to the Purchaser:
-------------------
GTCR Capital Partners, L.P.
c/o GTCR Golder Rauner, L.L.C.
6100 Sears Tower
Chicago, IL 60606
Attention: Philip A. Canfield
Timothy P. McAdam
Facsimile No.: (312) 382-2201
with a copy to:
--------------
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Stephen L. Ritchie, Esq.
Facsimile No.: (312) 861-2200
or to such other address as any party hereto shall have provided in a written
notice to the others.
5C. Assignment. This Agreement and all the provisions hereof shall
----------
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns, except that neither this Agreement
nor any rights or obligations hereunder shall be assigned by the Company without
the prior written consent of the Purchaser.
5D. Amendment. This Agreement may be amended only by a written
---------
instrument signed by the Company, the holders of a majority of the Warrant
Shares that are Common Stock and the holders of a majority of the Warrant Shares
that are Class A Preferred.
5E. Waiver. Any party hereto may (a) extend the time for the
------
performance of any of the obligations or other acts of the other party hereto,
(b) waive any inaccuracies in the
-6-
<PAGE>
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions herein. Any agreement on the part of a party hereto to any such
extension or waiver shall only be valid as to such party if set forth in an
instrument in writing signed by such party.
5F. Severability. In the event that any one or more of the
------------
provisions hereof, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired; it being
intended that all rights, powers and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
5G. Governing Law. All questions concerning the construction,
-------------
validity and interpretation of this Agreement shall be governed by and construed
in accordance with the internal laws of the State of Illinois, without giving
effect to any choice of law or other conflict of law provision or rule (whether
of the State of Illinois or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Illinois.
5H. Counterparts. This Agreement may be executed in two or more
------------
counterparts (including by means of facsimile), each of which when so executed
and delivered shall be deemed to be an original and all of which together shall
be deemed to be one and the same agreement.
5I. Descriptive Headings. The headings in this Agreement are for
--------------------
convenience of reference only and shall not limit or otherwise affect the
meaning of the terms contained herein.
5J. Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made in writing by any party in connection herewith shall survive
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby (including each Subsequent Closing), regardless
of any investigation made by the Purchaser or on its behalf.
5K. Purchase Prices for Initial Warrants. The Company and the
------------------------------------
Purchaser hereby agree that for purposes of Sections 1271 through 1275 of the
Internal Revenue Code of 1986, as amended (or any successor statute), the
aggregate original purchase price of the Common Warrant is $6,189,020.00 and the
aggregate original purchase price of the Initial Preferred Warrant is
$1,499,000.00, which purchase prices will be used by the Company and the
Purchaser, as appropriate, for financial reporting and income tax purposes.
5L. Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement, the Loan Agreement and the Warrants embody the complete
agreement and understanding among the parties hereto with respect to the subject
matter hereof 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.
-7-
<PAGE>
* * * *
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be signed by its duly authorized officers as of the date first
written above.
ZEFER CORP.
By: /s/ Sean W. Mullaney
-----------------------------------
Its: Vice President
-----------------------------------
GTCR CAPITAL PARTNERS, L.P.
By: GTCR Mezzanine Partners, L.P.
Its: General Partner
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: /s/ Philip A. Canfield
-----------------------------------
Its: Principal
<PAGE>
EXHIBIT 10.29
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: November 24, 1999 Certificate No. W-P-1
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 1499 shares (as such number
of shares shall be adjusted from time to time in accordance with Section 2
hereof) of the Company's 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 $1,499,000.00.
<PAGE>
This Warrant is subject to the following provisions:
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 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 Initial Loan on the date
hereof.
"Convertible Securities" means any stock or securities (directly or
----------------------
indirectly) convertible into or exchangeable for shares of Preferred Stock.
-5-
<PAGE>
"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 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."
-------
-6-
<PAGE>
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 W. 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-1), 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-1) 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 10.30
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: November 24, 1999 Certificate No. W-C-1
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 1,237,804 shares (as such
number of shares shall be adjusted from time to time in accordance with Section
2 hereof) of the Company's Common 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 $6,189,020.00.
<PAGE>
This Warrant is subject to the following provisions:
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
-2-
<PAGE>
be fully paid and nonassessable and free from all liens and charges with respect
to the issuance thereof.
(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 Common 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 Common
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.
-3-
<PAGE>
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.
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 Common 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 Common 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 Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for such Common 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
-4-
<PAGE>
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.
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
Common Stock, (B) with respect to any pro rata subscription offer to holders of
the Common 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 Common 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 Common 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 Common 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 Common 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 Common 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:
"Common Stock" means the Company's Common Stock, par value $.01 per
------------
share.
-5-
<PAGE>
"Exercise Price" means $.01 per share, which is deemed paid upon the
--------------
issuance of this Warrant by virtue of the making of the Initial Loan on the date
hereof.
"Convertible Securities" means any stock or securities (directly or
----------------------
indirectly) convertible into or exchangeable for shares of Common Stock.
"Options" means any rights or options to subscribe for or purchase
-------
shares of Common 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 Common 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
-6-
<PAGE>
shall be deemed to be the "Date of Issuance" hereof regardless of the
----------------
number of times new certificates representing the unexpired and 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 W. 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-C-1), hereby elects to purchase ________ shares of
Common 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-C-1) 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 10.31
Execution Copy
--------------
STOCKHOLDERS AGREEMENT
----------------------
THIS STOCKHOLDERS AGREEMENT (this "Agreement") is made as of March 23,
---------
1999 by and among (i) ZC Acquisition Corp., a Delaware corporation (the
"Company"), (ii) GTCR Fund VI, L.P., a Delaware limited partnership ("GTCR"),
------- ----
GTCR VI Executive Fund, L.P., a Delaware limited partnership ("Executive Fund")
--------------
and GTCR Associates VI, a Delaware general partnership ("Associates Fund") (each
---------------
an "Investor" and collectively, the "Investors"), (iii) William Seibel and any
-------- ---------
other executive employee of the Company who, at any time, acquires securities of
the Company in accordance with Section 9 hereof and executes a counterpart of
---------
this Agreement or otherwise agrees to be bound by this Agreement (each, an
"Executive" and collectively, the "Executives"), and (iv) each of the other
--------- ----------
entities and individuals set forth from time to time on the attached "Schedule
--------
of Stockholders" under the heading "Other Stockholders" who, at any time,
- ---------------
acquires securities of the Company in accordance with Section 9 hereof and
---------
executes a counterpart of this Agreement or otherwise agrees to be bound by this
Agreement. The Investors, the Executives and the other entities and individuals
listed on the Schedule of Stockholders are collectively referred to herein as
the "Stockholders" and individually as a "Stockholder." Capitalized terms used
------------ -----------
but not otherwise defined herein are defined in Section 7 hereof.
---------
The Investors will purchase shares of the Company's Common Stock, par
value $.01 per share (the "Common Stock"), and the Company's Class A Preferred
------------
Stock (the "Class A Preferred"), pursuant to a Purchase Agreement between the
-----------------
Investors and the Company dated as of the date hereof (the "Purchase
--------
Agreement"). Each Executive will purchase shares of Common Stock pursuant to an
- ---------
agreement between the Company and such Executive (each an "Executive Purchase
------------------
Agreement" and collectively the "Executive Purchase Agreements").
- --------- -----------------------------
The execution and delivery of this Agreement is a condition to the
Investors' purchase of Common Stock and Class A Preferred pursuant to the
Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Board of Directors.
------------------
(a) From and after the Closing and until the provisions of this
Section 1 cease to be effective, each Stockholder shall vote all of his
- ---------
Stockholder Shares and any other voting securities of the Company over which
such Stockholder has voting control and shall take all other necessary or
desirable actions within his control (whether in his capacity as a stockholder,
director, member of a board committee or officer of the Company or otherwise,
and including, without limitation, attendance at meetings in person or by proxy
for purposes of obtaining a quorum and execution of written consents in lieu of
meetings), and the Company shall take all necessary and desirable actions within
its control (including, without limitation, calling special board and
stockholder meetings), so that:
<PAGE>
(i) the authorized number of directors on the Company's board
of directors (the "Board") shall be established at seven directors;
-----
(ii) the following persons shall be elected to the Board:
(A) two representatives designated by GTCR (the "Investor
--------
Directors"), who shall initially be Philip A. Canfield and Timothy P.
---------
McAdam;
(B) William Seibel and one additional Executive of the
Company designated by the Company's chief executive officer (the
"CEO") (each, an "Executive Director" and collectively, the "Executive
--- ------------------ ---------
Directors"); and
---------
(C) three representatives chosen jointly by GTCR and the
CEO (the "Outside Directors"); provided that no Outside Directors
----------------- --------
shall be a member of the Company's management or an employee or
officer of the Company or its subsidiaries; provided further that
--------
if GTCR and the CEO are unable to agree on the Outside Directors
within 10 days after the date specified by GTCR for electing the
Outside Directors, then GTCR, in its sole discretion, shall
designate the Outside Directors;
(iii) the composition of any committee of the Board shall include
at least two Investor Directors;
(iv) the composition of the board of directors of each of the
Company's subsidiaries (a "Sub Board") shall be the same as that of the
---------
Board;
(v) the removal from the Board, a Sub Board or a committee
(with or without cause) of any Investor Director or any Outside Director
shall be upon (and only upon) the written request of GTCR;
(vi) if any Executive Director ceases to hold his respective
executive office, he shall be removed promptly after such time from the
Board, each Sub Board and each committee; and
(vii) in the event that any representative designated hereunder
for any reason ceases to serve as a member of the Board, a Sub Board or a
committee during his term of office, the resulting vacancy on the Board,
the Sub Board or such committee shall be filled by a representative
designated by the person or persons originally entitled to designate such
director pursuant to Section 1(a)(ii) above.
----------------
(b) The Company shall pay all out-of-pocket expenses incurred by each
director in connection with attending regular and special meetings of the Board,
any Sub Board and any committee thereof.
-2-
<PAGE>
(c) If any party fails to designate a representative to fill a
directorship pursuant to the terms of this Section 1, the election of a person
---------
to such directorship shall be accomplished in accordance with the Company's
bylaws and applicable law.
(d) The provisions of this Section 1 shall terminate upon first to
---------
occur of (i) the consummation of a Public Offering or (ii) the consummation of a
Sale of the Company.
2. Legend. Each certificate evidencing Stockholder Shares and each
------
certificate issued in exchange for or upon the transfer of any Stockholder
Shares (if such shares remain Stock holder Shares as defined herein after such
transfer) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"The securities represented by this certificate are subject
to a Stockholders Agreement dated as of [date of issuance]
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."
The Company shall imprint such legend on certificates evidencing Stockholder
Shares outstanding prior to the date hereof. The legend set forth above shall
be removed from the certificates evidencing any shares which cease to be
Stockholder Shares.
3. Participation Rights.
--------------------
(a) At least 30 days prior to any Transfer of Stockholder Shares by
GTCR, GTCR shall deliver a written notice (the "Sale Notice") to the Company and
-----------
the other Stockholders (the "Other Stockholders") specifying in reasonable
------------------
detail the identity of the prospective transferee(s) and the terms and
conditions of the Transfer. The Other Stockholders may elect to participate in
the contemplated Transfer by delivering written notice to GTCR within 30 days
after delivery of the Sale Notice. If any Other Stockholders have elected to
participate in such Transfer, GTCR and such Other Stockholders will be entitled
to sell in the contemplated Transfer, at the same price and on the same terms, a
number of shares of Common Stock equal to the product of (A) the quotient
determined by dividing the number of shares of Stockholders Shares owned by such
person by the aggregate number of outstanding shares of Stockholder Shares owned
by GTCR and the Other Stockholders participating in such sale and (B) the number
of Stockholder Shares to be sold in the contemplated Transfer.
(b) GTCR will use reasonable best efforts to obtain the agreement of
the prospective transferee(s) to the participation of the Other Stockholders in
any contemplated Transfer, and GTCR will not transfer any of its Stockholder
Shares to the prospective transferee(s) unless (A) the prospective transferee(s)
agrees to allow the participation of the Other Stockholders or (B) GTCR agrees
to purchase the number of such class of Stockholder Shares from the Other
Stockholders which the Other Stockholders would have been entitled to sell
pursuant to this Section 3(b) for the consideration per share to be paid to GTCR
------------
by the prospective transferee(s).
-3-
<PAGE>
(c) Notwithstanding anything to the contrary in any other provision
of this Agreement, the restrictions set forth in this Section 3 shall not apply
---------
to (i) any Transfer of Stockholder Shares by GTCR to or among its Affiliates or
(ii) a Public Sale; provided that the restrictions contained in this Agreement
--------
will continue to be applicable to the Stockholder Shares after any Transfer
pursuant to clause (i) and the transferee of such Stockholder Shares shall agree
in writing to be bound by the provisions of this Agreement. Upon the Transfer
of Stockholder Shares pursuant to clause (i) of the previous sentence, the
transferees will deliver a written notice to the Company, which notice will
disclose in reasonable detail the identity of such transferee.
(d) The provisions of this Section 3 will terminate upon the first to
---------
occur of (i) the consummation of a Sale of the Company and (ii) the consummation
of a Public Offering.
4. First Refusal Rights.
--------------------
(a) Prior to making any Transfer of Stockholder Shares (other than a
Transfer pursuant to a Public Sale of the type referred to in clause (i) of the
definition thereof or a Sale of the Company), any Stockholder (other than the
Investors) desiring to make such Transfer (the "Transferring Stockholder") will
------------------------
give written notice (the "Sale Notice") to the Company, the Executives and the
-----------
Investors (each a "Sale Notice Recipient", and collectively, the "Sale Notice
--------------------- -----------
Recipients"). The Sale Notice will disclose in reasonable detail the identity
- ----------
of the prospective transferee(s), the number of shares to be transferred and the
terms and conditions of the proposed transfer. Such Transferring Stockholder
will not consummate any Transfer until 45 days after the Sale Notice has been
given to the Sale Notice Recipients, unless the parties to the Transfer have
been finally determined pursuant to this Section 4 prior to the expiration of
---------
such 45-day period. (The date of the first to occur of such events is referred
to herein as the "Authorization Date").
------------------
(b) The Company may elect to purchase all (but not less than all) of
such Stockholder Shares to be transferred upon the same terms and conditions as
those set forth in the Sale Notice by delivering a written notice of such
election to the Executives and the Investors (individually, an "Other Sale
----------
Notice Recipient", and collectively, the "Other Sale Notice Recipients") and to
- ---------------- ----------------------------
the Transferring Stockholder within 20 days after the Sale Notice has been given
to the Company. If the Company has not elected to purchase all of the
Stockholder Shares to be transferred, the Other Sale Notice Recipients may elect
to purchase all (but not less than all) of the Stockholder Shares to be
transferred upon the same terms and conditions as those set forth in the Sale
Notice by giving written notice of such election to such Transferring
Stockholder within 25 days after the Sale Notice has been given to GTCR. If
more than one Other Sale Notice Recipient elects to purchase the Stockholder
Shares to be transferred, the shares of Stockholder Shares to be sold shall be
allocated among the Other Sale Notice Recipients pro rata according to the
number of shares of Common Stock owned by each Other Sale Notice Recipient on a
fully diluted basis. If neither the Company nor the Other Sale Notice
Recipients elects to purchase all of the Stockholder Shares specified in the
Sale Notice, the Transferring Stockholder may transfer the Stockholder Shares
specified in the Sale Notice at a price and on terms no more favorable to the
transferee(s) thereof than specified in the Sale Notice during the 60-day period
immediately following the Authorization Date. Any Stockholder Shares not
transferred within such 60-day period will be subject to the provisions of this
Section 4 upon subsequent transfer. The Company may pay the purchase price for
- ---------
-4-
<PAGE>
such shares by offsetting amounts outstanding under any bona fide debts owed by
the Transferring Stockholder to the Company.
(c) The restrictions of this Section 4 will not apply with respect to
---------
(i) any Transfer of Stockholder Shares by any Stockholder to or among its
Affiliates, (ii) any Transfer of Stockholder Shares by or to any Investor, (iii)
a repurchase of Stockholder Shares by the Company pursuant to the terms of the
Management Agreements (as defined in the Purchase Agreement), (iv) a Public
Sale, or (v) an Approved Sale (as defined in Section 5(a)); provided that the
------------- --------
restrictions contained in this Agreement will continue to be applicable to the
Stockholder Shares after any Transfer pursuant to clause (i) or (ii) above and
the transferee of such Stockholder Shares shall agree in writing to be bound by
the provisions of this Agreement. Upon the Transfer of Stockholder Shares
pursuant to clause (i) or (ii) of the previous sentence, the transferees will
deliver a written notice to the Company, which notice will disclose in
reasonable detail the identity of such transferee.
(d) Notwithstanding anything herein to the contrary, except pursuant
to clause (c) above, in no event shall any Transfer of Stockholder Shares
pursuant to this Section 4 be made for any consideration other than cash payable
---------
upon consummation of such Transfer.
(e) The restrictions set forth in this Section 4 shall continue with
---------
respect to each Stockholder Share until the earlier of (i) the date on which
such Share has been transferred in a Public Sale, (ii) the consummation of an
Approved Sale, and (iii) the date on which such Stockholder Share has been
transferred pursuant to this Section 4 (other than Section 4(c)).
--------- ------------
5. Sale of the Company.
-------------------
(a) If the holders of a majority of the shares of Common Stock then
outstanding approve a Sale of the Company (an "Approved Sale"), each holder of
-------------
Common Stock shall vote for, consent to and raise no objections against such
Approved Sale. If the Approved Sale is structured as a (i) merger or
consolidation, each holder of Common Stock shall waive any dissenters' rights,
appraisal rights or similar rights in connection with such merger or
consolidation or (ii) sale of stock, each holder of Common Stock shall agree to
sell all of his Common Stock and rights to acquire Common Stock on the terms and
conditions approved by the Board and the holders of a majority of the Common
Stock (voting as a single class) then outstanding. Each holder of Common Stock
shall take all necessary or desirable actions in connection with the
consummation of the Approved Sale as requested by the Company.
(b) The obligations of the holders of Common Stock with respect to
the Approved Sale of the Company are subject to the satisfaction of the
following conditions: (i) upon the consummation of the Approved Sale, each
holder of Common Stock shall receive the same form of consideration and the same
amount of consideration per share, and each holder of Class A Preferred shall
receive consideration not in excess of the aggregate Liquidation Value (as
defined in the Company's Certificate of Incorporation as of the date hereof) of
all shares of Class A Preferred held by such holder (plus all accrued and unpaid
dividends thereon); (ii) if any holders of a class of Common Stock are given an
option as to the form and amount of consideration to be received, each holder of
such class of Common Stock shall be given the same option; and (iii) each holder
of then
-5-
<PAGE>
currently exercisable rights to acquire shares of a class of Common Stock
shall be given an opportunity to either (A) exercise such rights prior to the
consummation of the Approved Sale and participate in such sale as holders of
such class of Common Stock or (B) upon the consummation of the Approved Sale,
receive in exchange for such rights consideration equal to the amount determined
by multiplying (1) the same amount of consideration per share of a class of
Common Stock received by holders of such class of Common Stock in connection
with the Approved Sale less the exercise price per share of such class of Common
Stock of such rights to acquire such class of Common Stock by (2) the number of
shares of such class of Common Stock represented by such rights.
(c) If either the Company or the holders of the Common Stock or the
Class A Preferred enter into an negotiation or transaction for which Rule 506
(or any similar rule then in effect) promulgated by the Securities and Exchange
Commission may be available with respect to such negotiation or transaction
(including a merger, consolidation or other reorganization), the holders of
Stockholder Shares will, at the request of the Company, appoint a purchaser
representative (as such term is defined in Rule 501) reasonably acceptable to
the Company. If any holder of Stockholder Shares appoints a purchaser
representative designated by the Company, the Company will pay the fees of such
purchaser representative, but if any holder of Stockholder Shares declines to
appoint the purchaser representative designated by the Company such holder will
appoint another purchaser representative, and such holder will be responsible
for the fees of the purchaser representative so appointed.
(d) Holders of Stockholder Shares will bear their pro rata share
(based upon the number of shares sold) of the costs of any sale of such
Stockholder Shares pursuant to an Approved Sale to the extent such costs are
incurred for the benefit of all holders of Stockholder Shares and are not
otherwise paid by the Company or the acquiring party. For purposes of this
Section 5(d), costs incurred in exercising reasonable efforts to take all
- ------------
actions in connection with the consummation of an Approved Sale in accordance
with Section 5(a) shall be deemed to be for the benefit of all holders of the
------------
Stockholder Shares. Costs incurred by holders of Stockholder Shares on their
own behalf will not be considered costs of the transaction hereunder.
6. Public Offering. In the event that the Board or the holders of a
---------------
majority of the Investor Registrable Securities (as defined in the Registration
Agreement, dated March 23, 1999, by and among the Company, the Investors and
certain other stockholders) (collectively, the "Approving Persons") approves an
-----------------
initial Public Offering, the holders of Stockholder Shares shall take all
necessary or desirable actions requested by the Approving Persons in connection
with the consummation of such Public Offering, including without limitation
compliance with the requirements of all laws and regulatory bodies which are
applicable or which have jurisdiction over such Public Offering. In the event
that such Public Offering is an underwritten offering and the managing
underwriters advise the Company in writing that in their opinion the Company's
capital structure would adversely affect the marketability of the offering, each
holder of Stockholder Shares shall consent to and vote for a recapitalization,
reorganization or exchange (each, a "Recapitalization") of any class of the
----------------
Company's capital stock into securities that the managing underwriters and the
Approving Persons find acceptable and shall take all necessary and desirable
actions in connection with the consummation of such Recapitalization; provided
--------
that, each holder
- ----
-6-
<PAGE>
of Common Stock shall receive the same type of security with the same value per
share, and each holder of Class A Preferred shall receive the same type of
security with the same value per share; provided further, that the aggregate
value of the securities issued to the holders of Class A Preferred shall not
exceed the aggregate Liquidation Value of such Class A Preferred (plus all
accrued and unpaid dividends thereon) or the number of shares of Common Stock
equal to (i) the aggregate Liquidation Value of such Class A Preferred (plus all
accrued and unpaid dividends thereon), divided by (ii) the price per
------- --
share of the Common Stock to the public in the Public Offering.
7. Definitions.
-----------
"Affiliate" means, (i) with respect to any Person, means any Person
---------
that controls, is controlled by or is under common control with such Person or
an Affiliate of such Person, (ii) with respect to any Investor, means any
general or limited partner of such Investor or any other person, entity or
investment fund controlling, controlled by or under common control with such
Investor, and (iii) with respect to any Executive, means any member of such
Executive's immediate family or a trust in which the beneficiary of such trust
is such Executive or such Executive's immediate family.
"Closing" shall have the meaning set forth in the Purchase Agreement.
-------
"Person" means an individual, a partnership, a limited liability
------
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Public Offering" means the sale in an underwritten public offering
---------------
registered under the Securities Act of shares of the Company's Common Stock
approved by the Board.
"Public Sale" means any sale of Stockholder Shares (i) to the public
-----------
pursuant to an offering registered under the Securities Act or (ii) to the
public through a broker, dealer or market maker pursuant to the provisions of
Rule 144 (other than Rule 144(k) prior to a Public Offering) adopted under the
Securities Act.
"Sale of the Company" means any transaction or series of transactions
-------------------
pursuant to which any person(s) or entity(ies) (including any Affiliate of any
Investor), other than any Investor, in the aggregate acquire(s) (i) capital
stock of the Company possessing the voting power (other than voting rights
accruing only in the event of a default or breach) to elect a majority of the
Company's board of directors (whether by merger, consolidation, reorganization,
combination, sale or transfer of the Company's capital stock, shareholder or
voting agreement, proxy, power of attorney or otherwise) or (ii) all or
substantially all of the Company's assets determined on a consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
"Stockholder Shares" means (i) any Common Stock purchased or otherwise
------------------
acquired by any Stockholder, (ii) any equity securities issued or issuable
directly or indirectly with respect to the Common Stock referred to in clause
(i) above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorgan-
-7-
<PAGE>
ization, and (iii) any other shares of any class or series of capital stock of
the Company held by a Stockholder; provided that Stockholder Shares shall not
--------
include nonvoting stock described in (iii) above for purposes of Section 1
---------
hereof. As to any particular shares constituting Stockholder Shares, such
shares will cease to be Stockholder Shares when they have been (x) effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them or (y) sold to the public through a broker,
dealer or market maker pursuant to Rule 144 (or any similar provision then in
force) under the Securities Act.
"Transfer" means to sell, transfer, assign, pledge or otherwise
--------
dispose of (whether with or without consideration and whether voluntarily or
involuntarily or by operation of law).
8. Transfers; Transfers in Violation of Agreement. Prior to
----------------------------------------------
transferring any Stockholder Shares to any person or entity, the Transferring
Stockholder shall cause the prospective transferee to execute and deliver to the
Company and the other Stockholders a counterpart of this Agreement. Any
transfer or attempted transfer of any Stockholder Shares in violation of any
provision of this Agreement shall be void, and the Company shall not record such
transfer or treat any purported transferee of such Stockholder Shares as the
owner of such shares for any purpose.
9. Additional Stockholders. In connection with the issuance of any
-----------------------
additional equity securities of the Company, the Company, with the consent of
GTCR, may permit such person to become a party to this Agreement and succeed to
all of the rights and obligations of a "Stockholder" under this Agreement by
obtaining an executed counterpart signature page to this Agreement, and, upon
such execution, such person shall for all purposes be a "Stockholder" party to
this Agreement.
10. Amendment and Waiver. Except as otherwise provided herein, no
--------------------
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Stockholders unless such modification,
amendment or waiver is approved in writing by the Company and the holders of a
majority of the Stockholder Shares. The failure of any party to enforce any of
the provisions of this Agreement shall in no way be construed as a waiver of
such provisions and shall not affect the right of such party thereafter to
enforce each and every provision of this Agreement in accordance with its terms.
11. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been herein.
12. Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this document embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts 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.
-8-
<PAGE>
13. Successors and Assigns. Except as otherwise provided herein,
----------------------
this Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and any subsequent
holders of Stockholder Shares and the respective successors and assigns of each
of them, so long as they hold Stockholder Shares.
14. Counterparts. This Agreement may be executed in separate
------------
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
15. Remedies. The Company, each Investor, each Executive and each
--------
Other Stockholder shall be entitled to enforce their rights under this Agreement
specifically to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights existing in their favor. The parties
hereto agree and acknowledge that money damages may not be an adequate remedy
for any breach of the provisions of this Agreement and that the Company, each
Investor, each Executive and each Other Stockholder may in its sole discretion
apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive relief (without posting a bond or other security)
in order to enforce or prevent any violation of the provisions of this
Agreement.
16. Notices. Any notice provided for in this Agreement shall be in
-------
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to the Company at the address set forth below and to any other
recipient at the address indicated on the schedules hereto and to any subsequent
holder of Common Stock subject to this Agreement at such address as indicated by
the Company's records, or at such address or to the attention of such other
person as the recipient party has specified by prior written notice to the
sending party. Notices will be deemed to have been given hereunder when
delivered personally, three days after deposit in the U.S. mail and one day
after deposit with a reputable overnight courier service. The Company's address
is:
If to the Company:
-----------------
ZC Acquisition Corp.
1048 Tremont Street
Duxbury, MA 02332
Attention: General Counsel
-9-
<PAGE>
with copies to:
--------------
GTCR Fund VI, L.P.
GTCR VI Executive Fund, L.P.
GTCR Associates VI
c/o GTCR Golder Rauner, L.L.C.
6100 Sears Tower
Chicago, IL 60606-6402
Attention: Philip A. Canfield
Timothy P. McAdam
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Stephen L. Ritchie
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: David E. Redlick
17. Governing Law. 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
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.
18. Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
* * * * *
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement on the day and year first above written.
ZC ACQUISITION CORP.
By: /s/ William Seibel
-------------------------------
Name: William Seibel
-----------------------------
Its: President
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 A. Canfield
-------------------------------
Name: Philip A. Canfield
-----------------------------
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 A. Canfield
-------------------------------
Name: Philip A. Canfield
-----------------------------
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: /s/ Philip A. Canfield
-------------------------------
Name: Philip A. Canfield
-----------------------------
Its: Principal
/s/ William Seibel
----------------------------------
William Seibel
SIGNATURE PAGE TO THE STOCKHOLDERS AGREEMENT
<PAGE>
HEIDRICK & STRUGGLES, INC.
By: /s/ Richard D. Nelson
-------------------------------
Name: Richard D. Nelson
-----------------------------
Its: Secretary
------------------------------
CONTINUATION OF
SIGNATURE PAGE TO THE STOCKHOLDERS AGREEMENT
<PAGE>
EXECUTION COPY
--------------
SCHEDULE OF STOCKHOLDERS
------------------------
GTCR FUND VI, L.P.
6100 Sears Tower
Chicago, IL 60606-6402
Attention: Philip A. Canfield
Timothy P. McAdam
GTCR VI EXECUTIVE FUND, L.P.
6100 Sears Tower
Chicago, IL 60606-6402
Attention: Philip A. Canfield
Timothy P. McAdam
GTCR ASSOCIATES VI
6100 Sears Tower
Chicago, IL 60606-6402
Attention: Philip A. Canfield
Timothy P. McAdam
William Seibel
7 Amherst Road
Wellesley, MA 02181
OTHER STOCKHOLDERS
- ------------------
HEIDRICK & STRUGGLES, INC.
233 South Wacker Drive, Suite 4200
Chicago, IL 60606-6303
Attention: Corporate Counsel
-13-
<PAGE>
EXHIBIT 10.32
JOINDER AND FIRST AMENDMENT TO STOCKHOLDERS AGREEMENT
-----------------------------------------------------
This JOINDER AND FIRST AMENDMENT TO STOCKHOLDERS AGREEMENT (this
"Joinder and Amendment") is made this 24/th/ day of November, 1999, by and among
---------------------
ZEFER Corp., a Delaware corporation (the "Company"), GTCR Fund VI, L.P., a
-------
Delaware limited partnership ("GTCR"), and GTCR Capital Partners, L.P., a
----
Delaware limited partnership ("GTCR Capital"). Any capitalized term used in this
------------
Joinder and Amendment which is not otherwise defined herein shall have the
meaning assigned to such term in the Stockholders Agreement (as defined below).
WHEREAS, the Company and GTCR are parties to that certain Stockholders
Agreement, dated as of March 23, 1999 (as amended and modified from time to
time), by and among the Company, GTCR and certain other stockholders of the
Company (the "Stockholders Agreement");
----------------------
WHEREAS, the Company and GTCR Capital are parties to that certain Loan
Agreement, dated as of the date hereof (the "Loan Agreement"), pursuant to which
--------------
GTCR Capital will make certain Loans (as defined in the Loan Agreement) to the
Company;
WHEREAS, in connection with the execution of the Loan Agreement, the
Company and GTCR Capital entered into a Warrant Agreement of even date herewith
(the "Warrant Agreement") pursuant to which the Company will issue to GTCR
-----------------
Capital, on the date hereof and from time to time hereafter, warrants
representing the right to purchase shares of capital stock of the Company
(collectively, the "Warrants"); and
--------
WHEREAS, the execution and delivery of this Joinder and Amendment is a
condition to the consummation of the transactions contemplated by the Loan
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, GTCR and GTCR Capital
agree as follows:
ARTICLE I - JOINDER TO STOCKHOLDERS AGREEMENT
1. GTCR Capital hereby acknowledges that it has read a copy of the
Stockholders Agreement.
2. The Company and GTCR Capital hereby agree that (i) GTCR Capital's
signature below shall constitute an executed counterpart signature
page to the Stockholders Agreement, (ii) GTCR Capital shall succeed to
all of the rights and obligations of a "Stockholder" under the
Stockholders Agreement as contemplated by Section 9 thereof, and (iii)
all shares of any class or series of capital stock of the Company
issued or issuable upon exercise of the Warrants shall constitute
"Stockholder Shares" under the Stockholders Agreement.
3. As required by Section 9 of the Stockholders Agreement, the Company
and GTCR hereby consent to this Joinder and Amendment.
<PAGE>
ARTICLE II - FIRST AMENDMENT TO STOCKHOLDERS AGREEMENT
1. Subsection (A) of Section 1(a)(ii) of the Stockholders Agreement shall
be amended and restated to read as follows:
until the later to occur of (i) such time as GTCR Capital
Partners, L.P. ("GTCR Capital") no longer holds any capital stock
------------
(or securities exercisable or convertible into capital stock) of
the Company and (ii) such time as no Loan Obligation (as defined
in Section 12 of the Loan Agreement) is outstanding, one
representative designated by GTCR and one representative
designated by GTCR Capital; and thereafter, two representatives
designated by GTCR (collectively, and regardless of whether
designated by GTCR or GTCR Capital, the "Investor Directors").
------------------
2. Section 7 of the Stockholders Agreement shall be amended by inserting
into such Section the following definition of "Loan Agreement":
"Loan Agreement" means that certain Loan Agreement, dated as
--------------
of November ___, 1999, between ZEFER Corp., a Delaware corporation, as
the Borrower, and GTCR Capital Partners, L.P., a Delaware limited
partnership, as the Lender.
3. As required by Section 10 of the Stockholders Agreement, the Company
and GTCR hereby consent to this Joinder and Amendment.
* * * *
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Joinder and
Amendment to be executed on the day and year first above written.
ZEFER CORP.
By: /s/ William Seibel
-------------------------------
Its:
-------------------------------
GTCR FUND VI, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, LLC
Its: General Partner
By: /s/ Philip Canfield
-------------------------------
Its: Principal
GTCR CAPITAL PARTNERS, L.P.
By: GTCR Mezzanine Partners, L.P.
Its: General Partner
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: /s/ Philip Canfield
-------------------------------
Its: Principal
SIGNATURE PAGE TO
JOINDER AND FIRST AMENDMENT TO STOCKHOLDERS AGREEMENT
<PAGE>
EXHIBIT 10.33
Execution Copy
--------------
REGISTRATION AGREEMENT
----------------------
THIS REGISTRATION AGREEMENT (this "Agreement") is made as of March 23,
---------
1999 by and among (i) ZC Acquisition Corp., a Delaware corporation (the
"Company"), (ii) GTCR Fund VI, L.P., a Delaware limited partnership ("GTCR Fund
------- ---------
VI"), GTCR VI Executive Fund, L.P., a Delaware limited partnership ("Executive
- -- ---------
Fund") and GTCR Associates VI, a Delaware general partnership ("Associates
- ---- ----------
Fund") (each an "Investor" and collectively, the "Investors"), (iii) William
-------- ---------
Seibel and any other executive employee of the Company who, at any time,
acquires securities of the Company in accordance with Section 8 hereof and
---------
executes a counterpart of this Agreement or otherwise agrees to be bound by this
Agreement (each, an "Executive" and collectively, the "Executives"), and (iv)
--------- ----------
each of the other entities and individuals set forth from time to time on the
attached "Schedule of Stockholders" under the heading "Other Stockholders" who,
------------------------ ------------------
at any time, acquires securities of the Company in accordance with Section 8
---------
hereof and executes a counterpart of this Agreement or otherwise agrees to be
bound by this Agreement.
The Company and the Investors are parties to a Purchase Agreement of even
date herewith (the "Purchase Agreement"). In order to induce the Investors to
------------------
enter into the Purchase Agreement, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the Closing under the Purchase Agreement.
Unless otherwise provided in this Agreement, capitalized terms used herein shall
have the meanings set forth in Section 9 hereof.
---------
The parties hereto agree as follows:
1. Demand Registrations.
--------------------
(a) Requests for Registration. At any time, the holders of a
-------------------------
majority of the Investor Registrable Securities may request registration under
the Securities Act of all or any portion of their Registrable Securities having
an aggregate offering price of at least $5,000,000 (based on the then current
market price or fair value at the time of such request) on Form S- 1 or any
similar long-form registration ("Long-Form Registrations"), or on Form S-2 or S-
-----------------------
3 or any similar short-form registration ("Short-Form Registrations") if
------------------------
available. All registrations requested pursuant to this Section 1(a) are
------------
referred to herein as "Demand Registrations". Each request for a Demand
--------------------
Registration shall specify the approximate number of Registrable Securities
requested to be registered and the anticipated per share price range for such
offering. Within ten days after receipt of any such request, the Company shall
give written notice of such requested registration to all other holders of
Registrable Securities and shall include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 15 days after the receipt of the Company's notice.
(b) Investor Long-Form Registrations. The holders of Investor
--------------------------------
Registrable Securities shall be entitled to request an unlimited number of Long-
Form Registrations in which the Company shall pay all Registration Expenses (as
defined in Section 5) ("Company-paid Long-Form Registrations"). All Long-Form
--------- ------------------------------------
Registrations shall be underwritten registrations.
<PAGE>
EXECUTION COPY
--------------
(c) Investor Short-Form Registrations. In addition to the Long-Form
---------------------------------
Registrations provided pursuant to Section 1 (b), the holders of Investor
----------
Registrable Securities shall be entitled to request an unlimited number of
Short-Form Registrations in which the Company shall pay all Registration
Expenses. Demand Registrations shall be Short-Form Registrations whenever the
Company is permitted to use any applicable short form. After the Company has
become subject to the reporting requirements of the Securities Exchange Act, the
Company shall use its best efforts to make Short-Form Registrations on Form S-3
available for the sale of Registrable Securities.
(d) Priority on Demand Registration. The Company shall not include
-------------------------------
in any Demand Registration any securities which are not Registrable Securities
without the prior written consent of the holders of a majority of the
Registrable Securities included in such registration. If a Demand Registration
is an underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if any, which
can be sold in an orderly manner in such offering within a price range
acceptable to the holders of a majority of the Registrable Securities to be
included in such registration therein, the Company shall include in such
registration prior to the inclusion of any securities which are not Registrable
Securities the number of Registrable Securities requested to be included which
in the opinion of such underwriters can be sold in an orderly manner within the
price range of such offering, pro rata among the respective holders thereof on
the basis of the amount of Registrable Securities owned by each such holder.
(e) Restrictions on Long-Form Registrations. The Company shall not be
---------------------------------------
obligated to effect any Long-Form Registration within 90 days after the
effective date of a previous Long-Form Registration or a previous registration
in which the holders of Registrable Securities were given piggyback rights
pursuant to Section 2 and in which there was no reduction in the number of
---------
Registrable Securities requested to be included. The Company may postpone for
up to 180 days the filing or the effectiveness of a registration statement for a
Demand Registration if the Company and the holders of a majority of the
Registrable Securities agree that such Demand Registration would reasonably be
expected to have a material adverse effect on any proposal or plan by the
Company or any of its Subsidiaries to engage in any acquisition of assets (other
than in the ordinary course of business) or any merger, consolidation, tender
offer, reorganization or similar transaction; provided however, that in such
-------- -------
event, the holders of Registrable Securities initially requesting such Demand
Registration shall be entitled to withdraw such request and the Company shall
pay all Registration Expenses in connection with such registration. The Company
may delay a Demand Registration hereunder only once in any twelve-month period.
(f) Selection of Underwriters. The holders of a majority of the
-------------------------
Registrable Securities included in any Demand Registration shall have the right
to select the investment banker(s) and manager(s) to administer the offering.
(g) Other Registration Rights. Except as provided in this Agreement,
-------------------------
the Company shall not grant to any Persons the right to request the Company to
register any equity securities of the Company, or any securities convertible or
exchangeable into or exercisable for
-2-
<PAGE>
EXECUTION COPY
--------------
such securities, without the prior written consent of the holders of a majority
of the Registrable Securities.
2. Piggyback Registrations.
-----------------------
(a) Right to Piggyback. Whenever the Company proposes to register any
------------------
of its securities under the Securities Act (other than (i) pursuant to a Demand
Registration, (ii) in connection with an initial public offering of the
Company's equity securities, or (iii) in connection with registrations on form
S-8 or any successor form) and the registration form to be used may be used for
the registration of Registrable Securities (a "Piggyback Registration"), the
----------------------
Company shall give prompt written notice to all holders of Registrable
Securities of its intention to effect such a registration and shall include in
such registration all Registrable Securities with respect to which the Company
has received written requests for inclusion therein within 20 days after the
receipt of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses of the holders of
------------------
Registrable Securities shall be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback Registration is
---------------------------------
an underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in an orderly manner in such offering within a price range
acceptable to the Company, the Company shall include in such registration (i)
first, the securities the Company proposes to sell, (ii) second, the Registrable
Securities requested to be included in such registration, pro rata among the
holders of such Registrable Securities on the basis of the number of shares
owned by each such holder, and (iii) third, other securities requested to be
included in such registration.
(d) Priority on Secondary Registrations. If a Piggyback Registration
-----------------------------------
is an underwritten secondary registration on behalf of holders of the Company's
securities (other than holders of Registrable Securities; it being understood
that secondary registrations on behalf of holders of Registrable Securities are
addressed in Section I above rather than this Section 2(d)), and the managing
---------
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in an orderly manner in such offering within a price range
acceptable to the holders of a majority of the Registrable Securities to be
included in such registration, the Company shall include in such registration
(i) first, the securities requested to be included therein by the holders
requesting such registration, (ii) second, the Registrable Securities requested
to be included in such registration, pro rata among the holders of such
Registrable Securities on the basis of the number of shares owned by each such
holder, and (iii) third, other securities requested to be included in such
registration.
(e) Selection of Underwriters. If any Piggyback Registration is an
-------------------------
underwritten offering, the selection of investment banker(s) and manager(s) for
the offering must be approved by the holders of a majority of the Registrable
Securities included in such Piggyback Registration. Such approval shall not be
unreasonably withheld.
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(f) Other Registrations. If the Company has previously filed a
-------------------
registration statement with respect to Registrable Securities pursuant to
Section 1 or pursuant to this Section 2, and if such previous registration has
- --------- ---------
not been withdrawn or abandoned, the Company shall not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-8 or any successor form), whether on its
own behalf or at the request of any holder or holders of such securities, until
a period of at least 180 days has elapsed from the effective date of such
previous registration.
3. Holdback Agreements,
-------------------
(a) Each holder of Registrable Securities and each officer and
director of the Company shall not effect any public sale or distribution
(including sales pursuant to Rule 144) of equity securities of the Company, or
any securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 180-day period beginning on
the effective date of any underwritten Demand Registration, any underwritten
Piggyback Registration in which Registrable Securities are included (except as
part of such underwritten registration), or the initial public offering, unless
the underwriters managing the registered public offering otherwise agree.
(b) The Company (i) shall not effect any public sale or distribution
of its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and during the
180-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration or pursuant to registrations on Form S-8 or any
successor form), unless the underwriters managing the registered public offering
otherwise agree, and (ii) shall cause each holder of its Common Stock, or any
securities convertible into or exchangeable or exercisable for Common Stock,
purchased from the Company at any time after the date of this Agreement (other
than in a registered public offering) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144) of any such securities
during such period (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree. Notwithstanding the foregoing, clause (ii) of this
Section 3(b) shall not apply to any holder of the Company's Common Stock and/or
any securities convertible into or exchangeable or exercisable for Common Stock,
if such Person holds less than 1% of the Company's Common Stock on a fully
diluted basis.
4. Registration Procedures. Whenever the holders of Registrable
-----------------------
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company shall use its reasonable best efforts to effect
the registration and the sale of such Registrable Securities in accordance with
the intended method of disposition thereof, and pursuant thereto the Company
shall be as expeditious as possible:
(a) prepare and file with the Securities and Exchange Commission a
registration statement with respect to such Registrable Securities and use its
reasonable best efforts to cause such registration statement to become effective
(provided that before filing a registration statement or prospectus or any
amendments or supplements thereto, the Company
-4-
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--------------
shall furnish to one counsel selected by the holders of a majority of the
Registrable Securities covered by such registration statement copies of all such
documents proposed to be filed, which documents shall be subject to the review
and comment of such counsel);
(b) notify each holder of Registrable Securities of the effectiveness
of each registration statement filed hereunder and prepare and file with the
Securities and Exchange Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 180 days and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company shall not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of the holders of a majority of the
Registrable Securities covered by such registration statement, the Company shall
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the NASD automated quotation
system and, if listed on the NASD automated quotation system, use its best
efforts to secure designation of all such Registrable Securities covered by such
registration statement as a NASDAQ "national market system security" within the
meaning of Rule 11 Aa2-1 of the Securities and Exchange Commission or, failing
that, to secure NASDAQ authorization for such Registrable Securities;
-5-
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--------------
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including effecting a stock split or a combination of
shares);
(i) otherwise use its commercially reasonable best efforts to comply
with all applicable rules and regulations of the Securities and Exchange
Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least twelve months
beginning with the first day of the Company's first full calendar quarter after
the effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11 (a) of the Securities Act and Rule 158
thereunder;
(j) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company shall use its reasonable best efforts promptly to
obtain the withdrawal of such order;
(k) use its commercially reasonable best efforts to cause such
Registrable Securities covered by such registration statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to enable the sellers thereof to consummate the -disposition of such
Registrable Securities; and
(l) in connection with any underwritten public offering, obtain a
cold comfort letter from the Company's independent public accountants in
customary form and covering such matters of the type customarily covered by cold
comfort letters addressed to the underwriters of such offering.
5. Registration Expenses.
---------------------
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, expenses and fees of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, fees and disbursements
of custodians, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts and
commissions) and other Persons retained by the Company (all such expenses being
herein called "Registration Expenses"), shall be borne as provided in this
---------------------
Agreement, except that the Company shall, in any event, pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit or quarterly review, the expense of any liability insurance and
the expenses and fees for listing the securities to be registered on each
securities exchange on which similar securities issued by the Company are then
listed or on the NASD automated quotation system.
-6-
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--------------
(b) In connection with each Demand Registration and each Piggyback
Registration, the Company shall reimburse the holders of Registrable Securities
included in such registration for the reasonable fees and disbursements of one
counsel chosen by the holders of a majority of the Registrable Securities
included in such registration.
(c) To the extent Registration Expenses are not required to be paid
by the Company, each holder of securities included in any registration hereunder
shall pay those Registration Expenses allocable to the registration of such
holder's securities so included, and any Registration Expenses not so allocable
shall be borne by all sellers of securities included in such registration in
proportion to the aggregate selling price of the securities to be so registered.
6. Indemnification.
---------------
(a) The Company agrees to indemnify, to the extent permitted by law,
each holder of Registrable Securities, its officers and directors and each
Person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for use
therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Company shall indemnify
such underwriters, their officers and directors and each Person who controls
such underwriters (within the meaning of the Securities Act) to the same extent
as provided above with respect to the indemnification of the holders of
Registrable Securities.
(b) In connection with any registration statement in which a holder
of Registrable Securities is participating, each such holder will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the full extent permitted by law, shall indemnify the
Company, its directors and officers and each Person who controls the Company
(within the meaning of the Securities Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue statement
of material fact contained in the registration statement, prospectus or
preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is contained in any information or
affidavit so furnished in writing by such holder; provided that the obligation
to indemnify will be individual, not joint and several, for each holder and
shall be limited to the net amount of proceeds received by such holder from the
sale of Registrable Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give prompt notice
shall not impair any Person's
-7-
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--------------
right to indemnification hereunder to the extent such failure has not prejudiced
the indemnifying party) and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, the indemnifying party will not
be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim.
(d) The indemnification provided for under this Agreement shall
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and shall survive the transfer of securities. The
Company also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for that reason.
7. Participation in Underwritten Registrations. No Person may
-------------------------------------------
participate in any registration hereunder which is underwritten unless such
Person (i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements; provided
that no holder of Investor Registrable Securities included in any underwritten
registration shall be required to make any representations or warranties to the
Company or the underwriters (other than representations and warranties regarding
such holder, such holder's title to such shares and such holder's intended
method of distribution) or to undertake any indemnification obligations to the
Company or the underwriters with respect thereto, except as otherwise provided
in Section 6 hereof.
---------
8. Additional Stockholders. In connection with the issuance of any
-----------------------
additional equity securities of the Company, the Company, with the consent of
the holders of a majority of the Registrable Securities, may permit such person
to become a party to this Agreement and succeed to all of the rights and
obligations of an "Other Stockholder" under this Agreement by obtaining an
executed counterpart signature page to this Agreement, and, upon such execution,
such person shall for all purposes be an "Other Stockholder" party to this
Agreement.
9. Definitions.
-----------
(a) "Executive Registrable Securities" means any shares of Common
--------------------------------
Stock held as of the date hereof, or acquired hereafter from the Company or
another Stockholder, by the Executives.
-8-
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--------------
(b) "Investor Registrable Securities" means (i) any Common Stock
-------------------------------
issued to the Investors pursuant to the Purchase Agreement (whether issued
before, on or after the date hereof), (ii) any other Common Stock issued or
issuable with respect to the securities referred to in clause (i) by way of a
stock dividend or stock split or in connection with an exchange or combination
of shares, recapitalization, merger, consolidation or other reorganization, and
(iii) any other shares of Common Stock held by Persons holding securities
described in clauses (i) and (ii), inclusive, above.
(c) "Other Stockholder Registrable Securities" means any shares of
----------------------------------------
Common Stock held as of the date hereof, or acquired hereafter from the Company,
by the Other Stockholders.
(d) "Registrable Securities" means the Investor Registrable
----------------------
Securities, Executive Registrable Securities and Other Stockholder Registrable
Securities. As to any particular Registrable Securities, such securities shall
cease to be Registrable Securities when they have been distributed to the public
pursuant to an offering registered under the Securities Act or sold to the
public through a broker, dealer or market maker in compliance with Rule 144
under the Securities Act (or any similar rule then in force). For purposes of
this Agreement, a Person shall be deemed to be a holder of Registrable
Securities whenever such Person has the right to acquire such Registrable
Securities (upon conversion or exercise in connection with a transfer of
securities or otherwise, but disregarding any restrictions or limitations upon
the exercise of such right), whether or not such acquisition has actually been
effected.
(e) Unless otherwise stated, other capitalized terms contained herein
have the meanings set forth in the Purchase Agreement.
10. Miscellaneous.
-------------
(a) No Inconsistent Agreements. The Company shall not hereafter enter
--------------------------
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.
(b) Adjustments Affecting Registrable Securities. The Company shall
--------------------------------------------
not take any action, or permit any change to occur, with respect to its
securities which would adversely affect the ability of the holders of
Registrable Securities to include such Registrable Securities in a registration
undertaken pursuant to this Agreement or which would adversely affect the
marketability of such Registrable Securities in any such registration
(including, without limitation, effecting a stock split or a combination of
shares).
(c) Remedies. Any Person having rights under any provision of this
--------
Agreement shall be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
-9-
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EXECUTION COPY
--------------
(d) Amendments and Waivers. Except as, otherwise provided herein, the
----------------------
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and holders of at least a majority of the
Registrable Securities.
(e) Successors and Assigns. All covenants and agreements in this
----------------------
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities. Notwithstanding
anything in this Section 10(e) to the contrary, the covenants, agreements and
provisions of this Agreement which are for the benefit of purchasers or holders
of Registrable Securities shall not be for the benefit of or enforceable by any
successor, assignee or subsequent holder of the Company's Common Stock if such
Person holds less than 1% of the Company's outstanding shares of Common Stock.
(f) Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(g) Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
(h) Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
(i) Governing Law. 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
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.
(j) Notices. All notices, demands or other communications to be given
-------
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service (charges
prepaid) or mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to each Investor and to each Executive at the
addresses indicated on the Schedule of Stockholders and to the Company at the
address of its corporate headquarters or to such other address or to the
attention of such other person as the recipient party has specified by prior
written notice to the sending party.
-10-
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EXECUTION COPY
--------------
IN WITNESS WHEREOF, the parties have executed this Registration
Agreement as of the date first written above.
ZC ACQUISITION CORP.
By: /s/ William Seibel
----------------------------------
Its: President
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 A. Canfield
----------------------------------
Name: Philip A. Canfield
----------------------------------
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 A. Canfield
----------------------------------
Name: Philip A. Canfield
----------------------------------
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: /s/ Philip A. Canfield
----------------------------------
Name: Philip A. Canfield
----------------------------------
Its: Principal
/s/ William Seibel
----------------------------------------
William Seibel
SIGNATURE PAGE TO THE REGISTRATION AGREEMENT
-11-
<PAGE>
EXECUTION COPY
--------------
SCHEDULE OF STOCKHOLDERS
------------------------
GTCR FUND VI, L.P.
6100 Sears Tower
Chicago, IL 60606-6402
Attention: Philip A. Canfield
Timothy P. McAdam
GTCR VI EXECUTIVE FUND, L.P.
6100 Sears Tower
Chicago, IL 60606-6402
Attention: Philip A. Canfield
Timothy P. McAdam
GTCR ASSOCIATES VI
6100 Sears Tower
Chicago, IL 60606-6402
Attention: Philip A. Canfield
Timothy P. McAdam
William Seibel
7 Amherst Road
Wellesley, MA 02181
-12-
<PAGE>
EXHIBIT 10.34
JOINDER AND FIRST AMENDMENT TO REGISTRATION AGREEMENT
-----------------------------------------------------
This JOINDER AND FIRST AMENDMENT TO REGISTRATION AGREEMENT (this
"Joinder and Amendment") is made this 24/th/ day of November, 1999, by and among
---------------------
ZEFER Corp., a Delaware corporation (the "Company"), GTCR Fund VI, L.P., a
-------
Delaware limited partnership ("GTCR"), and GTCR Capital Partners, L.P., a
----
Delaware limited partnership ("GTCR Capital"). Any capitalized term used in
------------
this Joinder and Amendment which is not otherwise defined herein shall have the
meaning assigned to such term in the Registration Agreement (as defined below).
WHEREAS, the Company and GTCR are parties to that certain Registration
Agreement, dated as of March 23, 1999 (as amended and modified from time to
time), by and among the Company, GTCR and certain other stockholders of the
Company (the "Registration Agreement");
----------------------
WHEREAS, the Company and GTCR Capital are parties to that certain Loan
Agreement, dated as of the date hereof (the "Loan Agreement"), pursuant to which
--------------
GTCR Capital will make certain Loans (as defined in the Loan Agreement) to the
Company;
WHEREAS, in connection with the execution of the Loan Agreement, the
Company and GTCR Capital entered into a Warrant Agreement of even date herewith
(the "Warrant Agreement") pursuant to which the Company will issue to GTCR
-----------------
Capital a warrant representing the right to purchase shares of Common Stock of
the Company (the "Warrant"); and
-------
WHEREAS, the execution and delivery of this Joinder and Amendment is a
condition to the consummation of the transactions contemplated by the Loan
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, GTCR and GTCR Capital
agree as follows:
ARTICLE I - JOINDER TO REGISTRATION AGREEMENT
1. GTCR Capital hereby acknowledges that it has read a copy of the
Registration Agreement.
2. The Company and GTCR Capital hereby agree that (i) GTCR Capital's
signature below shall constitute an executed counterpart signature
page to the Registration Agreement, (ii) GTCR Capital shall succeed to
all of the rights and obligations of an "Other Stockholder" under the
Registration Agreement as contemplated by Section 8 thereof, and (iii)
all shares of Common Stock of the Company issued or issuable upon
exercise of the Warrant shall constitute "Other Stockholder
Registrable Securities" (and as such, "Registrable Securities") under
the Registration Agreement.
3. As required by Section 8 of the Registration Agreement, the Company
and GTCR hereby consent to this Joinder and Amendment.
<PAGE>
ARTICLE II - FIRST AMENDMENT TO REGISTRATION AGREEMENT
1. Section 9(d) of the Registration Agreement shall be amended and
restated to read as follows:
"Registrable Securities" means the Investor Registrable
----------------------
Securities, the Executive Registrable Securities and the Other
Stockholder Registrable Securities. As to any particular
Registrable Securities, such securities shall cease to be
Registrable Securities when they (i) have been distributed to the
public pursuant to an offering registered under the Securities
Act or sold to the public through a broker, dealer or market
maker in compliance with Rule 144 under the Securities Act (or
any similar rule then in force), (ii) have been distributed to
the limited partners of any of the Investors unless the
respective Investor otherwise elects, (iii) have been effectively
registered under a registration statement, including, without
limitation, a registration statement on Form S-8 (or any
successor form), or (iv) have been repurchased by the Company.
For purposes of this Agreement, a Person shall be deemed to be a
holder of Registrable Securities whenever such Person has the
right to acquire such Registrable Securities (upon conversion or
exercise in connection with a transfer of securities or
otherwise, but disregarding any restrictions or limitations upon
the exercise of such right), whether or not such acquisition has
actually been effected; provided that this sentence shall not
--------
apply to shares of Common Stock issuable upon the exercise of
unvested options originally issued to employees or former
employees of the Company.
2. As required by Section 10(d) of the Registration Agreement, the
Company and GTCR hereby consent to this Joinder and Amendment.
* * * *
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Joinder and
Amendment to be executed on the day and year first above written.
ZEFER CORP.
By: /s/ William Seibel
-----------------------------
Its:
-----------------------------
GTCR FUND VI, L.P.
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, LLC
Its: General Partner
By: /s/ Philip Canfield
-----------------------------
Its: Principal
GTCR CAPITAL PARTNERS, L.P.
By: GTCR Mezzanine Partners, L.P.
Its: General Partner
By: GTCR Partners VI, L.P.
Its: General Partner
By: GTCR Golder Rauner, L.L.C.
Its: General Partner
By: /s/ Philip Canfield
-----------------------------
Its: Principal
SIGNATURE PAGE TO
JOINDER AND FIRST AMENDMENT TO REGISTRATION AGREEMENT
<PAGE>
Exhibit 10.35
PROFESSIONAL SERVICES AGREEMENT
-------------------------------
THIS PROFESSIONAL SERVICES AGREEMENT (this "Agreement"), dated as of
---------
March 23, 1999, between GTCR Golder Rauner, L.L.C., a Delaware limited liability
company ("GTCR"), and ZC Acquisition Corp., a Delaware corporation (the
----
"Company").
-------
WHEREAS, GTCR Fund VI, L.P., a Delaware limited partnership ("GTCR
----
Fund VI"), GTCR VI Executive Fund, L.P., a Delaware limited partnership
- -------
("Executive Fund") and GTCR Associates VI, a Delaware general partnership
- ----------------
("Associates Fund") (each an "Investor" and collectively, the "Investors") will
- ----------------- ---------
purchase (the "Investment") pursuant to that certain Purchase Agreement (the
----------
"Purchase Agreement") of even date herewith between the Company and the
- -------------------
Investors, a portion of the Company's Common Stock, par value $.01 per share
(the "Common Stock"), and Class A Preferred Stock, par value $.01 per share (the
"Class A Preferred" and together with the Common Stock, the "Stock");
----------------- -----
WHEREAS, the Company desires to receive financial and management
consulting services from GTCR, and obtain the benefit of the experience of GTCR
in business and financial management generally and its knowledge of the Company
and the Company's financial affairs in particular; and
WHEREAS, in connection with the Investment, GTCR is willing to provide
financial and management consulting services to the Company and the compensation
arrangements set forth in this Agreement are designed to compensate GTCR for
such services.
NOW, THEREFORE, in consideration of the foregoing premises and the
respective agreements hereinafter set forth and the mutual benefits to be
derived herefrom, GTCR and the Company hereby agree as follows:
1. Engagement. The Company hereby engages GTCR as a financial and
----------
management consultant, and GTCR hereby agrees to provide financial and
management consulting services to the Company, all on the terms and subject to
the conditions set forth below.
2. Services of GTCR. GTCR hereby agrees during the term of this
----------------
engagement to consult with the Company's board of directors (the "Board") and
-----
management of the Company and its subsidiaries in such manner and on such
business and financial matters as may be reasonably requested from time to time
by the Board, including but not limited to:
(i) corporate strategy;
(ii) budgeting of future corporate investments;
(iii) acquisition and divestiture strategies; and
(iv) debt and equity financings.
<PAGE>
3. Personnel. GTCR shall provide and devote to the performance of
---------
this Agreement such partners, employees and agents of GTCR as GTCR shall deem
appropriate for the furnishing of the services required thereby.
4. Placement Fees.
--------------
(a) At the time of any equity or debt financing of the Company other
than the purchase of Stock by the Investors pursuant to Section 1B of the
----------
Purchase Agreement, the Company shall pay to GTCR a placement fee in immediately
available funds equal to one percent (1.0%) of the gross amount of such
financing (including the committed amount of any revolving credit facility).
(b) If any individual payment to GTCR pursuant to this Section 4
---------
would be less than $10,000, then such payment shall be held by the Company until
such time as the aggregate of such payments equals or exceeds $10,000.
5. Management Fee. The Company shall pay to 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 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 (including, without limitation, an increase in the annual
base salary of the Company's chief executive officer from $350,000 to $375,000)
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 purposes hereof,
"EBITDA" for any period means a Person's earnings before interest, taxes,
------
depreciation and amortization for such period, determined on a consolidated
basis in accordance with generally accepted accounting principles.
6. Expenses. The Company shall promptly reimburse GTCR for such
--------
reasonable travel expenses, legal fees and other out-of-pocket fees and expenses
as have been or may be incurred by GTCR, its directors, officers and employees
in connection with the Closing (as defined in the Purchase Agreement), in
connection with any financing, and in connection with the rendering of any other
services hereunder (including, but not limited to, fees and expenses incurred in
attending Company-related meetings).
7. Term. This Agreement will continue from the date hereof until the
----
earlier to occur of (i) the Investors ceasing to own at least 25% of the
Investor Stock (as defined in the Purchase Agreement) and (ii) the consummation
of a Public Offering. For purposes hereof, "Public Offering" means the sale in
---------------
an underwritten public offering registered under the Securities Act of 1933, as
amended from time to time, of shares of the Company's Common Stock approved by
the Company's board of directors. Notwithstanding anything in this Agreement to
the contrary, no termination of this Agreement, whether pursuant to this
paragraph or otherwise, shall affect the Company's obligations with respect to
the fees, costs and expenses incurred by GTCR in rendering services hereunder
and not reimbursed by the Company as of the effective date of such termination.
2
<PAGE>
8. Liability. Neither GTCR nor any of its affiliates, partners,
---------
employees or agents shall be liable to the Company or its subsidiaries or
affiliates for any loss, liability, damage or expense arising out of or in
connection with the performance of services contemplated by this Agreement,
unless such loss, liability, damage or expense shall be proven to result
directly from the gross negligence or willful misconduct of GTCR.
9. Indemnification. The Company agrees to indemnify and hold
---------------
harmless GTCR, its partners, affiliates, officers, agents and employees against
and from any and all loss, liability, suits, claims, costs, damages and expenses
(including attorneys' fees) arising from their performance hereunder, except as
a result of their gross negligence or intentional wrongdoing.
10. GTCR an Independent Contractor. GTCR and the Company agree that
------------------------------
GTCR shall perform services hereunder as an independent contractor, retaining
control over and responsibility for its own operations and personnel. Neither
GTCR nor its directors, officers, or employees shall be considered employees or
agents of the Company as a result of this Agreement nor shall any of them have
authority to contract in the name of or bind the Company, except as expressly
agreed to in writing by the Company.
11. Notices. Any notice, report or payment required or permitted to
-------
be given or made under this Agreement by one party to the other shall be deemed
to have been duly given or made if personally delivered or, if mailed, when
mailed by registered or certified mail, postage prepaid, to the other party at
the following addresses (or at such other address as shall be given in writing
by one party to the other):
If to GTCR:
----------
GTCR Golder Rauner, L.L.C.
6100 Sears Tower
Chicago, IL 60606-6402
Attention: Philip A. Canfield
Timothy P. McAdam
with a copy to:
---------------
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Stephen L. Ritchie
3
<PAGE>
If to the Company:
-----------------
ZC Acquisition Corp.
1048 Tremont Street
Duxbury, MA 02332
Attention: General Counsel
with copies to:
--------------
GTCR Golder Rauner, L.L.C.
6100 Sears Tower
Chicago, IL 60606-6402
Attention: Philip A. Canfield
Timothy P. McAdam
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Stephen L. Ritchie
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: David E. Redlick
12. Entire Agreement; Modification. This Agreement (a) contains the
------------------------------
complete and entire understanding and agreement of GTCR and the Company with
respect to the subject matter hereof; and (b) supersedes all prior and
contemporaneous understandings, conditions and agreements, oral or written,
express or implied, respecting the engagement of GTCR in connection with the
subject matter hereof. The provisions of this Agreement may be amended,
modified and waived only with the prior written consent of the Company and GTCR.
13. Waiver of Breach. The waiver by either party of a breach of any
----------------
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach of that provision or any other provision
hereof.
14. Assignment. Neither GTCR nor the Company may assign its rights or
----------
obligations under this Agreement without the express written consent of the
other, except that GTCR may assign its rights and obligations to an affiliate of
GTCR.
15. Successors. This Agreement and all the obligations and benefits
----------
hereunder shall inure to the successors and permitted assigns of the parties.
4
<PAGE>
16. Counterparts. This Agreement may be executed and delivered by
------------
each party hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original and both of which taken together shall
constitute one and the same agreement.
17. Choice of Law. This Agreement shall be governed by and construed
-------------
in accordance with the domestic laws of the State of Delaware, without giving
effect to any choice of law or 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.
* * * * *
5
<PAGE>
IN WITNESS WHEREOF, GTCR and the Company have caused this Professional
Services Agreement to be duly executed and delivered on the date and year first
above written.
GTCR GOLDER RAUNER, L.L.C.
By: /s/ Philip A. Canfield
----------------------
Name: Philip A. Canfield
---------------------
Its: Principal
ZC ACQUISITION CORP.
By:
-----------------------
Name:
---------------------
Its: President
SIGNATURE PAGE TO THE PROFESSIONAL SERVICES AGREEMENT
6
<PAGE>
IN WITNESS WHEREOF, GTCR and the Company have caused this Professional
Services Agreement to be duly executed and delivered on the date and year first
above written.
GTCR GOLDER RAUNER, L.L.C.
By:
----------------------
Name:
---------------------
Its: Principal
ZC ACQUISITION CORP.
By: /s/ William Seibel
-----------------------
Name: William Seibel
---------------------
Its: President
SIGNATURE PAGE TO THE PROFESSIONAL SERVICES AGREEMENT
7
<PAGE>
EXHIBIT 10.36
Form of Investment Letter
[LETTERHEAD OF ZEFER APPEARS HERE]
September 10, 1999
[name]
[address]
Re: Investment in ZEFER Common and Senior Preferred Stock
Dear [name]:
As we have discussed, you have been invited to invest in ZEFER's common and
senior preferred stock. Your participation will require that you make a capital
commitment of up to $[________] for the benefit of ZEFER Corp., as further
described below. A copy of the Company's Certificate of Incorporation, as
amended, which describes the relative rights of the common and senior preferred
stock, is attached as Exhibit A.
By agreeing to the foregoing capital commitment, you will be entitled to
purchase [____] shares of ZEFER common stock at a price of $[___] per share and
will be required to purchase up to [___] shares of ZEFER's senior preferred
stock at a price of $1,000.00 per share from time to time as the Company
receives funding in respect of its capital commitments from GTCR Golder Rauner
LLC ("GTCR"). For example, to date GTCR has purchased approximately 19%, or
$18,000,000, of senior preferred stock in respect of their total capital
commitment for senior preferred stock of $94,200,000. By making this capital
commitment, you will be required to fund 19% of your commitment and to make
additional purchases on a pro rata basis with GTCR as additional funds are
needed by the Company. You will be provided notice of future fundings and
arrangements for the sale to you of additional shares of senior preferred stock
will be made at that time. Your commitment will expire upon the earlier to occur
of an initial public offering of the Company's common stock or upon fulfillment
of the capital commitment.
In order to purchase the shares of common stock and to purchase the number
of shares of senior preferred stock required to be purchased by you as of the
date hereof, please sign the enclosed copy of this letter and send the signed
letter together with a check in the amount of $[_______] to Deirdre Aubuchon,
Vice President, Finance, ZEFER Corp., 711 Atlantic Avenue, 4/th/ Floor, Boston,
MA 0211 in the return envelope provided for your convenience.
<PAGE>
[name] September 10, 1999
Page 2
Of this amount, $[_______] will be used for the purchase of ZEFER common
stock and $[____] will be used for the purchase of [__] shares of ZEFER senior
preferred stock. After giving effect to the foregoing issuances of common and
senior preferred stock, the balance of your commitment will accordingly be [___]
shares of ZEFER senior preferred stock.
By signing in the space provided below, you agree to the foregoing capital
commitment and acknowledge that the issuance of the shares of common and senior
preferred stock by the Company hereunder is expressly made in reliance on such
commitment. Further, you agree that the investment representations made on
Exhibit B hereto are true and correct in all respects. In addition, attached as
Exhibit C is a copy of the Company's Stockholders Agreement (the "Stockholders
Agreement"). By signing in the space provided below you also agree to become a
party to the Stockholders Agreement, if you are not already a party.
Please call if you have any questions regarding the foregoing and thank you
for your continued support of ZEFER.
Regards.
Sincerely,
Sean W. Mullaney
Executive Vice President and
General Counsel
SWM/jc
Exhibits
ACCEPTED AND AGREED TO:
- ----------------------------------
Name:
This Form of Investment Letter was issued to and accepted by the
executives of the Registrant (or the affiliates thereof) listed below. The
only material differences among the respective Investment Letters are the
following:
(i) the aggregate dollar amount of capital commitment,
(ii) the number of shares of common stock and preferred stock to be
purchased,
(iii) the per share purchase price for the common stock,
(iv) the amount of the initial investment,
(v) the amount of the initial investment to be applied to the
purchase of common stock,
(vi) the amount of the initial investment to be applied to the
purchase of preferred stock, and
(vii) the number of shares of preferred stock to be initially
purchased.
The table below sets forth the above information with respect to each such
executive.
<TABLE>
<CAPTION>
Total Total Common Initial Initial Initial
Aggregate Common Preferred Purchase Initial common Preferred Preferred
Executive Investment Shares Shares Price Investment Purchase Purchase Shares
- --------- ---------- ------ ------ ----- ---------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carol Boudreau $350,978 71,868 339 $0.17 $74,978 $11,978 $63,000 63
Gerry Dube $314,443 61,692 291 $0.38 $77,443 $23,443 $54,000 54
Mullaney
Investment, LLC $200,855 41,128 194 $0.17 $42,855 $ 6,855 $36,000 36
James Slamp $104,814 20,564 97 $0.38 $25,814 $ 7,814 $18,000 18
Martha Stephens $100,427 20,564 97 $0.17 $21,427 $ 3,427 $18,000 18
Frank Torbey $100,427 20,564 97 $0.17 $21,427 $ 3,427 $18,000 18
Thomas Waite $145,876 28,620 135 $0.38 $35,876 $10,876 $25,000 25
David Lubin $174,971 35,828 169 $0.17 $36,971 $ 5,971 $31,000 31
Richard Nolan $100,427 20,564 97 $0.17 $21,427 $ 3,427 $18,000 18
</TABLE>
<PAGE>
Exhibit B
INVESTMENT REPRESENTATIONS
1. Unregistered Stock. The Undersigned is fully aware that the ZEFER
Common and Senior Preferred Stock ("Company Stock") he or she shall receive is
being issued and sold under an exemption from registration under the Securities
Act of 1933, as amended (the "Act"), that he or she is acquiring the Company
Stock without being offered or furnished any offering literature or prospectus,
that this transaction has not been approved or reviewed by the United States
Securities and Exchange Commission or by any administrative agency charged with
the administration of the securities law of any state and that financial
statements and other documents pertaining to the Buyer have been made available
to the Undersigned and the Undersigned's representatives, including the
Undersigned's attorney and accountant.
2. No Duty to Register. Except as may otherwise be provided in any
registration rights agreement between the Undersigned and the Company, the
Undersigned realizes that, in the absence of the availability of Rule 144 under
the Act, any disposition by him or her of the Company Stock may require
compliance with an exemption under the Act or a registration under the Act, and
that the Buyer is under no obligation to take any action to make any such
registration or exemption so available.
3. Investment. The Undersigned is acquiring the Company Stock for
investment for the Undersigned's own account and not with a view to, or for
resale in connection with, any unregistered distribution thereof, and the
Undersigned has no present intention to sell, convey, dispose of or otherwise
distribute any interest in or risk related to the Company Stock except pursuant
to an effective registration statement or in a manner consistent with the
requirements of the Act and the specific exemption from the registration
requirements of the Act relied upon by Buyer. The Undersigned understands that
the Company Stock the Undersigned shall receive has not been registered under
the Act by reason of a specific exemption from the registration provisions of
the Act which depends upon, among other things, the bona fide nature of the
investment intent as expressed herein.
4. Ability to Bear Risk. The Undersigned confirms that the Undersigned is
able (i) to bear the economic risk of this investment, (ii) to hold the Company
Stock for a substantial period of time, and (iii) presently to afford a complete
loss of the Undersigned's investment.
5. Other Agreements. The Undersigned acknowledges that the transfer of the
Company Stock that the Undersigned is receiving pursuant to this Agreement is
also subject to the restrictions contained in the Stockholders Agreement
<PAGE>
EXHIBIT 10.37
Form of Clarification letter
November 30, 1999
[name]
[address]
Re: Clarification regarding your capital commitment of $[__________]
pursuant to that certain Letter Agreement (the "Letter Agreement"),
dated as of September 10, 1999 (with an effective date of September
10, 1999), between you and ZEFER Corp. (the "Company").
Dear [name]
In light of the Company's recent restructuring of its available financing,
including the re-characterization of a portion of GTCR's capital commitments to
the Company (i.e., from an equity capital commitment for senior preferred stock
to a debt-based capital commitment of equal size), the Company is sending this
letter of clarification to you with respect to your ongoing rights and
obligations under the Letter Agreement.
On September 10, 1999, you accepted the Company's invitation to invest in
the Company by making a capital commitment to the Company of up to $[__________]
on the terms and conditions set forth in the Letter Agreement. This acceptance
was later memorialized in the Letter Agreement referenced above. In particular,
the Letter Agreement provides that:
"By agreeing to the foregoing capital commitment, you will be entitled
to purchase [______] shares of ZEFER common stock at a price of
$[____] per share and will be required to purchase up to [___] shares
of ZEFER's senior preferred stock at a price of $1000.00 per share
from time to time as the Company receives funding in respect of its
capital commitments from GTCR Golder Rauner LLC ("GTCR"). . . . By
making this capital commitment, you will be required to fund 19% of
your commitment [initially] and to make additional purchases on a pro
rata basis with GTCR as additional funds are needed by the Company."
Although it is clear from this language that the restructuring described
above does not affect any of your rights or obligations under the Letter
Agreement (including your obligation to make additional purchases of the
Company's senior preferred stock on a pro rata basis with GTCR at such times as
the Company receives funding in respect of GTCR's capital commitments), it is
equally clear that, after giving effect to such restructuring, the example set
forth in the second paragraph of the Letter Agreement, which only makes
reference to GTCR's capital commitment for senior preferred stock (but not
GTCR's new debt-based capital commitment), no longer serves as an accurate
illustration of your "additional purchase" obligation under the Letter
Agreement. Rather, as of the restructuring, the example set forth in the Letter
Agreement should be revised to illustrate that you will be required to make
additional purchases of the Company's senior preferred stock
<PAGE>
pursuant to the terms of the Letter Agreement at such times as the Company
receives funding in respect of any GTCR capital commitment (including GTCR's
debt-based capital commitment).
As such, in the interest of clarity for both you and the Company going
forward, please acknowledge your receipt and acceptance of this letter by
signing in the space provided below and returning the same by facsimile to the
undersigned at 617-451-8001 by December 3, 1999. Please call if you have any
questions regarding this letter and thank you for your continued support of the
Company.
Sincerely,
Sean W. Mullaney
Executive Vice President
and General Counsel
ACCEPTED AND AGREED TO:
By:
----------------------------------
Name:
----------------------------------
This Form of Clarification Letter was issued to and accepted by the
executives of the Registrant (or the affiliates thereof) listed below. The only
material differences among the respective Investment Letters are the following:
(i) the aggregate dollar amount of the capital commitment,
(ii) the number of shares of common stock and preferred stock to be
purchased, and
(iii) the per share purchase price for the common stock.
The table below sets forth the above information with respect to each such
executive.
Total Total Common
Aggregate Common Preferred Purchase
Executive Investment Shares Shares Price
- --------- ---------- ------ ------ -----
Carol Boudreau $350,978 71,868 339 $0.17
Gerry Dube $314,443 61,692 291 $0.38
Mellaney
Investments, LLC $200,855 41,128 194 $0.17
James Slamp $104,814 20,564 97 $0.38
Martha Stephens $100,427 20,564 97 $0.17
Frank Torbey $100,427 20,564 97 $0.17
Thomas Waite $145,876 28,620 135 $0.38
David Lubin $174,971 35,828 169 $0.17
Richard Nolan $100,427 20,564 97 $0.17
<PAGE>
EXHIBIT 10.41
STOCK RESTRICTION AGREEMENT
--------------------------
THIS STOCK RESTRICTION AGREEMENT (this "Agreement") is effective as of
---------
May 21, 1999, between ZEFER Corp., a Delaware corporation (the "Company"), and
-------
David Lubin ("Holder").
------
The Company and Holder desire to enter into an agreement pursuant to
which Holder will purchase, and the Company will sell, up to 100,000 shares of
the Company's Common Stock, par value $.01 per share (the "Common Stock"). All
------------
shares of Common Stock are so acquired by Holder are referred to herein as
"Holder Stock." This Agreement contains certain restrictions with respect to
- -------------
the Holder Stock. In addition, the Company desires to employ the Holder and the
Holder desires to be employed by the Company. Certain definitions are set forth
in Section 6 of this Agreement.
Certain provisions of this Agreement are intended for the benefit of,
and will be enforceable by, certain stockholders of the Company, namely, GTCR
Fund VI, L.P., a Delaware limited partnership ("GTCR"), GTCR VI Executive Fund,
----
L.P., a Delaware limited partnership ("Executive Fund") and GTCR Associates VI,
--------------
a Delaware general partnership ("Associates Fund") (each an "Investor" and
--------------- --------
collectively, the "Investors").
---------
In consideration of the mutual covenants and promises contained herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged by the parties hereto, the parties agree as follows:
PROVISIONS RELATING TO HOLDER STOCK
1. Purchase and Sale of Holder Stock.
----------------------------------
(a) Upon execution of this Agreement, the Holder will purchase, and
the Company will sell, 100,000 shares of Common Stock at a price of $.50 per
share. The Company will deliver to Holder the certificates representing such
Holder Stock, and Holder will deliver to the Company a cashier's check or
certified check or wire transfer of funds in the aggregate amount of $4,387.50
and a promissory note in the form of Exhibit A attached hereto in an aggregate
---------
principal amount of $45,612.50 (the "Holder Note").
-----------
(b) Within 30 days after the date hereof, Holder will make an
effective election with the Internal Revenue Service under Section 83(b) of the
Internal Revenue Code and the regulations promulgated thereunder in the form of
Exhibit B attached hereto.
- ---------
(c) Until the occurrence of a Sale of the Company or a Public
Offering, all certificates evidencing shares of Holder Stock shall be held by
the Company for the benefit of the Holder and the other holder(s) of Holder
Stock. Upon the occurrence of a Sale of the Company or a Public Offering, the
Company will return the certificates for the Holder Stock to the record holders
thereof.
(d) In connection with the purchase and sale of the Holder Stock,
Holder represents and warrants to the Company that:
-1-
<PAGE>
(i) The Holder Stock to be acquired by Holder pursuant to this
Agreement will be acquired for Holder's own account and not with a view to,
or intention of, distribution thereof in violation of the Securities Act,
or any applicable state securities laws, and the Holder Stock will not be
disposed of in contravention of the Securities Act or any applicable state
securities laws.
(ii) Holder is an employee of the Company, is sophisticated in
financial matters and is able to evaluate the risks and benefits of the
investment in the Holder Stock.
(iii) Holder is able to bear the economic risk of his investment
in the Holder Stock for an indefinite period of time because the Holder
Stock has not been registered under the Securities Act and, therefore,
cannot be sold unless subsequently registered under the Securities Act or
an exemption from such registration is available.
(iv) Holder has had an opportunity to ask questions and receive
answers concerning the terms and conditions of the offering of Holder Stock
and has had full access to such other information concerning the Company as
he/she has requested.
(v) This Agreement constitutes the legal, valid and binding
obligation of Holder, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Holder does not
and will not conflict with, violate or cause a breach of any agreement,
contract or instrument to which Holder is a party or any judgment, order or
decree to which Holder is subject.
(vi) Holder has not and will not take any action that will
conflict with, violate or cause a breach of any noncompete, nonsolicitation
or confidentiality agreement to which Holder is a party to or by which
Holder is bound.
(vii) Holder is a resident of the Commonwealth of Massachusetts.
(e) As an inducement to the Company to issue the Holder Stock to
Holder, and as a condition thereto, Holder acknowledges and agrees that neither
the issuance of the Holder Stock to Holder nor any provision contained herein
shall entitle Holder to remain in the employment of the Company or any of its
Subsidiaries or affect the right of the Company to terminate Holder's employment
at any time for any reason.
(f) Concurrently with the execution of this Agreement, (i) Holder
shall execute in blank ten stock transfer powers in the form of Exhibit C
attached hereto (the "Stock Powers") with respect to the Holder Stock and shall
deliver such Stock Powers to the Company. The Stock Powers shall authorize the
Company to assign, transfer and deliver the shares of Holder Stock to the
appropriate acquiror thereof pursuant to Section 3 below or Section 5 of the
Stockholders Agreement and under no other circumstances, and (ii) the Holder's
spouse shall execute the consent in the form of Exhibit D attached hereto.
---------
2. Vesting of Holder Stock.
--------------------------
(a) All of the shares of Holder Stock acquired hereunder shall be
subject to vesting in the manner specified in this Section 2. Except as
otherwise provided in Sections 2(b)
-2-
<PAGE>
and 2(c) below, the Holder Stock will become vested in accordance with the
following schedule (the "Vesting Schedule"), if as of each such date Holder is
----------------
still employed by the Company or any of its Subsidiaries:
Date Cumulative Percentage of
---- Holder Stock to be Vested
-------------------------
March 31, 2000 20%
March 31, 2001 40%
March 31, 2002 60%
March 31, 2003 80%
March 31, 2004 100%
(b) After an initial Public Offering, the above Vesting Schedule
shall remain effective until the end of the quarter in which the Public Offering
occurred (the "Modification Date"), at which time the Vesting Schedule shall be
-----------------
modified such that, so long as Holder is still employed by the Company or any of
its Subsidiaries, the Holder Stock will vest as follows:
(i) If the Modification Date is June 30, then an additional 5%
of Holder Stock will vest on such Modification Date and an additional 5% of
Holder Stock will vest on each subsequent September 30, December 31, March
31 and June 30 so that the Holder Stock will be 100% vested on March 31,
2004.
(ii) If the Modification Date is September 30, then an
additional 10% of Holder Stock will vest on such Modification Date and an
additional 5% of Holder Stock will vest on each subsequent December 31,
March 31, June 30 and September 30 so that the Holder Stock will be 100%
vested on March 31, 2004.
(iii) If the Modification Date is December 31, then an additional
15% of Holder Stock will vest on such Modification Date and an additional
5% of Holder Stock will vest on each subsequent March 31, June 30,
September 30 and December 31 so that the Holder Stock will be 100% vested
on March 31, 2004.
(iv) If the Modification Date is March 31, then an additional 5%
of Holder Stock will vest on each subsequent June 30, September 30,
December 31 and March 31 so that the Holder Stock will be 100% vested on
March 31, 2004.
(c) Upon the occurrence of a Transaction, all shares of Holder Stock
which have not yet vested shall automatically vest one business day prior to the
time of such event. The term "Transaction" shall mean (i) a Sale of the Company
-----------
or (ii) the liquidation, dissolution or winding up of the Company. Shares of
Holder Stock which have become vested are referred to herein as "Vested Shares"
-------------
and all other shares of Holder Stock are referred to herein as "Unvested
--------
Shares."
- ------
3. Repurchase Option.
--------------------
(a) In the event (i) Holder ceases to be employed by the Company and
its Subsidiaries for any reason (the "Separation") or (ii) Holder fails to make
----------
any principal or interest payment under the Holder Note after such payment
becomes due and after giving effect to any applicable grace period (a
"Triggering Event"), the Holder Stock (whether held by Holder or one
----------------
-3-
<PAGE>
or more of Holder's transferees, other than the Company and Investors) will be
subject to repurchase pursuant to the terms and conditions set forth in this
Section 3 (the Repurchase Option").
------------------
(b) In the event of a Separation, (i) the purchase price for each
Unvested Share of Holder Stock will be Holder's Original Cost for such share and
(ii) the purchase price for each Vested Share of Holder Stock will be the Fair
Market Value for such share as at the date of the Separation; provided, however,
-------- -------
that if Holder's employment is terminated with Cause, the purchase price for
each Vested Share of Holder Stock will be Holder's Original Cost for such share.
Notwithstanding anything in this Section 3 to the contrary, upon a Triggering
Event (even if there is also a Separation), the purchase price for each share of
Holder Stock (whether a Vested Share or Unvested Share) will be Holder's
Original Cost for such shares.
(c) The Company may elect to purchase all or any portion of the
Unvested Shares or the Vested Shares by delivering written notice (the
"Repurchase Notice") to the holder or holders of the Holder Stock within 120
-----------------
days after the Separation or Triggering Event. The Repurchase Notice will set
forth the number of Unvested Shares and Vested Shares to be acquired from each
holder, the aggregate consideration to be paid for such shares and the time and
place for the closing of the transaction. The number of shares to be repurchased
by the Company shall first be satisfied to the extent possible from the shares
of Holder Stock held by Holder at the time of delivery of the Repurchase Notice.
If the number of shares of Holder Stock then held by Holder is less than the
total number of shares of Holder Stock which the Company has elected to
purchase, the Company shall purchase the remaining shares elected to be
purchased from the other holder(s) of Holder Stock under this Agreement, pro
rata according to the number of shares of Holder Stock held by such other
holder(s) at the time of delivery of such Repurchase Notice (determined as
nearly as practicable to the nearest share). The number of Unvested Shares and
Vested Shares to be repurchased hereunder will be allocated among Holder and the
other holders of Holder Stock (if any) pro rata according to the number of
shares of Holder Stock to be purchased from such person.
(d) If for any reason the Company does not elect to purchase all of
the Holder Stock pursuant to the Repurchase Option, all other employees or
executives who are parties to an agreement with the Company which is
substantially similar in form and substance to this Agreement (each a "Senior
------
Manager", and collectively, the "Senior Management") on the date of the
- ------- -----------------
Separation or Triggering Event and the Investors shall be entitled to exercise
the Repurchase Option for all or any portion of the shares of Holder Stock the
Company has not elected to purchase (the "Available Shares"). As soon as
----------------
practicable after the Company has determined that there will be Available
Shares, but in any event within 90 days after the Separation or Triggering
Event, the Company shall give written notice (the "Option Notice") to the Senior
-------------
Management and Investors setting forth the number of Available Shares and the
purchase price for the Available Shares. Senior Management and the Investors may
elect to purchase any or all of the Available Shares by giving written notice to
the Company within one month after the Option Notice has been given by the
Company. If Senior Management and the Investors elect to purchase an aggregate
number of shares greater than the number of Available Shares, the Available
Shares shall be allocated among Senior Management and the Investors based upon
the number of shares of Common Stock owned by each Senior Manager and each
Investor on a fully diluted basis. As soon as practicable, and in any event
within ten days, after the expiration of the one-month period set forth above,
the Company shall notify each holder of Holder Stock as to the
-4-
<PAGE>
number of shares being purchased from such holder by the Senior Management and
the Investors (the "Supplemental Repurchase Notice"). At the time the Company
------------------------------
delivers the Supplemental Repurchase Notice to the holder(s) of Holder Stock,
the Company shall also deliver written notice to each Senior Manager and each
Investor setting forth the number of shares such Senior Manager and such
Investor is entitled to purchase, the aggregate purchase price and the time and
place of the closing of the transaction. The number of Unvested Shares and
Vested Shares to be repurchased hereunder shall be allocated among the Company,
Senior Management and the Investors pro rata according to the number of shares
of Holder Stock to be purchased by each of them.
(e) The closing of the purchase of the Holder Stock pursuant to the
Repurchase Option shall take place on the date designated by the Company in the
Repurchase Notice or Supplemental Repurchase Notice, which date shall not be
more than one month nor less than five days after the delivery of the later of
either such notice to be delivered. The Company will pay for the Holder Stock
to be repurchased by it pursuant to the Repurchase Option with (i) a check or
wire transfer of funds for (A) any shares of Holder Stock to be repurchased at
Holder's Original Cost and (B) in the case of Holder Stock to be repurchased at
Fair Market Value, that portion of such Holder Stock which is equal to the
Holder's Original Cost, and (ii) in the case of Holder Stock to be repurchased
at Fair Market Value, a subordinate note or notes for that portion of such
Holder Stock which exceeds the Holder's Original Cost; it being understood and
agreed that such note or notes shall be payable in up to two annual installments
beginning on the first anniversary of the closing of such repurchase and bearing
interest (payable quarterly) at a rate per annum equal to the prime rate as
published in The Wall Street Journal from time to time. Notwithstanding
-----------------------
anything in this Section 3 to the contrary, any amounts to be paid by the
Company with a check or wire transfer of funds pursuant to this Section 3(e)
shall first be reduced (on a dollar for dollar basis) by all amounts outstanding
under any bona fide debts owed by Holder to the Company. Each Senior Manager
and each Investor will pay for the Holder Stock to be purchased by each of them
pursuant to the Repurchase Option with a check or wire transfer of funds. The
Company, the Senior Management and the Investors will be entitled to receive
customary representations and warranties from the sellers regarding each
seller's title to such Holder Stock.
(f) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Holder Stock by the Company shall be subject to
applicable restrictions contained in the Delaware General Corporation Law and in
the Company's and its Subsidiaries' debt and equity financing agreements. If any
such restrictions prohibit the repurchase of Holder Stock hereunder which the
Company is otherwise entitled or required to make, the Company may make such
repurchases as soon as it is permitted to do so under such restrictions.
(g) Notwithstanding anything to the contrary contained in this
Agreement, if the Fair Market Value of a share of Holder Stock is finally
determined to be an amount at least 10% greater than the per share repurchase
price for such share of Holder Stock in the Repurchase Notice or in the
Supplemental Repurchase Notice, each of the Company, the Senior Management and
the Investors shall have the right to revoke its exercise of the Repurchase
Option for all or any portion of the Holder Stock elected to be repurchased by
it by delivering notice of such revocation in writing to the holders of Holder
Stock during the thirty-day period beginning on the date that the Company and/or
the Senior Management and/or the Investors are given written notice that the
Fair Market Value of a share of Holder Stock was finally determined to be an
-5-
<PAGE>
amount at least 10% greater than the per share repurchase price for Holder Stock
set forth in the Repurchase Notice or in the Supplemental Repurchase Notice.
(h) The provisions of this Section 3 shall terminate with respect to
Vested Shares upon consummation of a Public Offering or the occurrence of a
Transaction.
4. Restrictions on Transfer of Holder Stock.
-----------------------------------------
(a) Transfer of Holder Stock. The holder of Holder Stock shall not
------------------------
Transfer any interest in any shares of Holder Stock, except pursuant to (i) the
provisions of Section 3 hereof, (ii) the provisions of Section 3 of the
Stockholders Agreement (a "Participating Sale"), (iii) an Approved Sale (as
------------------
defined in Section 5 of the Stockholders Agreement), or (iv) the provisions of
Section 4(b) below.
(b) Certain Permitted Transfers. The restrictions in this Section 4
---------------------------
will not apply with respect to any Transfer of Holder Stock if made pursuant to
applicable laws of descent and distribution or to such Person's legal guardian
in the case of any mental incapacity or among such Person's Family Group.
Notwithstanding anything in this Section 4 to the contrary, the restrictions
contained in this Section 4 will continue to be applicable to the Holder Stock
after any Transfer permitted above, and the transferees of such Holder Stock
will agree in writing to be bound by the provisions of this Agreement. Any
transferee of Holder Stock pursuant to a transfer in accordance with the
provisions of this Section 4(b) is herein referred to as a "Permitted
----------
Transferee". Upon the transfer of Holder Stock pursuant to this Section 4(b),
- -----------
the transferring Holder will deliver to the Company a written notice (a
"Transfer Notice") that discloses in reasonable detail the identity of the
- -----------------
Permitted Transferee(s).
(c) Termination of Restrictions. The restrictions set forth in this
----------------------------
Section 4 will continue with respect to each share of Holder Stock until the
consummation of an Approved Sale.
5. Additional Restrictions on Transfer of Holder Stock.
----------------------------------------------------
(a) Legend. The certificates representing the Holder Stock will
------
bear a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
ISSUED AS OF MAY 21, 1999, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN
REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN A
STOCK RESTRICTION AGREEMENT BETWEEN THE COMPANY AND THE
ORIGINAL HOLDER DATED AS OF MAY 21, 1999.
-6-
<PAGE>
A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF
AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(b) Opinion of Counsel. No holder of Holder Stock may sell,
------------------
transfer or dispose of any Holder Stock (except pursuant to an effective
registration statement under the Securities Act) without first delivering to the
Company a written notice describing in reasonable detail the proposed transfer,
together with an opinion of counsel (reasonably acceptable in form and substance
to the Company) that neither registration nor qualification under the Securities
Act and applicable state securities laws is required in connection with such
transfer. In addition, if the holder of the Holder Stock delivers to the Company
an opinion of counsel that no subsequent transfer of such Holder Stock shall
require registration under the Securities Act, the Company shall promptly upon
such contemplated transfer deliver new certificates for such Holder Stock which
do not bear the Securities Act portion of the legend set forth in Section 5(a).
If the Company is not required to deliver new certificates for such Holder Stock
not bearing such legend, the holder thereof shall not transfer the same until
the prospective transferee has confirmed to the Company in writing its agreement
to be bound by the conditions contained in this Section 5.
GENERAL PROVISIONS
6. Definitions.
------------
"Affiliate" of an Investor means any direct or indirect general or
---------
limited partner of such Investor, or any holder or owner thereof, or any other
person, entity or investment fund controlling, controlled by or under common
control with such Investor, and will include, without limitation, its owners and
employees.
"Cause" means (i) the commission of a felony or a crime involving
-----
moral turpitude or the commission of any other act or omission involving
dishonesty or fraud with respect to the Company or any of its Subsidiaries or
any of their customers or suppliers, (ii) conduct which brings the Company or
any of its Subsidiaries into substantial public disgrace or disrepute, (iii)
substantial and repeated failure to perform duties of the office held by Holder
as reasonably directed by the President, (iv) gross negligence or willful
misconduct with respect to the Company or any of its Subsidiaries.
"Closing" shall mean the effective date of this Agreement.
-------
"Fair Market Value" of each share of Holder Stock means the average of
-----------------
the closing prices of the sales of such Holder Stock on all securities exchanges
on which such Holder Stock may at the time be listed, or, if there have been no
sales on any such exchange on any day, the average of the highest bid and lowest
asked prices on all such exchanges at the end of such day, or, if on any day
such Holder Stock is not so listed, the average of the representative bid and
asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if
on any day such Holder Stock is not quoted in the NASDAQ System, the average of
the highest bid and lowest asked prices on such day in the domestic over-the-
counter market as reported by the National Quotation Bureau Incorporated, or any
similar successor organization, in each such case averaged over a period of 21
days consisting of the day as of which the Fair Market Value is being determined
and the 20 consecutive business days prior to such day. If at any time such
-7-
<PAGE>
Holder Stock is not listed on any securities exchange or quoted in the NASDAQ
System or the over-the-counter market, the Fair Market Value will be the fair
value of such Holder Stock as determined in good faith by the Board. If the
Holder reasonably disagrees with such determination, the Holder shall deliver to
the Board a written notice of objection within ten days after delivery of the
Repurchase Notice (or if no Repurchase Notice is delivered, then within ten days
after delivery of the Supplemental Repurchase Notice). Upon receipt of the
Holder's written notice of objection, the Board and the Holder will negotiate in
good faith to agree on such Fair Market Value. If such agreement is not reached
within 30 days after the delivery of the Repurchase Notice (or if no Repurchase
Notice is delivered, then within 30 days after the delivery of the Supplemental
Repurchase Notice), Fair Market Value shall be determined by an appraiser
jointly selected by the Board and the Holder, which appraiser shall submit to
the Board and the Holder a report within 30 days of its engagement setting forth
such determination. If the parties are unable to agree on an appraiser within
45 days after delivery of the Repurchase Notice or the Supplemental Repurchase
Notice, within seven days, each party shall submit the names of four nationally
recognized investment banking firms, and each party shall be entitled to strike
two names from the other party's list of firms, and the appraiser shall be
selected by lot from the remaining four investment banking firms. The expenses
of such appraiser shall be borne by the party whose Fair Market Value
determination when subtracted from the appraiser's determination of Fair Market
Value has the greater absolute value; provided that, in the event that there is
no difference between each party's absolute value, then the expenses of such
appraiser shall be shared equally by the parties. The determination of such
appraiser as to Fair Market Value shall be final and binding upon all parties.
"GAAP" means United States generally accepted accounting principles as
----
in effect from time to time.
"Holder's Family Group" means Holder's spouse and descendants (whether
---------------------
natural or adopted), any trust solely for the benefit of Holder and/or Holder's
spouse and/or descendants and any retirement plan for the Holder.
"Holder Stock" will continue to be Holder Stock in the hands of any
------------
holder other than Holder (except for the Company and the Investors and except
for transferees in a Public Sale), and except as otherwise provided herein, each
such other holder of Holder Stock will succeed to all rights and obligations
attributable to Holder as a holder of Holder Stock hereunder. Holder Stock will
also include shares of the Company's capital stock issued with respect to Holder
Stock by way of a stock split, stock dividend or other recapitalization.
Notwithstanding the foregoing, all Unvested Shares shall remain Unvested Shares
after any Transfer thereof.
"Original Cost" means, with respect to each share of Common Stock
-------------
purchased hereunder, $.50 (as proportionately adjusted for all subsequent stock
splits, stock dividends and other recapitalizations).
"Person" means an individual, a partnership, a limited liability
------
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Public Offering" means the sale in an underwritten public offering
---------------
registered
-8-
<PAGE>
under the Securities Act of shares of the Company's Common Stock approved by the
Board.
"Public Sale" means (i) any sale pursuant to a registered public
-----------
offering under the Securities Act or (ii) any sale to the public pursuant to
Rule 144 promulgated under the Securities Act effected through a broker, dealer
or market maker (other than pursuant to Rule 144(k) prior to a Public Offering).
"Sale of the Company" means any transaction or series of transactions
-------------------
pursuant to which any person(s) or entity(ies) other than the Investor and its
Affiliates in the aggregate acquire(s) (i) capital stock of the Company
possessing the voting power (other than voting rights accruing only in the event
of a default, breach or event of noncompliance) to elect a majority of the
Company's board of directors (whether by merger, consolidation, reorganization,
combination, sale or transfer of the Company's capital stock, shareholder or
voting agreement, proxy, power of attorney or otherwise) or (ii) all or
substantially all of the Company's assets determined on a consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
"Stockholders Agreement" means the Stockholders Agreement dated as of
----------------------
March 23, 1999 among the Company and certain of its stockholders.
"Subsidiary" means any corporation of which the Company owns
----------
securities having a majority of the ordinary voting power in electing the board
of directors directly or through one or more subsidiaries.
"Transfer" means to sell, transfer, assign, pledge or otherwise
--------
dispose of (whether with or without consideration and whether voluntarily or
involuntarily or by operation of law).
7. Notices. Any notice provided for in this Agreement must be
-------
in writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
If to the Company:
-----------------
ZEFER Corp.
711 Atlantick Avenue
Boston, MA 02110
Attention: General Counsel
-9-
<PAGE>
If to the Investors
-------------------
GTCR Fund VI, L.P.
GTCR VI Executive Fund, L.P.
GTCR Associates VI
c/o GTCR Golder Rauner, L.L.C.
6100 Sears Tower
Chicago, Illinois 60606-6402
Attention: Philip A. Canfield
Timothy P. McAdam
with a copy to:
---------------
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Stephen L. Ritchie
If to the Holder:
----------------
David Lubin
10 Stoneleigh Circle
Watertown, MA 02110
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or sent or, if mailed, five days after deposit in the U.S. mail.
8. General Provisions.
-------------------
(a) Transfers in Violation of Agreement. Any Transfer or
-----------------------------------
attempted Transfer of any Holder Stock in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Holder Stock as the owner of
such stock for any purpose.
(b) Severability. Whenever possible, each provision of this
------------
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, those documents
------------------
expressly referred to herein and other documents of even date herewith embody
the complete agreement and understanding among the parties and supersede and
preempt any prior understandings,
-10-
<PAGE>
agreements or representations by or among the parties, written or oral, which
may have related to the subject matter hereof in any way.
(d) Counterparts. This 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.
(e) Successors and Assigns. Except as otherwise provided herein,
----------------------
this Agreement shall bind and inure to the benefit of and be enforceable by
Holder, the Company, the Investors and their respective successors and assigns
(including subsequent holders of Holder Stock); provided that the rights and
obligations of Holder under this Agreement shall not be assignable except in
connection with a permitted transfer of Holder Stock hereunder.
(f) Choice of Law. 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
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.
(g) Remedies. Each of the parties to this Agreement (including the
--------
Investors) will be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including attorney's fees) caused by
any breach of any provision of this Agreement and to exercise all other rights
existing in its favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party may in its sole discretion apply to any court of
law or equity of competent jurisdiction (without posting any bond or deposit)
for specific performance and/or other injunctive relief in order to enforce or
prevent any violations of the provisions of this Agreement.
(h) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company, and the
Holder.
(i) Insurance. The Company, at its discretion, may apply for and
---------
procure in its own name and for its own benefit life and/or disability insurance
on Holder in any amount or amounts considered available. Holder agrees to
cooperate in any medical or other examination, supply any information, and to
execute and deliver any applications or other instruments in writing as may be
reasonably necessary to obtain and constitute such insurance. Holder hereby
represents that he/she has no reason to believe that his/her life is not
insurable at rates now prevailing for healthy men/women of his/her age.
(j) Business Days. If any time period for giving notice or taking
-------------
action hereunder expires on a day which is a Saturday, Sunday or holiday in the
state in which the Company's chief Holder office is located, the time period
shall be automatically extended to the business day immediately following such
Saturday, Sunday or holiday.
(k) Indemnification and Reimbursement of Payments on Behalf of
-----------------------------------------------------------
Holder. The Company and its Subsidiaries shall be entitled to deduct or
- -------
withhold from any amounts
-11-
<PAGE>
owing from the Company or any of its Subsidiaries to the Holder any federal,
state, local or foreign withholding taxes, excise taxes, or employment taxes
("Taxes") imposed with respect to the Holder's compensation or other payments
-----
from the Company or any of its Subsidiaries or the Holder's ownership interest
in the Company, including, without limitation, wages, bonuses, dividends, the
receipt or exercise of stock options and/or the receipt or vesting of restricted
stock. The Holder shall indemnify the Company and its Subsidiaries for any
amounts paid with respect to any such Taxes, together with any interest,
penalties and related expenses thereto.
(l) Termination. This Agreement shall survive a Separation and shall
-----------
remain in full force and effect after such Separation.
(m) Generally Accepted Accounting Principles; Adjustments of Numbers.
----------------------------------------------------------------
Where any accounting determination or calculation is required to be made under
this Agreement or the exhibits hereto, such determination or calculation (unless
otherwise provided) shall be made in accordance with GAAP, consistently applied,
except that if because of a change in GAAP the Company would have to alter a
previously utilized accounting method or policy in order to remain in compliance
with GAAP, such determination or calculation shall continue to be made in
accordance with the Company's previous accounting methods and policies. All
numbers set forth herein which refer to share prices or amounts will be
appropriately adjusted to reflect stock splits, stock dividends, combinations of
shares and other recapitalizations affecting the subject class of stock.
(n) Deemed Transfer of Holder Stock. If the Company (and/or the
-------------------------------
Investors and/or any other Person acquiring securities) shall make available, at
the time and place and in the amount and form provided in this Agreement, the
consideration for the Holder Stock to be repurchased in accordance with the
provisions of this Agreement, then from and after such time, the person from
whom such shares are to be repurchased shall no longer have any rights as a
holder of such shares (other than the right to receive payment of such
consideration in accordance with this Agreement), and such shares shall be
deemed purchased in accordance with the applicable provisions hereof and the
Company (and/or the Investors and/or any other Person acquiring securities)
shall be deemed the owner and holder of such shares, whether or not the
certificates therefor have been delivered as required by this Agreement.
(o) No Pledge or Security Interest. The purpose of the Company's
------------------------------
retention of the Holder's stock certificates and executed stock powers is solely
to facilitate the repurchase provisions set forth in Section 3 herein and does
not constitute a pledge by the Holder of, or the granting of a security interest
in, the underlying stock.
* * * * *
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stock
restriction Agreement on the date first written above.
ZEFER CORP.
By: /s/ Sean W. Mullaney
---------------------------------
Its: Secretary
/s/ David Lubin
--------------------------------------
David Lubin
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
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
<PAGE>
SIGNATURE PAGE TO THE STOCK RESTRICTION AGREEMENT
EXHIBIT A
---------
See Exhibit 10.42
<PAGE>
EXHIBIT B
---------
_______ ___, 1999
ELECTION TO INCLUDE STOCK IN GROSS
INCOME PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned purchased shares of Common Stock, par value $.01 per
share (the "Shares"), of ZEFER Corp.(the "Company") on ________________ (the
------ -------
"Closing Date"). Under certain circumstances, the Company has the right to
- -------------
repurchase certain of the Shares at cost from the undersigned (or from the
holder of the Shares, if different from the undersigned) should the undersigned
cease to be employed by the Company and its subsidiaries or upon certain other
events. Hence, the Shares are subject to a substantial risk of forfeiture and
are non-transferable. The undersigned desires to make an election to have the
Shares taxed under the provision of Code (S)83(b) at the time he purchased the
Shares.
Therefore, pursuant to Code (S)83(b) and Treasury Regulation (S)1.83-2
promulgated thereunder, the undersigned hereby makes an election, with respect
to the Shares (described below), to report as taxable income for calendar year
1999 the excess (if any) of the Shares' fair market value on ___________ over
the purchase price thereof.
The following information is supplied in accordance with Treasury
Regulation (S)1.83-2(e):
1. The name, address and social security number of the undersigned:
Social Security Number:
2. A description of the property with respect to which the election
is being made: ________ shares of Common Stock, par value $.01 per share, of the
Company.
3. The date on which the property was transferred ________. The
taxable year for which such election is made: calendar year ______.
4. The restrictions to which the property is subject: If during the
first five years after the Closing Date, the undersigned ceases to be employed
by the Company or any of its subsidiaries, the unvested portion of the Shares
will be subject to repurchase by the Company at cost. 20% of the Shares become
vested shares on each of the first five annual anniversaries of the Closing
Date.
<PAGE>
5. The fair market value on _________ of the property with respect
to which the election is being made, determined without regard to any lapse
restrictions: $_____ per share of Common Stock.
6. The amount paid for such property: $______ per share of Common
Stock.
A copy of this election has been furnished to the Secretary of the
Company pursuant to Treasury Regulations (S)1.83-2(e)(7).
Dated: _______ ___, 1999
______________________________
Name:
<PAGE>
EXHIBIT C
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED, David Lubin does hereby sell, assign and transfer
unto _______________, _____________ shares of the Common Stock, par value $.01
per share, of Zefer Corp., a Delaware corporation (the "Corporation"), standing
-----------
in the undersigned's name on the books of the Corporation represented by
Certificate Nos. _________ herewith and does hereby irrevocably constitute and
appoint each principal of GTCR Golder Rauner, L.L.C. (acting alone or with one
or more other such principals) as attorney to transfer the said stock on the
books of the Corporation with full power of substitution in the premises.
Dated:_________ __, _____ ______________________________
David Lubin
<PAGE>
EXHIBIT D
---------
SPOUSAL CONSENT
---------------
The undersigned spouse of the Holder hereby acknowledges that I have
read the foregoing Stock Restriction Agreement and Stockholders Agreement and
Registration Agreement referred to therein, each executed by the Holder and
dated as of the date hereof, and that I understand their contents. I am aware
that the foregoing Stock Restriction Agreement and Stockholders Agreement and
Registration Agreement provide for the repurchase of my spouse's securities
under certain circumstances and/or impose other restrictions on such securities
(including, without limitation, the transfer restriction thereof). I agree that
my spouse's interest in these securities is subject to these restrictions and
any interest that I may have in such securities shall be irrevocably bound by
these agreements and further, that my community property interest, if any, shall
be similarly bound by these agreements.
___________________ Date:_______________
1999
Spouses'
Name:______________
___________________ Date:________________
1999
Witness'
Name:______________
<PAGE>
EXHIBIT 10.42
PROMISSORY NOTE
---------------
May 21, 1999 $45,612.50
David Lubin ("Maker"), hereby promises to pay to the order of ZEFER
-----
Corp. (the "Company"), the principal amount of $45,612.50 together with interest
-------
thereon calculated from the date hereof in accordance with the provisions of
this Note.
This Note is the Holder Note referred to in the Stock Restriction
Agreement, dated as of the date hereof, between the Company and Maker (the
"Stock Restriction Agreement"). Section 1(a) of the Stock Restriction Agreement
---------------------------
contains provisions for the issuance of this Note upon the terms and conditions
specified herein. Capitalized terms used herein and not otherwise defined shall
have the meanings given to them in the Stock Restriction Agreement.
1. Interest. Interest shall accrue on the outstanding principal amount
---------
of this Note at a rate equal to the lesser of (i) 5% per annum or (ii) the
highest rate permitted by applicable law, compounded annually on each
anniversary of the date hereof.
2. Payment on Note.
----------------
(a) Term. Subject to Section 2(b) below, the entire principal amount
----
of this Note and all accrued interest thereon shall be due and payable on the
fifth anniversary of the date hereof.
(b) Mandatory Prepayments. Notwithstanding anything in Section 2(a)
---------------------
to the contrary, Maker shall make the following mandatory prepayments:
(i) Upon the purchase of Stock from time to time by the
Investors pursuant to Section 1B(b) of the Purchase Agreement dated March
23, 1999 by and among the Company and the Investors, as amended from time
to time (the "Purchase Agreement"), Maker shall make a payment of principal
------------------
in an amount equal to the product of (A) $50,000.00, multiplied by (B) the
---------- --
quotient of (x) the amount paid to the Company in connection with such
purchase of Stock by Investors, divided by (y) $100,000,000, plus all
------- --
accrued interest on such principal amount (or such lesser principal amount
then outstanding). For purposes hereof, "Stock" shall have the meaning set
-----
forth in the Purchase Agreement.
(ii) In the event Maker receives any net cash proceeds (A) in
connection with the payment of a dividend or other distribution by the
Company or (B) relating to any other transaction or series of transactions
in which Maker sells any of the Holder Stock, Maker shall prepay any
amounts owed pursuant to this Note by applying all of such proceeds first,
-----
to any accrued interest and second, to any principal then outstanding.
------
Upon a Sale of the Company, Maker shall pay the entire principal amount
then outstanding and any accrued interest to the Company. For purposes
hereof, a "Sale of the Company" and "Holder Stock" shall have the meanings
------------------- ------------
set forth in the Stock Restriction Agreement.
(c) Optional Prepayments. Maker may, at any time and from time to
--------------------
time without premium or penalty, prepay all of the outstanding principal amount
of the Note; provided
<PAGE>
that any prepayment will be accompanied by a payment of accrued interest on the
portion being prepaid.
(d) Right of Offset. Upon an Event of Default (as described in
---------------
Section 3 hereof) or the Company's repurchase of Holder Stock pursuant to
Section 3(e) of the Management Agreement, the Company shall be entitled to
offset any amounts owed to the Company by Maker, now existing or hereinafter
arising, pursuant to this Note against any amounts payable by the Company to the
Maker pursuant to and as set forth in the Management Agreement between the
Company and the Maker.
3. Events of Default.
------------------
(a) Definition. For purposes of this Note, an Event of Default shall
----------
be deemed to have occurred if:
(i) Maker fails to pay (A) within 30 days after the date when
due, the full amount of interest then accrued or (B) when due, the full
amount of any principal payment; or
(ii) Maker makes an assignment for the benefit of creditors or
admits in writing his inability to pay his debts generally as they become
due; or an order, judgment or decree is entered adjudicating Maker bankrupt
or insolvent; or any order for relief with respect to Maker is entered
under the Federal Bankruptcy Code; or Maker petitions or applies to any
tribunal for the appointment of a custodian, trustee, receiver or
liquidator of any substantial part of Maker's assets, or commences any
proceeding relating to Maker under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation
law of any jurisdiction; or any such petition or application is filed, or
any such proceeding is commenced, against Maker and either (A) Maker by any
act indicates its approval thereof, consent thereto or acquiescence therein
or (B) such petition, application or proceeding is not dismissed within 60
days.
(b) Consequences of Events of Default.
If an Event of Default of the type described in subparagraph 3(a)(ii)
has occurred the aggregate principal amount of the Note (together with all
accrued interest thereon and all other amounts payable in connection therewith)
shall become immediately due and payable without any action on the part of the
Company, and Maker shall immediately pay to the Company all amounts due and
payable with respect to the Note.
If an Event of Default of the type described in subparagraph 3(a)(i)
has occurred and continued for 5 days, the Company may declare all or any
portion of the outstanding principal amount of the Note (together with all
accrued interest thereon and all other amounts due in connection therewith) due
and payable and demand immediate payment of all or any portion of the
outstanding principal amount of the Note.
Maker, or his successors and assigns, hereby waives diligence,
presentment, protest and demand and notice of protest and demand, dishonor and
nonpayment of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended from time to time and that the Company may accept
security for this Note or release security for this Note, all without in any way
affecting the liability of Maker hereunder.
<PAGE>
In the event that Maker fails to pay any amounts due hereunder when
due, Maker shall pay to the Company, in addition to such amounts due, all costs
of collection, including reasonable attorneys fees.
4. Amendment and Waiver. Except as otherwise expressly provided herein,
---------------------
the provisions of the Note may be amended and Maker may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if Maker has obtained the written consent of the Company.
5. Cancellation. After all principal and accrued interest at any time
-------------
owed on this Note has been paid in full, this Note shall be surrendered to Maker
for cancellation and shall not be reissued.
6. Place of Payment. Payments of principal and interest are to be
-----------------
delivered to the Company at the following address:
ZEFER Corp.
711 Atlantic Avenue
Boston, MA 02110
Attention: Chief Financial Officer
or to such other address or to the attention of such other person as specified
by prior written notice to Maker.
7. Usury Laws. It is the intention of the Company and Maker to conform
-----------
strictly to all applicable usury laws now or hereafter in force, and any
interest payable under this Note shall be subject to reduction to the amount not
in excess of the maximum legal amount allowed under the applicable usury laws as
now or hereafter construed by the courts having jurisdiction over such matters.
If the maturity of this Note is accelerated by reason of an election by the
Company resulting from an Event of Default, voluntary prepayment by Maker or
otherwise, then earned interest may never include more than the maximum amount
permitted by law, computed from the date hereof until payment, and any interest
in excess of the maximum amount permitted by law shall be canceled automatically
and, if theretofore paid, shall at the option of the Company either be rebated
to Maker or credited on the principal amount of this Note, or if this Note has
been paid, then the excess shall be rebated to Maker. The aggregate of all
interest (whether designated as interest, service charges, points or otherwise)
contracted for, chargeable, or receivable under this Note shall under no
circumstances exceed the maximum legal rate upon the unpaid principal balance of
this Note remaining unpaid from time to time. If such interest does exceed the
maximum legal rate, it shall be deemed a mistake and such excess shall be
canceled automatically and, if theretofore paid, rebated to Maker or credited on
the principal amount of this Note, or if this Note has been repaid, then such
excess shall be rebated to Maker.
<PAGE>
8. Governing Law. This Note is made under and governed by the internal
--------------
law, not the laws of conflicts, of the State of Delaware.
* * * * *
<PAGE>
IN WITNESS WHEREOF, Maker has executed and delivered this Note as of
the date first above written.
/s/ David Lubin
-----------------------------------
David Lubin - Maker
<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
February 17, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Amendment No. 1 to the
Registration Statement of Zefer Corp on Form S-1 (File No. 333-94283) filed
with the SEC on February 17, 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
February 17, 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> 59,280,378
<OTHER-EXPENSES> 44,383
<LOSS-PROVISION> 280,237
<INTEREST-EXPENSE> 2,297,432
<INCOME-PRETAX> (36,256,492)
<INCOME-TAX> 5,760,400
<INCOME-CONTINUING> (30,496,092)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,496,092)
<EPS-BASIC> (1.14)
<EPS-DILUTED> (1.14)
</TABLE>
